It’s been just over a month since legal online sports betting in New York started, and what a few weeks it’s been. The numbers have been crunched and, following an initial flurry of activity, we now know licensed NY sportsbooks have taken $2.4 billion in wagers since January 8. That’s impressive. In fact, it’s more than New Jersey and Nevada. For further context, the total amount wagered on sport in the US last year was $57 billion.
So, based on this alone, New York has added over 2% to America’s sports betting economy in little more than a month. Of the $2.4 billion wagered between January 8 and February 13, $472 million was staked in the week leading up to the Super Bowl. This was always the plan. The New York State Gaming Commission wanted to have an active network of retail and online sportsbooks by the start of 2022 to capitalize on the Super Bowl. The regulator achieved that goal and, as expected, it paid dividends, not only for sports bettors and operators but for the state.
A Taxing Issue for New York Sportsbooks
Legal New York sportsbooks are required to pay 51% on gross revenue. That means the latest haul netted the state almost $80 million. Overall, the first round of results is positive for all concerned. The burning question, however, is whether New York can sustain this pace? It’s certainly possible. The state is home to almost 20 million residents. That’s over 11 million more people than New Jersey, which until recently, was the standout state for sports betting in America.
New York is also home to the leading brands in gambling. From DraftKings and FanDuel to BetMGM, Caesars, and PointsBet, there’s no shortage of quality options for local bettors. However, we can’t discount the novelty factor of online sports betting. New Yorkers have never been able to legally make bets via their computer or mobile within the state. This fact alone will have caused a surge of initial interest. We know this is the case thanks to reports from CEOs linked to the local sportsbooks.
Caesars CEO Tom Reeg spoke during an earnings call on February 22. He said that the “volumes” seen in New York were “two times” higher than the company was expecting. Reeg also said that Caesars Sportsbook New York is almost as “large as the rest of the businesses in Caesars Digital.” This level of interest is likely to wane in the coming months as the novelty factor wears off. Therefore, it’s a case of how much it’s going to wane. This opens up the issue of cost and whether the price of attracting new customers is too high.
DraftKings’ latest financial report shows that it lost $50 million in New York, despite taking millions in bets. The early loss is due to advertising and acquisition costs. Any startup has to endure higher than average costs when it first launches. Therefore, we can expect the losses to lessen as DraftKings Sports establishes itself in the Empire State. However, will they drop enough to counteract the 51% tax rate operators have to cover? This is the unknown but, in context, this levy is almost absurdly high
The average tax rate in other states that offers legal sports betting is less than 20%. Neighboring New Jersey, for example, charges licensees 14.25%. Certain states, including Rhode Island and New Hampshire, charge 51% tax, so New York isn’t a complete outlier. However, betting activity in these states appears to be suffering because of the increased costs heaped upon operators. For example, New Hampshire’s total handle in 2021 was $910 million, and revenue was $64 million. In Iowa, where the tax rate is 6.75%, the total handle was $2.8 billion, and revenue was $174 million.
It’s true that Iowa has twice the population of New Hampshire. However, the revenue of the state’s sports betting handle is three times that of New Hampshire’s. Therefore, we can make the argument that higher taxes mean operators have to scale back what they offer which leads to less impressive products. There is, of course, a certain amount of extrapolation here, but the numbers clearly tell a story. This might not be a story New York bookmakers want to read.
Are Outsiders the Lucky Ones?
One CEO, who asked to remain anonymous, told the New York Post that he was glad he didn’t get a sports betting license. In his words, he “got lucky” by not winning a license because the cost of doing business in the Empire State is too high. Even with a large population and a strong economy, he believes it will prove to be a poison chalice for those invested in the local market. Of course, he could be wrong. Indeed, the current numbers suggest he will be.
New York’s total betting handle in its first month was almost as much as Iowa’s sportsbooks took in a year. That’s got to count for something. There will certainly be winners and losers. Looking back to the early days of online poker and casino gaming in New Jersey, various operators tried and failed to break through. One of the most notable was Betfair. Sports betting is a different proposition to poker and casino gaming, but the premise still holds. Some sportsbooks currently serving locals could fall by the wayside as others rise and take control.
FanDuel and DraftKings have the early advantage because of being established names in New York thanks to their Daily Fantasy Sports platforms. However, we know that BetMGM, under the banner of Roar Digital, has grand plans. Caesars is also working with an industry icon, William Hill, to become a household sports betting brand. Resorts World also has the benefit of owning a retail casino in the Catskills. There are multiple permeations for winners and losers. The good news for consumers is that there won’t be a dull moment.
Exciting times for New York Sports Bettors
The coming months will be filled with offers and promotions as sportsbooks look to achieve a dominant position. Welcome bonuses and free bet promos may have to be scaled back at some point. For now, the race is on and that means customers will be the biggest winners. This, combined with the fact sports betting is legal and accessible, is a positive. Whatever the fate of New York’s licensed bookmakers, the market is open for business and, so far, things are moving in the right direction.