Leading executives from FanDuel and DraftKings testified before New York lawmakers on Tuesday that if the state’s 51% tax on gambling revenues is kept in place, their companies will have to drastically alter how they conduct business in the biggest US sports betting market.
A hearing on the effects of online sports betting in New York during its first year was called by state senator Joseph Addabbo, a Democrat from Queens, and assemblyman Gary Pretlow, a Democrat from Mount Vernon.
Jason Robins, co-founder, CEO, and chairman of DraftKings, and Christian Genetski, president of FanDuel, both gave testimony. The gambling committees are presided over by Addabbo and Pretlow in each of the legislative bodies.
Government officials in New York have gushed about how successful the state has been with online sports betting in its first year. The 3.8 million distinct accounts registered to the nine legal operators in the state saw more than $16 billion wagered via them, and those operators made almost $1.4 billion in profit.
Of that, the state received more than $709 million, almost all of which was used to support education. Sports betting revenue is far beyond what state budget authorities had anticipated it to be. The two titans of the industry argue that there is a price for that, though.
Although New York generates the most handles and revenues of any sports betting jurisdiction, Genetski claimed that the tax system, which prevents operators from deducting bonuses as they may in other states, has already generated a negative trend in the business.
“Operators jumped out of the gate with substantial consumer bonusing in New York,” he continued. “Operators modified their ways right once they realized how bonuses were taxed and it became clear that there would be no tax relief in 2022.”
The Odds Could Worsen Without Changing for Gamblers
Even though New York is FanDuel’s largest market, the firm has chosen to reduce its per-person advertising spending in the Empire States. According to Genetski, states like Maryland and New Jersey invest three times as much per person as New York does to entice new clients.
Operators might be obliged to make other adjustments if the tax rate doesn’t change, in addition to reducing their marketing and promotional spending.
I believe we would be forced to implement the measures, or a subset of the measures, that we outlined by lowering customer expectations, eliminating or drastically reducing promotions, severing ties with teams and regional marketing partners, and so on, said Robins. However, at least we would be able to have a sustainable market. “We would make nowhere near the complete amount of money and profit that I think we could achieve in a more favorable scenario.”
In exchange for more licenses becoming available, Addabbo and Pretlow have proposed lowering the tax rate to 35%. However, if the sportsbooks continued to generate revenue at that rate, the state would need to generate an additional $600 million in revenue to maintain its present level of tax revenue.
At least one lawmaker responded to that with some doubt. Assemblywoman Carrie Woerner, a Democrat from Round Lake, said that lowering the tax rate wouldn’t solve anything if people didn’t change their behavior.
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‘Counterintuitive’ Proposal
In New York, there will probably be some opposition to any tax reduction plan for sports betting. To help the state raise more money as it anticipated budget deficits in the billions of millions, online sports betting was authorized in 2021.
The state still anticipates multi-billion dollar budget deficits shortly, even though the federal government temporarily bolstered spending during the COVID-19 pandemic.
Genetski acknowledged that advocating a tax cut seems “counterintuitive.” FanDuel still thinks that if New York adopted the 35% rate, the company would be able to spend up to $250 million on advertising and promotions there.
FanDuel would gain 300,000 new clients as a result, bringing in $350 million in gross revenue over three years.
“We want the same result the state wants,” he continued. “We want the state to collect more taxes because that shows that our company is expanding, and we do think that by lowering the rate to attract more investment, we succeed in doing so.”
The negotiations between lawmakers and the then-Gov. Andrew Cuomo in 2021 resulted in the 51% tax. Before the state’s need for additional sources of money, Cuomo has opposed proposals to allow internet gambling. He claimed that any strategy would necessitate bookmakers paying at least a 50% tax.
In New York, Restaurants Want Kiosks
The online bookmakers aren’t the only ones who would like a say if Albany considered expanding sports betting this year.
The New York State Restaurant Association (NYSRA) wants kiosks at bars and restaurants to be an option in any measure that expands gaming.
According to Melissa Fleischut, president and CEO of the industry trade group, “the restaurant industry is well positioned to take advantage of this developing marketplace and grow New York’s sports betting footprint.”
“We recognize that sports betting kiosks and terminals may not be appropriate for every restaurant, and increasing the number of available licenses may not be the industry’s magic wand.
The increased money from on-site sports betting, though, could be the difference between closing and surviving for businesses for whom this is a fit.
In states like Ohio and the District of Columbia, kiosks are now in use. The NYSRA reported that since the start of the current NFL season in September of last year, a DC sports bar has produced approximately $1.5 million in gross gaming income.
Elys Game Technology Corp., a manufacturer of gaming kiosks, is assisting the bars and restaurants in their effort to participate in the action.
New York is “an excellent terrain,” according to Elys Executive Chairman Michele Ciavarella, for more retail sports betting establishments.
According to Ciavarella, “expanding sports betting to the neighborhood sector, as proved in Europe for more than 30 years, could play a significant role in recovery in the hard-hit leisure and hospitality sector, a crucial part of New York City’s economy.
We think that encouraging a retail market is a matter of convenience because it would give sports bettors the chance to support a nearby restaurant or sports bar while watching a sporting event, as is done in Washington, D.C., Maryland, and Ohio as well as some Canadian provinces, while also generating tax revenue for infrastructure and community services.
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