Forgive New York State Sen. Joseph Addabbo Jr. if he is feeling a little sleep deprived.
On Monday night, Addabbo drove hours from his home district in Queens to the State Capitol in Albany, where he took part in marathon sports betting negotiations. The talks lasted into the wee hours of Tuesday morning, several hours before the state reached a historic deal that is expected to legalize mobile sports betting in New York. The high-stakes discussions in the Empire State have been closely monitored by analysts nationwide, given the scope of the market.
Hours after the Senate approved the $211 billion fiscal year budget Wednesday morning, one that includes a framework for a state-run mobile sports betting scheme, Addabbo had little time to rest. After all, inquiring minds in the gaming industry needed clarification on an intricate competitive bidding process that could determine the direction of New York sports betting over the next decade.
Addabbo, chair of the Senate Racing, Gaming and Wagering Committee, participated in a call with investors Wednesday morning, held at the same time as Gov. Andrew Cuomo’s press conference on the budget agreement. Cuomo, a three-term governor, views mobile sports betting as a revenue generator for a state he believes can eventually become the most robust market in the nation.
With mobile sports betting possibly on track to debut before next year’s Super Bowl, the most burning questions on Wednesday centered around which operators will gain access to the New York market.
Clarification on ‘platform providers’
Rather than opting for an open market, Cuomo favors a more limited one where the state will contract with two commercial partners. Under the bill, the New York State Gaming Commission will issue a Request for Applications (RFA) for a sports betting platform provider no later than July 1. From that date, providers are required to submit their applications within a period of 30 days. From there, the commission will select a minimum of two platform providers no later than 150 days after the final application is submitted. The timeframe sets the stage for the commission to name the providers by early January.
As the New York legislature released an Article VII Revenue bill Tuesday evening that detailed the plan, sports betting companies, financial analysts, gaming attorneys, and industry consultants combed over the fine print. The term “sports betting platform” entered the lexicon of numerous stakeholders Tuesday night, which left the industry scrambling for clarification.
(k) “Mobile sports wagering platform” or “platform” means the combination of hardware, software, and data networks used to manage, administer, or control sports wagering and any associated wagers accessible by any electronic means including mobile applications and internet websites accessed via a mobile device or computer;
Among the criteria the commission will use for selecting platform providers are their experience in other states; the advertising mechanisms they bring to the table; their speed to market; and the ability to handle a high volume of bets. Addabbo emphasized that the objective of the bidding process is to determine the “best providers who have the ability to do business in New York.”
The two selected platform providers will pay the state a one-time fee of $25 million for a 10-year license. The renewal process will be set by the commission. The state is also seeking revenue-sharing payments of between 50-55% of the provider’s gross gaming revenue (GGR) each year. In addition, the provider will make a payment of $5 million to the commercial casino that will house its server used for mobile sports betting.
The strict qualifications, plus the high taxes and fees, appear to favor “well-capitalized” companies with “large customer databases” and a strong presence in New Jersey, Oppenheimer analyst Jed Kelly wrote in a research note.
During a Monday press conference, Cuomo mentioned DraftKings and FanDuel by name as the type of companies that could contract directly with the state. Kelly believes the DFS-turned-sportsbook companies are “well positioned to be key operators” when the state goes live.
The platform providers must also combine to offer “no less than four” mobile sports betting operators, or licenses statewide, according to the bill.
“It’s the dumbest thing I’ve ever seen,” casino owner Jeff Gural said of New York's mobile sports betting plan. “I consider this a gift to New Jersey and to me at the Meadowlands, and my only regret is that Andrew won’t be around to see this totally fail.”https://t.co/HEu0K2X2bM
— Jimmy Vielkind (@JimmyVielkind) April 7, 2021
The leaders in the clubhouse
There is a strong chance that the platform model will lead to the formation of consortiums that already have multiple brands under one umbrella to utilize as skins, according to consultant Brendan Bussmann, a partner at Global Market Advisors (GMA), a leading gaming industry consultancy firm. As a result, companies such as Flutter (FanDuel and FOX Bet) and Caesars-William Hill may have an edge in the bidding process, Bussmann notes.
Flutter also may have a leg up on the competition, according to Jared Smith, a prominent sports investment analyst. (Disclosure: Smith is the host of “The Morning After,” a sports betting program sponsored by FanDuel that airs on MSG Networks.) In July 2019, FanDuel made its New York debut with the opening of a retail sportsbook inside Tioga Downs Casino Resort in Tioga County. If Flutter is selected as a platform provider, Tioga Downs appears to be a natural fit to house a server.
“We are pleased to see this important step toward bringing legal, regulated mobile sports betting to New York achieved and are grateful for the leadership of the Governor and legislature,” FanDuel Vice President Chris Jones said in a statement. “We look forward to the next steps of the process and hope we are ultimately able to bring our FanDuel Sportsbook product to customers in our home state.”
There is still some ambiguity on whether a B2B sportsbook tech provider such as Kambi, Scientific Games, or IGT could qualify as a platform provider under the language. The meaning of a platform is “somewhat open-ended” and could include a vertically integrated sportsbook company like DraftKings or a tech provider such as Kambi, Credit Suisse analyst Benjamin Chaiken wrote in a note. DraftKings is preparing to migrate an in-house technology platform constructed by SBTech by the end of the third quarter.
“We want to thank the legislature and Governor Cuomo for the progress made in bringing legal, regulated, mobile sports betting to New York,” DraftKings VP of Government Affairs Griffin Finan said in a statement. “We look forward to learning more as the process continues to unfold.”
— CNBC (@CNBC) April 7, 2021
Addabbo indicated Wednesday that vertically integrated sportsbooks could be well positioned during the bidding process. Although BetMGM has not partnered with a retail casino in New York, the sportsbook is eligible to bid for the platform provider contract, he added.
The tight deadlines as part of the RFA process put tremendous “pressure and power” in the hands of the state gaming commission, Bussmann said in a Truist Securities analyst note.