NY Online Sportsbooks Petition for Lower Tax, Argue 51 Percent Far Too High

Posted on: June 22, 2022, 08:09h. 

Last updated on: June 22, 2022, 10:01h.

Some New York online sportsbooks are having a bit of buyer’s remorse. That’s after discovering the difficult regulatory conditions imposed on their mobile operations.

New York online sportsbook tax sports betting
A Caesars Sportsbook advertisement in Midtown Manhattan. New York online sportsbook operators say the state’s imposed 51% tax on net revenue is excessive. (Image: The New York Times)

New York’s sports betting law levies the highest online tax rate in the country. Mobile sportsbooks like BetMGM, DraftKings, and FanDuel are subject to a 51% tax on their gross sports betting revenue. The tax is in addition to the one-time $25 million licensing fee each approved online sportsbook already paid to the state.

The average effective online sports betting tax in the more than 20 states that have legalized gambling on sports over the internet is around 19%. New York sportsbooks say the 51% rate is excessive and is threatening their ability to operate long-term.

The books argue that the high tax hinders their ability to offer competitive odds compared with neighboring sports betting states. New York also taxes promotional sports betting revenue, meaning if an operator provides a new customer with a risk-free $500 first bet, and the patron loses that bet, the sportsbook is taxed on the revenue despite no money actually changing hands.

Tax Appeal

New York’s largest sportsbook firms — BetMGM, Caesars Sportsbook, DraftKings, and FanDuel — earlier this month requested the New York State Assembly consider reducing the 51% tax. The sportsbooks’ appeal also requests that the state lift its tax on the promotional play.

Their appeal comes less than a year after the operators agreed to the terms imposed by the New York legislature. Being the largest online sports betting market with a population of more than 20 million, the sports betting operators were initially eager to enter the state. But in hindsight, after just five months in business, those internet sportsbooks have concluded that the state’s tax conditions are unreasonable.

We simply can’t apply our capital against an irrational investment thesis,” said Gary Deutsch, chief financial officer of BetMGM. “Players would never continue to play if the house always won, and the house cannot continue to play if it’s always going to lose.”

New Jersey lost its title as the nation’s richest sports betting state when online sportsbooks in New York went live in January 2022. Prior to that, residents in New York City frequently traveled to New Jersey to place their bets online.

The George Washington Bridge, as well as the Hoboken PATH and Secaucus New Jersey Transit train stations, were frequently littered with sports bettors placing their bets via their mobile devices. While the emergence of New York’s online sports betting market rendered the need to make the short jaunt into New Jersey to place a bet obsolete, the Empire State’s high tax could result in some players returning.

New York books have already reduced or removed altogether their promotional incentives for new customers. And with their net proceeds taxed at 51% — 36.75% higher than New Jersey’s 14.25% online sports betting tax — New York books are struggling to offer similar or better odds than their Garden State counterparts.

State Benefit

More than $7.6 billion has been wagered on sports online in New York since January. Oddsmakers have kept $534.7 million of the bets, which includes revenue that was won back after giving players free or promotional betting funds.

The state’s cut of the $534.7 million equates to more than $272.7 million. The operators kept $262 million.

New York designates the bulk of its mobile sports betting tax for education. State lawmakers, including Gov. Kathy Hochul (D), have not yet commented on the industry’s tax reduction plea.