The New York State Legislature completed a key procedural step in bringing mobile sports betting to the Empire State earlier this week when the State Senate and State Assembly each passed one-house budgets in time for a March 15 deadline.
The move sets the stage for an intense two-week negotiation period before the state’s 2022 Fiscal Year budget is due on April 1. Negotiations will take place against a tense political backdrop in Albany, where Senate Democrats led by Majority Leader Andrea Stewart-Cousins have called for Gov. Andrew Cuomo’s resignation. Cuomo, a three-term Democrat, is embroiled in dueling scandals related to multiple accusations of sexual harassment and allegations of undercounting the number of nursing-home fatalities during the COVID-19 pandemic.
Cuomo, who has been accused of sexual harassment by at least seven women in recent weeks, has denied the allegations. Although both chambers appear to be working assiduously on passing a budget on time, Stewart-Cousins admitted this week that she had yet to formally meet with Cuomo to discuss the budget, as of Tuesday.
As of Thursday afternoon, the majority leader had still not met with Cuomo, but their staffs have held discussions, according to an Albany political insider with knowledge of the discussions.
Over the past three decades, power players in Albany have delayed the budget in an effort to win key concessions. During a 10-year period through 2004, late budgets were the norm. On five occasions during the era, the budget came in late by at least 100 days. But doing so this spring could be a risky proposition, as top New York politicians attempt to resuscitate an economy ravaged by COVID-19.
As the debate intensifies in the midst of March Madness, the future of mobile sports betting in New York hangs in the balance.
In January, Cuomo sent shock waves throughout the U.S. sports betting ecosystem when he reversed his longstanding position on mobile sports wagering. Previously, Cuomo opposed legalizing the activity, describing the potential windfall as a “rounding error” in the state’s budget. But with the state facing an historic budget deficit in the midst of a once-a-century pandemic, Cuomo changed his tune at the start of the year.
As part of Cuomo’s plan, the state would authorize the New York State Gaming Commission to select a provider or multiple providers to operate mobile sports betting across the state through a competitive bidding process. The so-called lottery model compares favorably with schemes in smaller states such as New Hampshire, Rhode Island, and Oregon, which have commercial agreements with sportsbooks to run online sports wagering in their respective jurisdictions. In New Hampshire, for instance, the state lottery awarded an exclusive contract to DraftKings for sports betting under a revenue-sharing plan, where DraftKings pays the state 51% of its gross gaming revenue on online sports wagers.
Separately, the Senate’s budget bill includes a line item that provides for the regulation of mobile sports betting. A bill authored by Sen. Joseph Addabbo calls for a tax rate of 12% of gross gaming revenue from sports wagering and an initial license fee of $12 million to be paid by each mobile sports betting operator. Addabbo’s bill also enables three tribal casinos to offer “two skins,” or licenses to mobile sportsbook brands.
— Sports Handle (@sports_handle) March 16, 2021
While there appears room for bargaining on certain aspects of each bill, the two sides may play hardball at a critical juncture in negotiations. Addabbo’s bill allows for up to 14 mobile skins statewide; Cuomo’s plan appears to limit the state’s commercial partners to four, at most. When the governor signaled his intention to authorize mobile sports betting in the building in January, he did not mince words, telling New Yorkers in his annual State of the State address that he’s not in position to “make casinos a lot of money,” but to “raise funds for the state.”
In that respect, the negotiations may become a zero-sum game with no middle ground. On one hand, a scheme with more than a dozen private operators, under the legislative model, likely won’t bring the Cuomo administration the revenue it seeks to curb a historic budget unless the proposed tax rate and/or licensing fees are dramatically increased. On the other, downstate casinos will be unable to add hundreds of jobs if a single operator is granted exclusivity to online sports wagering in New York. Which side will budge?
Comparatively, neighboring New Jersey levies a 13% tax rate on mobile wagering, and charges a minimum licensing fee of $100,000. In 2020, New Jersey collected nearly $47 million in tax revenue from online sports wagering. New Jersey’s population of about 8.8 million mirrors that of New York City. New York State has more than 19 million residents, so it’s reasonable to consider — if the tax rate is similar — that New York would collect $94 million in tax revenue under Addabbo’s plan. (New York could collect more, as New Jersey did, in its first year through one-time application fees). Any estimate is based on a mature market, which those in the industry define as about five years. The first New Jersey sportsbooks went live on June 14, 2018, just one month after the Professional and Amateur Sports Protection Act was overturned.
The estimates still fall short of the $500 million in annual state revenues sought by the Cuomo administration by 2025, under the state-run model. New York could increase tax rates to a level comparable with Pennsylvania’s duty of 36% on online wagers, but then will risk losing customers to New Jersey and several other bordering states. When sportsbooks are required to pay higher in taxes, customers lose out by receiving less favorable odds. On Thursday, Connecticut reached an accord with the state’s two federally-recognized tribes that will allow sports betting legislation to advance.
