New York Tough Place for Sportsbook Operators to Turn Profits

Estimated read time 3 min read

With the state’s 51% tax on sports wagering, it’s hard for sportsbook operators to generate profits in New York and that’s one reason gaming companies are increasingly tight-fisted with promotions in the state.

New York Gov. Kathy Hochul speaks to reporters on June 7, 2023. The state is tough on sportsbook profitability, but operators are keeping a lid on promotional spending. (Image: AP)

In a recent report to clients, Deutsche Bank analyst Carlo Santarelli noted sportsbook operators in New York are allocating 22 cents for every $1 made to promotional expenditures meaning that when taxes are factored in, the gaming companies have just 27 cents left over with which to compensate employees, spend on marketing and technology, and pay federal taxes.

As it pertains to New York, promotions, relative to other states, have been lessened, though we don’t believe the offered odds are materially different than neighboring states,” wrote the analyst.

Sports betting companies doing business in the fourth-largest state generated 2023 revenue of $1.7 billion, implying incentive spending of $394 million.

New York Promo Spending Not Alarming

New York isn’t the only state to tax sports betting at 51%. Delaware, New Hampshire, and Rhode Island do as well, but for many operators, they have no choice but to do business in New York or risk missing out on important brand-boosting and revenue-generating opportunities.

The state’s high taxes might actually be a benefit to operators in that it compels them to be more selective in how they deploy promotions while potentially being more conservative on the size of those incentives. Santarelli said New York operators spent just 1.8% of handle on promos last year — well below the 3.5% and 4.8% rates in Pennsylvania and Michigan.

“While NY doesn’t provide detail by operator as it pertains to promo spending, given that the market structure is challenging and more so for smaller-scale operators, we can likely assume that the share of promotional dollars for the likes of DraftKings and FanDuel outpace their respective promo-spend share in other states,” added the analyst.

DraftKings and FanDuel operate in duopoly fashion in the US and that’s true in New York where the pair combined for 77% of 2023 candle and 63% of promotional spending. Penn Entertainment’s ESPN Bet and BetMGM combined for 23% of incentive spending in the state.

New York Sports Betting Tax Tough, But not Death Knell

Large operators such as DraftKings and FanDuel are making do in New York and the state’s onerous levy on sports betting isn’t affecting hold. Hold in the state last year was 8.7% compared to all states hold of 8.4%, according to the Campaign for Fairer Gambling (CFG).

The potential risk for operators is that other states seeking more tax revenue are looking at New York and seeing that the industry is “surviving” with the 51% tax rate. New York could be the inspiration for Illinois Gov. J.B. Pritzker (D) wanting to boost that state’s sports wagering tax to 35% from 15% and why Massachusetts recently floated its own increase to 51%.

The Massachusetts effort was rapidly thwarted and may have been the victim of bad timing as it arrived on the heels of local media and policymakers boasting of new tax on wealthy residents generating $1.8 billion in revenue, or double the state’s estimates.

The post New York Tough Place for Sportsbook Operators to Turn Profits appeared first on Casino.org.

 

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