When regulated New York online sportsbooks begin their first full season of NFL wagering in September, the state’s nascent market enters new territory under propitious circumstances.
Since launching Jan. 8, New York sportsbooks have already handled more than $9.7 billion in sports wagers statewide, a figure that cements the Empire State as the nation’s capital of sports betting. Online wagering has already generated more than $368 million for New York state tax coffers, while only four states across the nation have eclipsed the $100 million threshold since the U.S. Supreme Court’s repeal of PASPA in May 2018.
The explosion of sports betting leaves New York State Gaming Commission Executive Director Rob Williams optimistic that the state could generate $500 million in tax revenue from online sports wagering in the first year of the market. For context, when former Gov. Andrew Cuomo reversed course on sports betting in 2021, his administration projected that the state would not clear that figure until Fiscal Year 2026, at the earliest. The numbers are astounding when you consider that more than two other dozen states have generated around $1.31 billion in combined tax revenue from legal sports wagering since May 2018.
“We’re very pleased with the overall success of the mobile sports wagering industry in New York. We are very cognizant that we’ve reached those great numbers without going through a football season,” Williams told Sports Handle last week on the sidelines of the Racing and Gaming Conference at Saratoga.
The nation’s capital for sports betting
From the outset, there were clear indications that New York appeared poised to shatter national records, based on the sheer volume of activity in certain sports-crazed neighborhoods of Manhattan. New Yorkers placed more than 300,000 wagers over the first hour of legal sports betting in the Empire State, and a total of 17.2 million over the first weekend on Jan. 8-9, according to Vancouver-based geolocation provider GeoComply. For the Super Bowl, New York activity represented a whopping 25% of the company’s U.S. sports betting traffic, ranking first.
Consequently, there are strong indications that New York will surpass $2.3 billion in handle for the upcoming NFL season. Of the seven states that provide a breakdown for revenues by sport, wagering on the NFL last year represented about 18-20% of their overall handle, according to Sports Handle internal research. The figure jumped to 27.6% in Mississippi for retail sports wagers (the state only accepts online sports bets inside casino properties). In Nevada, football wagering represents about 37% of the state’s overall handle on a historical basis, according to the UNLV Center For Gaming Research. Last year, football represented 33.4% of the handle statewide.
New York launched online sports betting one day before the final Sunday of the 2021-22 NFL regular season.
Another record breaking day for New York online sports betting! GeoComply's weekend geolocation volumes for the entire state totalled 17.2M. Volumes from NYC’s 5 boroughs alone exceeded 8M – larger than any other standalone state total within the US.
— Lindsay Slader (@lindsayslader) January 10, 2022
When you toss in betting on college football, New York appears on track to clear $500 million in tax revenue. As a point of comparison, Colorado handled more than $158 million in college football wagers in 2021, on top of the $689.1 million state sportsbooks handled on the NFL. Although the Colorado figures contain wagers in several offseason months, the bulk of wagering occurred in the four months during the season. The population in New York outranks Colorado by a factor of 3.4x.
“There’s no doubt that as we go through this upcoming fall football season with both college and professional football that we will exceed the initial revenue numbers that we were aiming for,” Williams said. “It has been a wonderful success without what everyone concedes is the most important season to benefit sports wagering, so we’re very bullish on the market.”
At a hold of 8%, New York sportsbooks could generate more than $180 million in gross gaming revenue (GGR) from the NFL alone. Given the explosion of single-game parlays, it stands to reason that the hold this fall could be considerably higher. For those attempting to forecast the NFL hold in New York, trends on the hold from parlays in Illinois might be instructive:
For those curious souls wondering what hold percentage between parlays and non-parlays looks like in Illinois… just finished updating the good ole spreadsheets through November. pic.twitter.com/EZLRwQkcS7
— Alfonso Straffon 🇨🇷🇺🇸🇲🇽 (@astraffon) January 9, 2022
The aforementioned study from UNLV, which covers sports betting trends since 1984, found that parlays produce a win percentage for books of around 30%. Over the same period, the win rate for all other wagers is around 6%.
In neighboring New Jersey, the handle for NFL action last year hovered around $2 billion, one of the highest in the nation. In New York’s first six full months of online sports betting, the Empire State dwarfed its neighbor in both handle and GGR by a wide margin. The figures are in line with population data from the U.S. Census Bureau, as New York’s population of 19.8 million is more than twice that of New Jersey.
A write-off on promotional activity?
Formerly in charge of the state’s lottery division, Williams was appointed as executive director of the NYSGC by Cuomo in 2013. Williams covered a wide range of sports betting-related topics last week in an exclusive 10-minute interview with Sports Handle. Williams has made few public appearances since the NYSGC selected the state’s mobile sports wagering licensees last November. One topic that has generated a significant amount of chatter throughout the industry surrounds the tax treatment of promotional activity.
