New York continues to make online sports betting process difficult

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Despite the example of what some see as the gold standard for a sports betting business model next door, the New York sports betting market has taken a direction that has been politically controversial and, even as the road touches at its end, raises questions about sustainability.

That gold standard would be New Jersey sports betting, where online sports betting operators are tethered to one of the Atlantic City casinos or state racetracks. The tax rates are straightforward: 8.5% for retail sports betting and 13% for much higher volume online sports betting businesses. The results: a record high of over $ 1 billion in September with about 20% (or more) of that stock being what’s known as New York Bridge and Tunnel Money.

After many feuds that included the brutal influence of former New York Governor Andrew Cuomo, New York is moving towards the adoption of online sports betting. By the way, there are already modest retail sports betting operations at a handful of upstate casinos. But as anyone who has watched sports betting for five minutes understands, the real money is in internet betting.

Where New York has landed is on a system where it will award licenses online – after a competitive bidding process – to one or more groupings of suppliers and platform operators, who are either allies, are unique. According to a tax rate matrix, depending on the number of licensed operators, the tax rate will be 64% or 35%.

Considering the bidders who have come forward and considering their platform provider configurations with the operators, a reasonable estimate is that the tax rate will fall on the matrix in a range of 50% to 58%.

I know this all sounds complicated – but that’s only because it is.

After a public release of the Tax Rate Matrix, J. Gary Pretlow, member of the 89th District assembly for Mount Vernon and Yonkers, as well as chairman of the racing and betting committee, tweeted: “While the former governor had a very limited vision for how a sports betting market could work in New York, we now have the ability to get it right. We should allow all applicants and allow them to compete for New York business. Yorker. “

Such a solution would simplify the New York situation at best, given the enormous mess that has been created in recent years.

Why enter New York under such conditions?

Of course, one might wonder why gaming companies would even want to license in New York City if they have to pay 50% or more in taxes on top of the $ 25 million per person license fee. The answer is that gambling companies have been known to overestimate the profitability of a market in some cases. New York, due to its population and perceived gambling appetite, is seen as a plum for operators and they just can’t help themselves regardless of tax rates and license fees.

Namely, BetMGM CEO Adam Greenblatt, speaking at a sports business forum, saying that an open market approach would be best, but… “We just have to work within the framework that is in this. that is possible. So we’re going to do our best with it, and definitely participating in New York is essential. “

BetMGM is in an alliance that includes heavyweights Bally Bet and DraftKings with FanDuel the lead contender.

However, as New York flirts with a sports betting tax rate that could be 50% or more and operators scramble, a bit of history is in order.

New Orleans Casino Lesson

More than 20 years ago, a casino was planned in New Orleans. The operator would get exclusivity in the Big Easy. As it turned out, a casino opened in New Orleans with the operator agreeing to incredibly tough terms including that the casino would not operate fancy hotels or restaurants and would guarantee payouts. tax of $ 100 million per year, which some estimated ultimately amounted to a 40% tax on earnings.

This is how important exclusive market access was to the operator, that he agreed to such an agreement in the first place. In no time, the casino – a Harrah’s – collapsed and threatened to shut down and lay off thousands of people.

Naturally, the casino has claimed relief from these original conditions.

Eventually the tax break came and the restrictions on amenities were lifted. Today, the New Orleans casino has an obligation of the greater of 21.5% of gross revenue, or annual fee of $ 60 million. The casino is set to change its name to Caesars and is undergoing a $ 325 million renovation that includes a second hotel tower. The introduction of an upscale Nobu restaurant was recently announced which will join a culinary lineup that already includes steakhouses and other restaurants.

Could NY become more reasonable?

Okay, back to New York.

As BetMGM’s Greenblatt put it, “let’s work within the framework which is within what is possible.” Can a 50% sports betting tax rate work for operators? Or can even a 35% tax rate work while realizing that there would be less exclusivity in the New York sports betting market?

Pennsylvania’s total tax rate on sports gambling income is 36%, but current conditions also allow operators to deduct promotional expenses from gross income, resulting in lower taxable income. It looks like New York operators won’t get the same generous tax break. In its call for nominations, New York states that “promotional expenses should not be deducted from revenue or added to losses when calculating gross gaming revenue.”

It is therefore a reasonable presumption that the ability or willingness of operators to offer juicy promotions will be inhibited in New York, and it means that customers will ultimately be the losers due to the high tax rate and other conditions. of sports betting operating in the state. .

Still, there is no doubt that operators will rush to get a license in New York.

And there is no doubt that operators will end up feeling the pinch of the terms they accept to enter New York.

The only question is how long it will take operators to seek help from lawmakers, regulators or anyone else.

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