Downstate licenses: A bargaining chip?
The Senate’s budget bill authorizes the state to issue three downstate casino licenses as a lever for stimulating the local economies while serving as a robust job-creation vehicle for an area hit hard by the pandemic. In order to fast-track the issuance of the three licenses, the state will need to lift a 10-year moratorium that prohibits casinos in Westchester, Rockland, and Putnam Counties, as well as Long Island, and New York City, until 2023. The moratorium gave four Upstate casinos — Tioga Downs in Tioga County, Resorts World Catskills in Sullivan County, Rivers Casino in Schenectady County, and del Lago in Seneca County — a head start as the state considered the most effective way to maximize the additional licensing opportunities.
— Howard Stutz (@howardstutz) March 16, 2021
At the moment, sports betting in New York is limited to the four casinos and tribal casino properties on a retail-only basis.
“Our intention was never to limit the type of gaming, it was to limit the sites so we didn’t oversaturate the state with casinos,” Addabbo told Sports Handle in November 2019.
At $500 million apiece, the downstate casino licensing fees could bring New York a windfall of $1.5 billion in the upcoming fiscal year.
PURSUANT TO ARTICLE ONE, SECTION NINE OF THE NEW YORK STATE CONSTITUTION, THE LEGISLATURE IS PERMITTED TO AUTHORIZE UP TO SEVEN COMMERCIAL CASINOS WITHIN THE STATE. AS OF THE YEAR TWO THOUSAND TWENTY-ONE, FOUR HAVE BEEN AUTHORIZED IN UPSTATE NEW YORK, LEAVING THE DOWN-STATE MARKET UNADDRESSED. NEIGHBORING STATES HAVE AUTHORIZED FORMS OF GAMING THAT ARE SIPHONING NEW YORK STATE DOLLARS AND TRAVEL INDUSTRY-DERIVED REVENUE TO OTHER OUT-OF-STATE MARKETS. SIMULTANEOUSLY, AS A RESULT OF THE COVID-19 EMERGENCY, STATE AND LOCAL REVENUES HAVE BEEN DEVASTATED. THIS IS PARTICULARLY ALARMING GIVEN THE POTENTIAL EFFECT ON THE STATE’S EDUCATION FUNDING.
–New York Senate Bill S2509B, Part MM, Section 15
A precedence for stalling on budget deals
Theoretically, the legislature could drag its feet on passing the budget to gain leverage in negotiations. While the state passed the budget on time in six of Cuomo’s first seven years in office, there is precedence for employing calculated stalling tactics. Facing re-election in 1994, the late Mario M. Cuomo, father of the current governor, had little incentive to appease Senate Republicans, especially considering that his opponent, George Pataki, served as a first-term senator from Westchester County. The budget was passed 69 days late, according to the New York Office of the State Comptroller. Then, in 1997, the state budget was not enacted until early summer, 126 days past the April deadline, as legislative leaders demurred amid concerns of mounting cuts to social-service programs.
Online sports wagering is projected to generate $49 million in revenue for the state in Fiscal Year 2022, followed by a step-up to $357 million the following year.
“I think that for sure, sports betting shouldn’t be a delaying factor for passing the budget,” said Lucy Dadayan, a senior research associate with the Urban-Brookings Tax Policy Center at the Urban Institute, where she leads the organization’s State Tax and Economic Review project.
With 20 million residents and a projected $15 billion shortfall due to COVID-19, New York Gov. Andrew Cuomo wants to legalize mobile sports betting in the state.
From financials to logistics, today's email breaks it all down.
Check it out & subscribe 👇https://t.co/mMAIq657kQ
— Joe Pompliano (@JoePompliano) January 7, 2021
When Cuomo unveiled a $192.9 billion spending plan in January, he pointed to online sports wagering and the legalization of adult-use cannabis as a way to close an estimated $15-billion gap. Online sports betting is also projected to bring the state more than three times in revenue than proceeds from the proposed Cannabis Regulation and Tax Act in Fiscal Year 2023.
“I’m not saying that it’s not going to bring in money, but is it going to be a ’rounding error?’ Or will it solve your education spending problems, or Medicaid spending costs, or anything else, and the answer is no – definitely no,” Dadayan added.
New York is also set to receive at least $10 billion under the recently signed $1.9-trillion federal stimulus package, $350 billion of which is designated for state and local governments.
Addabbo, for his part, emphasized this week that he looks forward to “productive negotiations,” with the governor’s office, as the state’s political brass attempts to provide New Yorkers with the “best possible mobile sports betting product.”
“The Senate has long supported legalizing mobile sports betting. Senator Addabbo has been a leading advocate for this and we passed his bill year and we hope to finally get it across the finish line this year with our partners in the Assembly and the Governor,” Senate Majority Communications Director Mike Murphy told Sports Handle.