As Former New York Governor Andrew Cuomo leaves office, some of his decisions while in the position are being scrutinized by fellow government officials. One of the decisions, in particular, falling under judgment is the legislation he helped craft to legalize sports betting in New York.
New York Sports Betting has faced a difficult enough road so far, with delays in action by the New York State Gaming Commission throwing a hefty wrench into the works. They have already missed one deadline by eight days, slowing down the bidding for available sports licenses.
Troubles Haven’t Slowed Bidding
Once bidding was finally open, the bids started flowing in. Several major sportsbook players teamed up to strengthen their position, including the coalition of FanDuel, DraftKings, BetMGM, and BallyBet. In addition, several major sports teams formed their own groups to enter the bidding process and propose their own sportsbooks.
The most surprising bid came last week from rapper and entertainment mogul Jay-Z. Jay-Z, who formed his own company Roc Nation in the early 2000s, teamed up with sports apparel group Fanatics Inc. They plan to create their own sportsbook and jockey for a valuable spot in New York’s upcoming sports gambling space.
But one issue these bidders do have is with the requirements baked into the law. The biggest issue is the tax revenue requirement levied by the bill’s writers. As the bill currently stands, New York could take up to 50% of total revenue from sports book’s operations. This was a major component of getting the bill to pass with New York State Legislators.
Cuomo argued for this higher tax rate, saying it could bring in almost $500 million for the state. Other lawmakers argued for a lower tax rate, with Democratic Westchester Assemblyman Gary Pretlow arguing that a 12% rate would be perfectly acceptable. He estimated that they could still make nearly $350 million a year with that amount, though their estimates seem to conflict in logic. You could argue that with lower taxes, there would be far higher volume, though with vice products like gambling it’s hard to really compare it to other consumer goods.
Edging Out The Little Guy
One of the issues with this high tax rate is that it gives smaller sportsbooks almost no chance. While the higher taxes would greatly benefit the State of New York, it paves the way for sportsbook giants to dominate this lucrative sports betting space. It’s what fueled the formation of sportsbook supergroups to bid for licenses. If these large companies had to join forces to ensure profit, what chance would a smaller company have?
It’s also possible that these higher tax rates will be passed on to the customer, hurting overall revenue. New Hampshire experienced this with their 51% tax rate, making basically no money in bids during the 2020 Super bowl. This high tax rate could desensitize gamblers and possibly encourage them to continue utilizing more delinquent betting avenues.
If cannabis is any indicator, states that have legalized its sale but imposed heavy taxes and fees are seeing large percentages of buyers choosing to purchase non-licensed products for the lower prices.
This was the route of the criticism levied at Cuomo’s sports betting bill. High tax rates could strangle New York’s sports betting industry before it has a chance to begin. This is working in conjunction with the complicated process by which sportsbooks have to bid to the New York State Gaming Commission. The process has been criticized as “complicated and cumbersome.”
Gaming executives echoed these statements at a gaming conference held recently in Saratoga Springs, New York. While the processes haven’t stopped bids from coming in, there is certainly a lower volume than that seen in less competitive sports gambling spaces. The decision still rests with the New York State Gaming Commission and their upcoming decision on who will receive these coveted sports licenses.
Arguments are still being made that the wording and tax rate of the bill should be changed, further slowing down progress. The original hope of starting by the beginning of the NFL season is long gone, and the new date set is by the 2021 Super Bowl. Super Bowl LVI, set for February 13th, would be a highly lucrative way to begin New York’s sports gambling.
The Commission is set to meet in September, where applicants will have the chance to give presentations on their respective bids. But, until then, sports gambling fans will have to hurry up and wait to see when the state government will begin the action.