Thursday, December 1 2022

Discussions about tax rates on sports betting income in New York continue this summer.

In a recent story of Front Office Sportsit has been reported that New York sports betting operators are unhappy with the 51% tax rates in New York and the strict rules that prohibit the deduction of promotions. This is of course not necessarily new, because the old has been complained about for a long time. Governor Andrew Cuomo‘compromise’ that brought sports betting to the Empire State.

With Cuomo’s resignation, calls for change appear to have intensified. There hasn’t been much noise of the nine Governor Kathy Hochul‘s office that there will be changes to come. But there now appears to be an ongoing effort to portray New York’s tax rate as unfair to companies offering that rate as a condition of market entry.

New York sports betting tax rate a huge hit for the state

State coffers are fuller with New York sports betting dollars than even bullish estimates expected. To quote Charlie Sheeneven during the generally slow months, New York “wins” sports betting gameat least from a tax point of view.

Despite reviews of the processCuomo’s plan generated roughly $275 million in taxpayers’ money in less than six months. That’s more than any other state, regardless of when it launched sports betting.

For context, at the current rate (and with some round numbers), this is going to take Mississippi roughly 45 years old to earn that amount of tax revenue. At current rates, other states could be even further behind.

Taxes aren’t everything

Of course, if high tax rates were passed on to consumers in the form of uncompetitive lines to the point that unregulated options become more attractive than regulated options, that would be problematic for the market. As of now, there are no widespread reports that the New York lines would go out of whack with the lines offered nationwide.

We haven’t seen reports of uncompetitive lines like those reported when the DC Lottery originally launched its sports betting product. Companies operating in New York appear to continue to offer many promotions to consumers, a sign that many still see competition as important, even if some books are slowing their push.

You knew the rules

back in October 2021When the much-discussed New York Sports Betting Tax Matrix was released, it was reported that the highest bid made in New York was 64% on gross gaming revenue. Of course, we have since learned that the nine-carrier model has won, setting tax rates at 51%.

While FanDuel has produced research in August 2021 which showed the unsustainable tax rate, he nevertheless chose to participate in the market with his bid partners.

The decision to bid to enter the New York market was undoubtedly one that most, if not all, companies considered. In the end, some deemed the proposed model too expensive after learning the rules of the game, while some bid and were unsuccessful.

Others, like the nine companies that eventually obtained licenses, chose to participate in the market. There have effectively been no material changes in market conditions since these companies made an offer to enter the market, other than the explosion (and then contraction) of stock prices.

One way street?

By asking for a reduction in the tax rate, one would normally expect companies to offer something in return. It’s unclear exactly what companies have New York might want beyond the cash.

There was talk of opening up the market, and therefore lowering the tax rate, which could be a means of compromise. Suggestions have been made that increased competition could make up for lost revenue. But the back-of-the-envelope math on this proposition just doesn’t seem to check out.

New York companies are among the largest in the country. Collectively, these corporations almost certainly control more than 80% of the domestic market. It seems unlikely that adding more options will result in a sufficient increase in betting volume to match the amount of money currently brought in.

The opening of the sports betting market in New York is not a victory for the little guy

If sportsbooks in New York were to open tomorrow and every sportsbook operator who wanted to could enter the market, what would change at the top?

When the final entrant launches in New York, nine companies will have had a massive head start in the Empire State. Smaller companies will have to come in and try to compete with mostly bigger and better endowed competitors after making an initial decision, probably based on finances, not to participate.

Don’t like the rules? Do not play

The rules were clearly spelled out. The companies made an offer and agreed to play with them.

If a company doesn’t like the rules, it can either evolve in a way that allows it to make money or exit the market. This is what corporations do in a capitalist economy.

While some companies are now talking openly about how they don’t want players to win on their platforms, it’s hard to be sympathetic when the shoe is essentially on the other foot.

(Editor’s note: The opinions expressed by the author do not necessarily represent those of Legal Sports Report.)


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