In an intense environment for the sports bettor’s dollar, top books use promotions as a way to differentiate themselves from their competitors. Specifically, the operators utilize promos in the form of boosted bets and free wagers as a crucial customer acquisition tool. While Pennsylvania imposes a tax rate of 36% on sports betting GGR, the Keystone State allows operators to write off promotional activity from taxable GGR. As a result, the effective tax rate in the state is closer to 15-20%, industry sources told Sports Handle.
The deduction is not available in New York. When the commission released a 130-page Request For Applications that governed the competitive bidding process for mobile sports wagering last July, the NYSGC stated explicitly that write-offs for promotional activity would not be under consideration, Williams noted. Consider the language articulated in the lengthy document.
“[(f)[ (g) Promotions. Promotional [gaming credits] spend shall not be [used in a sports wagering lounge] deducted from revenue or added to loss when calculating gross gaming revenue. No promotion related to sports wagering may be offered without the prior approval of the commission.
“We’ve been very adamant that that is not something we would be entertaining,” Williams said, adding that operators are making a strategic business decision when they choose to offer promotions. “That said, the legislature always has an ability to modify whatever we do, and it’s in the legislative prerogative to determine whether they think that’s an appropriate deduction from gross gaming revenue.”
A top industry lobbyist has urged New York to eliminate the restriction. Speaking on a Vixio Regulatory Intelligence webinar in June, FanDuel executive Andrew Winchell likened the arrangement to a pizza shop that periodically offers free pies as a way to entice customers. A new shop might even offer a pizza valued at $10 at a steep discount on “Five Dollar Tuesdays,” he explained.
“The state says each of those pizzas are worth $10, so we’re going to tax you at $10,” said Winchell, who serves as FanDuel’s director of government affairs. “That’s the nature of how it is and it increases the effective tax rate. If you don’t have an exclusion for promotional credits, you are in effect raising the effective tax rate on operators.”
New York is not the only state that prohibits the deduction. Beginning July 1, Virginia eliminated a provision that allowed operators to write off promos. In May alone, Virginia sportsbooks deducted approximately $9.96 million in bonuses and promotions.
The tax rate debate
One reason that New York is lapping the field when it comes to tax revenue revolves around the state’s 51% rate on sports wagering GGR, a rate that equals New Hampshire as the highest in the nation. On June’s webinar, Vixio listed nine potential headwinds for the sports betting industry moving forward, through a survey of 125 gaming professionals. The possibility that a New York-style tax rate could be replicated in other key states ranked first with 29% of respondents selecting it as the top concern.
While DraftKings CEO Jason Robins noted in February that there was some chatter around if the New York state legislature could lower the rate, he stopped short of urging the state to apply a downward adjustment. At the same time, New York Assemblyman J. Gary Pretlow has been adamant that the tax rate should only be modified if several other licensed sportsbooks are allowed to enter the marketplace. Under an intricate tax rate matrix that contemplated various scenarios for the final tax rate in New York, the state determined that a 51% rate would be appropriate for maximizing tax revenues, if nine operators joined the market. Although one scenario called for a 35% tax rate, it would only take effect if 13 operators received licensure in New York.
Last November, the NYSGC selected nine operators, including members of a so-called “super bid” comprised of industry heavyweights FanDuel, DraftKings, BetMGM, and Bally Bet. Williams explained last week that the state essentially has contracts with the nine entities on the acceptance of a particular tax rate and the number of entrants in the market. Moreover, it is challenging to introduce new competitors into the market without disturbing the contractual agreement the state has with those entities, he indicated. In the event that additional books enter the market, the state will have to generate enough revenue to offset declines from a lower tax rate, a proposition that Williams described as a “difficult lift.”
Any projections for the New York handle in fiscal year 2023 may need to be recalibrated if the Buffalo Bills make it to the Super Bowl. One ardent Bills fan, Gov. Kathy Hochul, could place a ceremonial wager on her beloved Bills if the preseason Super Bowl favorites earn a spot in the big game. Hochul, a Buffalo native, became the state’s first female governor last August.
Even though the Bills aren't playing in the big game, you can bring a little Buffalo to your Super Bowl party with some of our famous chicken wings.
What's your favorite recipe? pic.twitter.com/ynz00GCxEf
— Governor Kathy Hochul (@GovKathyHochul) February 13, 2022
Regardless, New York is on its way to shattering expectations. The other five New York operators — Caesars Sportsbook, Rush Street Interactive, PointsBet, WynnBET, and Resorts World — gained market access through a Kambi-led consortium. Last year, the consortium projected that a mature New York market with nine operators would generate $892.5 million in annual state tax revenue at a tax rate of 51%. A fiscal year in New York runs each year from April 1 to March 31.
Across the industry, it typically takes a new state sports betting market anywhere from three to five years to reach maturity. New York isn’t quite eight months in.
“Ultimately, our main goal is to raise revenue for the state of New York and we’ve been successful with the model we’ve created,” Williams said.
Chris Altruda contributed to this report.