Since the start of the new year, New York has dominated gaming industry headlines as Gov. Andrew Cuomo’s pivot on mobile sports betting has unlocked the possibility that one of the nation’s largest markets could open within the next 12 months.
Then, late last week, the New York State Gaming Commission added another wrinkle to the Empire State narrative with a Friday afternoon news dump. Three days after Cuomo’s annual State of the Budget address, the commission released a long-awaited New York State Gaming Market Study authored by the Spectrum Gaming Group. Originally set to be released in December 2019, the publication of the in-depth study was moved back to last June, then delayed again due to circumstances associated with the COVID-19 pandemic.
As New York has dragged its feet on online sports wagering, proponents of the activity remained somewhat optimistic that the study would make the case for its inclusion in New York. But as Cuomo’s administration and the state legislature begin negotiations on a mobile betting scheme in the coming weeks, some industry experts question whether the report delved deep enough into the subject.
When Cuomo unveiled his fiscal year executive budget proposal on Jan. 19, he reiterated that mobile sports betting could eventually raise $500 million in annual revenue for New York. Cuomo appears to prefer a state-run structure for mobile sports wagering, involving a public-private partnership with the sportsbook industry. New York State Budget Director Robert Mujica provided additional color at a media briefing following the address when he noted that the projection is is a fully annualized, recurring estimate of the market at maturity. A five-year forecast released by the state budget division projects revenues from mobile sports betting of $465 million in Fiscal Year 2024, followed by a step up to $493 million over the next fiscal year.
Gov. Cuomo included mobile sports betting in his fiscal year budget proposal, but questions persist on the market structure in New York.
“We want the actual revenue from the sports betting."
— Sports Handle (@sports_handle) January 19, 2021
Based on a detailed analysis within the 345-page study, Spectrum estimates that a combined digital and retail sports betting market in New York would generate between $816 million and $1.14 billion in annual gross gaming revenue (GGR). As part of Cuomo’s proposal, the commission will issue a request for proposals (RFP) to select one or more providers to offer mobile sports wagering in New York. The operator(s) or platform(s), according to the proposal, must have a partnership with one of four existing commercial casinos across the state. Bet365, BetRivers, DraftKings, and FanDuel are all currently live for retail sports betting in New York.
Spectrum based its methodology on the annual per-adult GGR estimate of $50 to $70 across the country. The calculation is adjusted for household income and population in each state. According to the U.S. Census Bureau, median household income in New York is around $65,323, about $3,400 higher than the U.S. average. New York has a total population of 19.9 million, fourth-highest in the nation, with about 15.5 million adults of gambling age. As a result, the per-adult GGR estimates translate to a range of $53 to $74 for New York, Spectrum found.
The Spectrum study assumes a 10% tax rate on sports wagering GGR, resulting in annual tax revenue of $104 million under a bullish case. Under a more conservative forecast, Spectrum estimates that New York would bring in about $74 million each year from taxes on sports betting.
— Moody's US Public Finance (@MoodysUSPubFin) January 25, 2021
It is important to note that Spectrum did not include a forecast on the amount of revenue mobile sports betting could generate for New York under a state-run model. The model may compare favorably to one in New Hampshire, where the state lottery awarded an exclusive contract to DraftKings for mobile sports wagering. Under that system, DraftKings pays 51% of gross gaming revenue from its mobile channel to the state in exchange for exclusivity to the state’s online market. Alternatively, the gaming commission could contract with a combination of the four sportsbooks that already partner with commercial casinos in Upstate New York.
“State-run systems are less productive with handle per adult around 80% below the U.S. average,” Bank of America analyst Shaun Kelley wrote in a research note earlier this month.
Tribal sports betting implications
Spectrum also examined the impact of mobile sports betting among three tribal gaming operators in New York. Under one scenario, two tribal groups — the Saint Regis Mohawk and Seneca tribes — would be able to offer digital sports wagering, but only within their respective exclusivity zones. The scenario yields a GGR of $58 million to $81 million a year, representing about 8.6% of the state’s digital market share, Spectrum determined.
A second scenario assumes that the tribes could offer digital sports wagering across the state. Under that scenario, the tribes could attain a share of 12-14% of the state’s digital sports wagering market, an increase of up to 60% from the other forecast, according to Spectrum. In both scenarios, the tribes may be able to offer more attractive odds, bonuses, and other promotions, Spectrum notes, since the tribal groups are exempt from gaming taxes.
Spectrum Gaming, a non-partisan consulting group that focuses on the economics, regulation, and policy of legal gambling, won the lucrative contract — it approaches $1 million — to conduct the study in November 2019 after beating out two others.
Over the last several years, the group has been active in the sports betting regulatory space from a consulting perspective. Before the launch of sports betting in Rhode Island, Spectrum wrote an RFP for the Rhode Island Lottery on the qualifications needed to become the state’s sports betting service provider. Spectrum also authored a report of the prospects for sports betting in the District of Columbia months after the Supreme Court’s PASPA decision.
The report, released in December 2018, estimated that sports betting GGR through a product offered by the D.C. Lottery would reach $23 million over the first full 12 months of operations in 2019. During the first six months of operations, the D.C. Lottery’s GambetDC app reported GGR of $1.8 million on a handle of $10.6 million.
A planned launch for last March was delayed two months by the pandemic, while the spread of COVID-19 negatively impacted sports betting activity last spring. Since then, the handle nationwide surged upon the return of sports.
Although interest in the GambetDC app has grown, revenue in October rose by 64.8% from the previous month, the app still trails William Hill’s Sportsbook at Capital One Arena in monthly revenue by a considerable margin.