NYC Challenging Territory for Sportsbook Profits
The hefty 51% tax on sports betting in New York makes it hard for sportsbook operators to make a profit in the state, leading to a decrease in promotions compared to neighboring states. According to Deutsche Bank analyst Carlo Santarelli, in New York, out of every dollar earned, only 22 cents are allocated to promotional expenditures. If taxes are considered, the gaming companies are left with just 27 cents for paying employees, marketing, and improving technology, and paying federal taxes.
Even though other states like Delaware, New Hampshire, and Rhode Island also have 51% tax rates on sports wagering, many operators have no choice but to do business in New York to gain important brand and revenue exposure.
Despite high taxes, Santarelli believes the reduced promotions in New York could benefit operators by encouraging them to be more selective with their promotions and offerings, perhaps even being more conservative. In 2022, New York operators spent just 1.8% of their handle on promotions - significantly less than the 3.5% and 4.8% in states like Pennsylvania and Michigan.
Leading sports betting operators such as DraftKings and FanDuel, who have a monopoly-like relationship in the US, spent 77% of their 2023 handle and 63% of promotional spending in New York. Penn Entertainment’s ESPN Bet and BetMGM were responsible for 23% of the promotional expenditures in the state.
Despite the high taxes, New York is not having a significant impact on hold rates, with 8.7% last year compared to an average of 8.4% in all states. The concern for operators is that other states might look to New York's example and adopt similar or even higher tax rates. This is exemplified by a proposal in Illinois to raise the sports betting tax to 35%, as well as a suggestion in Massachusetts to raise it to 51%.
New York's restrictive tax laws are likely to be adopted in other states, and Massachusetts' recent attempt to increase taxes was unsuccessful due to opposition over other recent tax increases targeting wealthy residents bringing in $1.8 billion in revenue - double the state's projections.
In short, the high tax rate on sports betting in New York has led to decreased promotions from operators but has not yet had a major impact on hold rates. The risk is that other states could follow New York's lead and implement similar tax rates, potentially affecting the growth and competitiveness of the sports betting industry.
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Source: www.casino.org
