New York online sports betting operators better get used to paying a 51% tax rate.
Asm. Gary Pretlow told PlayUSA that the New York online sports betting tax rate isn’t changing. Not now, not ever.
“That’s not going to change,” Pretlow said. “It’s not going to change ever, as far as I know. I can’t see it changing. It’s going to stay at 51%.”
Sen. Joe Addabbo essentially agreed with Pretlow, though with less long-term conviction.
Addabbo told PlayUSA:
“Ever is a strong word because nothing in politics is forever. But nobody has made a credible argument that lowering the tax rate is going to increase education funds. I don’t think a credible argument exists, but I’m all ears if someone wants to submit something.”
Operators haven’t convinced lawmakers on NY tax rate
DraftKings CEO Jason Robins and FanDuel President Christian Genetski asked lawmakers to lower the tax rate at a joint public hearing in February.
As gaming committee chairs, Pretlow and Addabbo hosted the hearing to review the first year of mobile sports betting in New York.
By almost all accounts, the first year of New York online sports betting was a resounding success. New York broke records in its first calendar year of online sports betting with a $16.2 billion handle, $1.36 billion in total revenue and $693 million in tax revenue. Including licensing fees, the total take for the state equaled $909 million.
But Robins and Genetski argued that the success wasn’t sustainable. They contended that New York online sports betting was on the wrong trajectory.
“The 51% tax rate precludes FanDuel from reaching sustainable profitability even with a dominant share,” Genetski said. “So FanDuel invests 50% less in New York than in other states.”
Robins and Genetski warned that, if the rate didn’t change, they could offer New Yorkers fewer promotions and worse odds than bettors in other states.
“If they all balked and said ‘We can’t do this, we’re not participating in sports betting in the state,’ that might give them some leverage,” Pretlow said. “But they agreed to this by their participation, they’re still doing it and they’re making money.”
The presentations didn’t have the intended result for operators. Addabbo introduced S 1962 to increase the number of online sports betting operators and lower the tax rate. And not even he supports that action at this point.
This means no more NY online sports betting operators
Addabbo’s bill would have allowed four more online sports betting operators to enter the New York market. In return, each operator would pay a 35% tax rate rather than 51%.
The 51% tax rate is much higher than any state in the country with multiple operators. The next highest is Pennsylvania at 36%.
Without the tax decrease, Pretlow and Addabbo don’t expect additional operators allowed in the New York market. New York has nine online sports betting operators.
NY sports betting tax break possible on promotional credits
DraftKings and FanDuel also asked lawmakers not to tax them on promotional credits.
Robins told lawmakers that they pay an effective tax rate of 70%.
“Right now, we’re getting taxed on revenue that we don’t actually generate,” Robins said. “It would be the equivalent of if you got a coupon for a free T-shirt, walk in the store, [were] handed a coupon, got your T-shirt, and the store had to pay sales tax on that.”
Robins explained that when DraftKings offers a $100 free bet if someone bets $100, if DraftKings loses the bet the company gains $100 while being taxed on $200. So DraftKings pays $102 on $100 of revenue.
Addabbo said he is more open to looking into a tax break on promotional credits after New York finishes the budget.
“I was in favor of promotional credits,” Addabbo said. “That can be part of the discussion. That’s a little relief for some of the operators who then may do more marketing. That’s a good conversation to have post-budget.”