DraftKings and FanDuel take aim at New York online tax reduction

New York legislators have heard from FanDuel president Christian Genetski and DraftKings CEO Jason Robins who both warned that New York’s staggering online sports betting tax rate will cause a shift in operational model should it not be lowered moving forward.

January 31st 2023 saw a joint hearing with the New York Senate and Assembly’s Racing, Gaming and Wagering committees who were looking back at a year of mobile sports betting operations which have seen astronomical tax receipts for the state.

How well did New York do in year one?

New York lived up to many analysts’ expectations, seeing over $1.3 billion in gross wagering revenue for the initial 12 months post-launch. The tax rate, sitting at 51% means the state has received a huge $709 million in taxes, and an additional $200 million in initial licensing fees.

Genetski and Robins both argue that the New York market has already peaked and is now on a downwards trajectory, compared to other states in which the trajectory remains largely positive. “There are clear signs that the New York market has already peaked, while other states remain on a solidly upward trajectory. Despite an inordinate level of investment in the first three months post launch, the New York market is not growing handle nor customer base like every other state” Genetski told the room.

Part of the reason above may be that due to New York’s proximity to New Jersey, the gambling culture was very much established and thus customer base was always likely to peak and stagnate early due to the maturity of the NYC market being far above that of other new launch states.

Why do operators want a tax deduction?

Robins has argued for a change in the tax rate, or ability to deduct promotional credits from taxable revenue would help assist growth. DraftKings in particular are well-known for aggressive marketing and high promotional spend, and Robins pointed out that with no promotional deductions the effective tax rate in the state nears 70%. Robins added that should concessions not be made, then promotional activity would have to be reduced leading to consumers taking the punishment, or odds being shortened, again pushing the idea that the state’s aggressive tax regime will ultimately see consumers punished.

While lawmakers say that the operators knew what they were signing up for, Genetski pointed out that the consortium of operators which comprises over 90% of the New York market by betting handle, suggested a 15% tax rate should nine operators be selected rather than the second consortium which includes the state’s smaller operators who agreed to 51%. After all, 51% of a small part of the pie is better than nothing.

Rep. Gary Pretlow argued: “You have to do this in concert with each other, and getting nine entities to collude to give worse odds in New York wouldn’t be really beneficial and that might get the attorney general involved in something like that.” Jason Robins defended his stance, saying that changes would be market driven rather than by collusion: “It wouldn’t be like day one, we just wipe out all the odds and make everything 20 percent more,” Robins said. “But we’re all looking at each other’s odds, we’re all making sure that we’re competitive.”

Online casino in New York is not legalized, and although pressure is mounting, it remains off the table at the moment. Casino gaming is available at casinos across the state, including tribal venues too.