As the NFL season nears its midway point, the New York Gaming Commission is about to complete a key procedural step in the state’s competitive mobile sports betting bidding process by early next week.
Bidders for a coveted mobile license in the Empire State will have until 5 p.m. on Monday to amend a so-called “pricing matrix” enclosed in the applications submitted by participating sportsbook operators in early August. The modified pricing matrix within the amended applications must conform with the commission’s “final tax rate matrix” for selecting bidders, according to a statement released by the commission Wednesday night.
Applicants that fail to amend their pricing matrix to reflect the final tax rate matrix will be disqualified, the commission advised in the statement. A spokesman for the commission did not respond to a request from Sports Handle for comment.
Determining a final tax rate
In July, the commission released a closely watched Request For Applications (RFA) that created a framework for companies interested in obtaining a license to operate a mobile sports wagering platform. Under New York state law passed in April, the commission is authorized to select a minimum of two mobile sports wagering platform providers and four mobile sports betting operators.
During intense budget negotiations this past spring, members of former Gov. Andrew Cuomo’s administration pushed hard for a tax floor of 50-55% assessed on a licensee’s gross gaming revenues from online sports wagering. Cuomo resigned from his position in August amid multiple sexual harassment allegations, weeks after the commission issued the 130-page RFA. Language in the RFA appears to indicate that the administration was successful in establishing a 50% tax floor.
Applicants shall complete and submit a pricing matrix, the form of which is set forth in Appendix B: Pricing Matrix. This matrix requires the Applicant to set forth the tax rate that an Applicant accepts under varying competitive scenarios of total Platform Providers and Operators. An Applicant must provide a tax rate that is fifty (50) percent or greater for its Preferred Scenario. However, if the Applicant’s Preferred Scenario alone is less than the statutory minimum of two Platform Providers and four Operators, the Applicant must
instead provide a tax rate that is fifty (50) percent or greater for such statutory minimum scenario. If an Applicant does not wish to participate in mobile sports wagering with particular levels of Platform Providers and Operators, the Applicant should enter a tax rate of 0 (zero). If a cell is left blank or unintelligible, such cell will be deemed to be a tax rate of 0 (zero).
–Section 6.8. Pricing Matrix and Accompanying Analysis
A minimum tax rate of 50% may be necessary for the state to reach Cuomo’s projected $500 million in annual tax revenue at market maturity. While Gov. Kathy Hochul has said little about mobile sports betting since taking office in August, she addressed the topic in the spring in a Facebook Live webcast with The Business Council of Westchester.
“All the states around us allow mobile sports betting. New Yorkers travel across the George Washington Bridge and place their bets in New Jersey, betting on our sports teams,” Hochul said at the time. “The time has come, we need the revenue of $500 million a year.”
Untangling the intricate web
By August, six applicants submitted bids, headlined by a consortium featuring industry heavyweights BetMGM, DraftKings, and FanDuel. A fourth company, Bally Bet, also joined the consortium. All four companies submitted bids to become a platform provider, with plans to also serve as operators in New York under their own brands. The bid represents an “all-in-one package” for the New York market that eliminates the need for the commission’s selection committee to award bids to “any other proposals,” the consortium wrote in the executive summary of its proposal.
The consortium estimates that, under its plan, the state would generate $600 million in gross gaming revenue in the first full year of mobile sports betting before increasing to $1.3 billion annually by the end of year three. Another projection from a consortium led by Kambi estimates that a New York market with nine operators will generate about $892.5 million in state tax revenue at a tax rate of 51%. The Kambi-led consortium contains bids from five prominent sports betting operators: Caesars Entertainment, Rush Street Interactive, PointsBet, Resorts World, and Wynn Interactive. Three of the five — Caesars, Wynn, and PointsBet — along with Kambi will serve as platform providers under the application.
The final tax rate matrix released this week by the state contemplates a number of scenarios, with seven different tax brackets. The brackets range from a low of 35% to a high of 64%, with other scenarios at 50%, 51%, 58%, 60%, and 62%, according to the matrix. Under a scenario with four platform providers and four operators, the commission established a final tax rate of 64%. In another scenario with a minimum of two platform providers but nine operators, the final tax rate dips to 51%.
At a 50% GGR tax rate, margins will be tight for leading sports betting operators, according to a study by Frontier Economics, a European consulting group. With more than four operators in the market and a tax rate above 50%, the New York economic model is unsustainable, Frontier found. (The FanDuel-led consortium included a 176-page New York market study by Frontier in its submission.)
