The first 23 days of New York legal online sports betting have been historic, setting a new sports betting record for monthly handle in a US jurisdiction. While the state’s cut of that $1.6 billion in wagers looks appetizing now due to the huge numbers, there’s no telling how long the state can milk this cow before it starts to dry up.
Because it’s uncertain what the market will look like at maturity, leaders in the state should consider the jury still out on whether their national high revenue-sharing deal with online sportsbooks is sustainable. Several aspects of the situation point to that perhaps not being the case.
New York online sportsbooks crush sports betting record
In a mere three weeks and two days, NY’s online sportsbooks dominated. From Jan. 8-23, they took in more than $1.625 billion in handle. That surpasses the old standard of $1.3 billion set in October 2021 in neighboring New Jersey.
Caesars still leads the pack but its market share declined. In the first 16 days of action, Caesars accounted for about 41.4% of the $1.175 billion in handle. Now, Caesars’ $615.5 million is about 37.8% of the whole.
Part of the explanation for the erosion of some of Caesars’ market share was the introductions of BetMGM and PointsBet. Those sportsbooks went live in NY on Jan. 17 and Jan. 23, respectively. Their combined $107.6 million in handle represents about 6.6% of the total.
FanDuel actually fared the best over the final week in that 23-day sampling, though. Regardless of which operator ultimately proves to be New Yorkers’ favorite, the state might have been the biggest winner over the first 23 days of NY online sports betting.
A boost for the state coffers
In the current structure, the state gets 51% of revenue from its licensed online sports betting partners. Thus, the state collected $57.6 million in tax dollars in the first 23 days of the activity.
It’s important to put that number into perspective. The state’s budget for the current fiscal year is over $216 billion. That amount, while it might seem huge in comparison to what other jurisdictions have collected from their regulated sports betting markets, represents just about two-hundredths of a percent of what it takes to fund all the state’s operations for the year.
At the same time, that $57.6 million is the tax revenue from not even a full month of a year. When leaders in Albany figure out future budgets, they will be working with the numbers from a full year of online wagering in NY.
That’s where some danger exists in terms of banking on this funding too much. Avoiding doing so requires an understanding of not only how sports betting works in the short term but the possibilities for the future as well.
NY launched at the peak time
A big part of the reason for the record-setting handle was operators’ impressive promotions and the newness of it all. Another huge component was the timing, however. It was a perfect storm.
The NFL playoffs are some of the most-bet events every year. In fact, in some markets, if you take the handle from all of the games as a group, it can surpass the betting dollars on the Super Bowls in the same years. The Super Bowl ranks as the single largest single day of betting in the US.
By going live in time for the entire slate of those games, NY got the full benefit. Had the market sprang to life even at the start of an NFL regular season, the number of dollars wagered probably would not have been so high.
That also means the figures in NY, just like other places in the US, should drop off after the Super Bowl. The numbers after two or three full years of wagering activity, when the newness has worn off, should represent the true state of the market.
By that time, the dynamic of sports betting in NY could change. That, in turn, could affect whether the current deal between operators and the state is feasible.
Will a 51-49 split still be viable in the future?
As anyone who lives in New York can attest to, the barrage of sports betting advertisements has been heavy. Between that and the value of promotional deals, NY operators are spending heavily to establish themselves in the market.
That level of spending is probably unsustainable for the operators. Additionally, even if they were to continue to dedicate their resources at the current rate, it probably would eventually lose its effectiveness.
Eventually, these same sportsbooks will likely scale back their promotional spend. If that results in lower handle, then that means less revenue for everyone. That’s an entirely different situation for the sportsbooks as compared to the state.
For the state, the sports betting split is just another source of funding. For the sportsbooks, however, that’s the main source of income. Their hold from sports bets is not only how they pay the state but all their other expenses as well.
Can they keep the apps running, much less turn a profit, on just 49% of whatever that new normal will look like? If not, they might have to make further adjustments to their business models like increasing vig or cutting back on marketing even further.
Also, in that case, it might be worth a look at whether a 51%-49% split still makes sense. A smaller percentage of more revenue could actually turn out to be more funding for the state.
Right now, though, there is seemingly no limit to the bounty that the state is getting from its regulated sports betting market. The days when that cow might not produce at the same rate are coming, though.