New York Sets Record for Sports Betting Tax Revenue at $267 Million
On Tuesday, Governor Kathy Hochul announced that New York had set a record for legal wagering states with $267 million in tax dollars in just under five months of operation. New York launched online sports betting on January 8, 2022, and it has already become the largest market in the country in terms of overall betting volume and tax revenue.
New York’s Soaring Market
According to the New York State Gaming Commission (NYSGC), New York mobile sportsbooks have taken in over $7 billion in wagers and generated over $500 million in gross gaming revenue (GGR) since January 8. New York joined Illinois, Indiana, Nevada, New Jersey, and Pennsylvania as the only six states to surpass $7 billion in all-time sports betting handle.
For the first full 15 weeks of the calendar year, online sportsbooks in New York saw $300 million or more in betting handle each week. The weekly record was set at $572.6 million in late January over seven days.
Where is the Money Coming From?
New York has eight online sportsbooks, including Caesars, DraftKings, FanDuel, BetMGM, PointsBet, BetRivers, WynnBet, and Resorts World. Those sportsbooks have combined to generate $263 million in tax revenue since January 8.
An estimate from last November projected that the New York market could reach $493 million in annual tax revenue from sports betting by 2025, but it was already on pace for $650 million this year through the first three months of the year.
Along with the online revenue, sportsbooks at New York’s four commercial casinos have contributed another $4.3 million in tax revenue since July 2019. In addition to the tax revenue, New York has collected $200 million in licensing fees from its eight sports betting mobile operators.
Comparisons to Other Sports Betting States
Several other states have had online legal sports betting for much longer than New York, but they trail behind. New York has a 51% tax rate which is tied with New Hampshire for the highest rate in the country, while other states have much lower rates.
Pennsylvania has generated $253 million in tax revenue since November 2018 with a 36% tax rate on online sports betting. New Jersey has generated $229 million in tax revenue since June 2018 with a 13% tax rate. Nevada has generated just $93 million in all-time tax revenue from sports betting.
Where do the Taxes Go?
New York is facing a massive budget deficit of $2.9 billion. According to Action Network, the state was projected to have lost $1.25 billion by not legalizing sports betting as soon as other states. With that deficit in mind, the high tax rate has helped New York quickly outpace its competitors that were earlier in the market.
New York’s tax revenue will go to the state’s education fund primarily, where it will be divided between elementary and secondary schools. New York ranks just 16th in education per USNews. The rest of the tax revenue will be divided between youth sports grants, gambling prevention, and treatment programs for problem gaming.
Operators not Making Money in New York
As one can imagine, national sports betting operators have never been thrilled about the exorbitant tax rate in New York. BetMGM CFO Gary Deutsch announced on the company’s recent investor day that it would be reining in advertising spending in New York. Other sportsbooks are expected to follow suit.
DraftKings CEO Jason Robins previously predicted that his company would have to do the same. Robins has also expressed that sports betting has had a significant cannibalization effect on Daily Fantasy Sports in New York as platforms have switched from high-margin DFS offerings to negative-margin sports betting.
Sportsbooks have still struggled to make money in the state. Caesars Digital posted an EBITDA loss of $500 million in Q1 2022, with most of that loss coming from New York. Shaun Kelley, an analyst at Bank of America, said, “yeah, of course, they weren’t going to make money. It’s not rocket science on the numbers.”
Can this Market be Sustainable?
Analyst firm Regulus Partners called operators’ opening week bonus strategy “mutually assured destruction.” Caesars initially had a $3,000 bonus offer for new users in New York, and they later cut the promo offer in half around two weeks after launch as it was costing them an immense amount of money.
Some have been concerned about bettors facing the brunt of the tax burden in New York, but at the moment, it doesn’t appear that has been the case. The largest and most successful national sportsbooks will continue to dominate the market across the country. Those sportsbooks have more financial flexibility to still deliver great products to bettors while managing the lofty tax payments.
FanDuel, for one, has pledged to keep spending to press its advantage over the other U.S. sportsbooks, and if its competitors can’t keep up with its spending, it’s expected that FanDuel will continue to grow its market share. FanDuel was responsible for 40.7% of the taxes paid in April, and that number has grown further in May. Without any clear indication that the tax rate will be reduced in the near future, FanDuel’s advantage in the market should continue to grow.