Taking a page from a cryptic scene in the 1999 film The Matrix, will a leading sportsbook ingest a “red pill” by amending their pricing matrix with a proposed tax rate above 60%? A sportsbook may need to increase their bid to 64% in order to gain licensure, only to eventually learn a “potentially unsettling or life-changing” truth. Or, an applicant can opt for the “blue pill” by stubbornly proposing a lower rate and risk being shut out of the New York market entirely.
Other developments this week
- The commission’s mobile sports wagering evaluation committee has reviewed every mobile sports wagering application submitted and scored each applicant, pursuant to Section 7.2 of the RFA. The committee also established a total score for each applicant before designating a selected applicant and/or applicants, it said in Wednesday’s statement.
- Qualified applicants needed to receive a minimum of 60 points from a maximum cumulative score of 75 under a “technical factor” criteria established by the commission.
- For an applicant’s “preferred tax rate,” the committee established another criteria dubbed “pricing factors.” The committee awarded an additional bonus point for each full percentage point in an applicant’s preferred tax rate that exceeded 50%. An applicant that submitted a preferred tax rate of 51% received one bonus point, while an applicant with a 64% preferred tax rate received 14.
- According to Section 7.5 of the RFA, the committee will continue the mobile sports wagering licensing process “until there is no benefit to the State, by increasing additional platform licensees.” The committee will not recommend applicants for licensing until the process is completed, the commission said in the statement.
- Separately, the commission released a Request For Information (RFI) on Wednesday night seeking bids to open up to three downstate casinos in the New York City area. Bid proposals are due by Dec. 10. The commission intends to submit a report to the state legislature and the governor on the results of the RFI process within a period of six months.
Warnings against collusive bidding
The commission also reminded applicants of the non-collusive bidding requirements contained in the mobile sports wagering RFA. By discussing a bid amendment with a party outside of its application, a company may violate Section 1.12 of the RFA on non-collusive bidding requirements, New York Gaming Commission Secretary Kristen Buckley wrote in a letter to the applicants dated Oct. 18.
Attempts at collusion by multiple applicants could ostensibly result in a lower final tax rate. A violation of the requirements, moreover, may result in the disqualification of the applicants involved, the commission warned.
Outside of New York, there have been other instances of collusive-bidding allegations in prominent casino auctions across the gambling industry. In September 2014, a developer expressed concerns that the legal team of Atlantic City’s Revel Casino Hotel engaged in collusion with bidders for the boardwalk property. Glenn Straub, the Florida developer, planned to challenge the results of an auction if his company, Polo North Country Club, lost the auction. Earlier in the month, Revel reportedly agreed to sell the property to Polo North for $90 million. Although Brookfield Asset Management initially won the Revel auction for $110 million, the firm subsequently reneged on the purchase. By April 2015, Revel was sold to Polo North for $82 million. Revel reopened as Ocean Resort Casino under new ownership in June 2018.
New York’s commission, under the RFA, tentatively set a deadline of 11:59 p.m. on Dec. 5 for the selection of applicants considered for licensure. However, the commission also has the unilateral right to adjust the deadline.
Last month, the commission elected to proceed with application evaluation without hearing oral presentations from applicants. At the time, New York Sen. Joseph Addabbo Jr. remained confident that New York could still meet its target of going live with mobile sports betting by the Super Bowl. Addabbo, chair of the Senate’s Racing, Gaming and Wagering Committee, is still frustrated that New Yorkers are entering other jurisdictions in droves to bet on sports.
A provincial lottery in Ontario launched single-event sports betting in August, providing an option for fans of the NFL’s Buffalo Bills to bet on their team to win the Super Bowl. The Bills emerged as the top choice in Super Bowl futures after improving to 4-1 in Week 5. Earlier this week, Connecticut went fully live with mobile sports wagering, giving bettors from Long Island a closer option for betting on sports than one available by driving into New Jersey.
“New York is playing catchup,” Addabbo told Sports Handle in September. “The bottom line is that we have to get going before this market runs away from us.”
J. Gary Pretlow, Addabbo’s counterpart in the State Assembly, called on the commission Thursday to adopt an open-market model. A legislative plan authored by Addabbo would have allowed for the issuance of 15 mobile sports betting “skins,” or licenses, across the market, at a 12% tax rate. The bill was not adopted.
While the former Governor had a very limited vision for how a sports betting market could operate in New York, we now have the opportunity to get this right. We should license all applicants and allow them to compete for the business of New Yorkers.
— J Gary Pretlow (@JGPretlow) October 21, 2021
Once the amended applications are submitted, the commission plans to award the mobile sports betting licenses at its next scheduled meeting, authors of the RFA wrote. The commission has not formally scheduled a meeting since its last one in August.