New York bill seeks to halve online sports betting 51% tax rate, add up to 7 operators

A new legislative proposal filed by New York Assemblyman J. Gary Pretlow seeks to cut online sports betting tax by half and add at least 7 more mobile sportsbooks to the market, which currently has 9 licensed operators. Bill AB 8658 comes as analysts worry about the long-term sustainability of the sports gaming ecosystem, despite the Empire State having broken record after record since launch in January, with online bets on sports reported at $3.1 billion so far.

The legislation calls for the state’s Gaming Commission to have 14 operators approved by no later than January 31, 2023; and 16 operators by January 31, 2024. It also provides tax rates to be determined based on the number of operators, modifying the rate from the current 51%, one of the nation’s highest.

“In the event the commission fails to approve the required number of operators by these deadlines, it shall not interfere with the ability of previously licensed platforms or operators from continuing to operate in the state,” the text reads. “The commission may award additional licenses if it determines that such additional awards are in the best interests of the state.”

The proposal also lists a new tax rate matrix based on the number of licensed operators. Under the current scheme of 9 licensees, a 51% tax rate is imposed. But under 10-12 operators, it drops to 50% and, with 13-14 operators, it notably decreases to 35%. The tax rate reaches a low of 25% if 15 or more operators launch in the state, basically about half the current 51% rate.

Applicants that participated in the prior request for proposals before market launch and were not awarded a license are eligible to reapply, according to the bill. “The commission shall only accept such applications electronically and will give priority to the review and scoring of reapplying applicants,” the text reads.

Additionally, AB 8658 features a promo deduction provision that states a mobile sports wagering operator “may exclude sports wagers that were placed using promotional wagering credit” from its wagering gross revenue. This is in line with other states, such as Pennsylvania and Virginia, which allow licensees to deduct revenue tied to promotions before taxes.

Pretlow’s proposal also reserves two licenses for minority-owned sportsbooks: “If  there  is an entity comprised of no more than six individuals qualified  as  members  of  a minority  group (...) with a direct or indirect economic interest of at least 5% in the applicant, the commission shall advance for licensure at least two applicants having such qualified minority investment.”

The bill, which has now been referred to the Racing and Gaming Committee, comes as New York keeps breaking sports betting records in the US. According to the state’s regulator, through eight weeks, since launch on January 8 through the end of February, the Empire State has taken in over $3.1 billion in bets and $204.6 million in GGR.

FanDuel has positioned itself as the top sportsbook since launch, with over $1 billion in bets, followed closely by Caesars ($944 million in handle). DraftKings, BetMGM, PointsBet, BetRivers, and WynnBET follow, in that order, while Genting's Resorts World joined the market last week. Only Bally Bet is yet to launch.

New Yorkers wagered almost $2 billion in sports during the first 30 days of legalized mobile betting, setting a national record, with New York now being the state that has posted the highest handle for a 30 day period and, most notably, just in its first 30 days since launch. 

While these figures could be maintained -or topped- going forward, with March Madness just around the corner, the proposed tax rate decrease comes as operators and lawmakers worry about one big issue: long-term sustainability.

As taxes take half of operator revenue, and with many of them giving out unusually high promotions to quickly earn a top position within the market, the ecosystem has been described as likely unsustainable over the long run. The new tax rates would be more in line with New Jersey, the previous sports handle leader in the country, which has proved to be a profitable state in the long run.

According to an analyst’s report for The New York Post, dated February 23, online bookmakers’ profits show they’ve “very likely” lost money -around $200 million- in their first month since launching. This is mostly attributed to promotions costing about $100 to $150 per new customer, along with the 51% tax. Most operators have now scaled back these offers.