New York To Select Sports-Betting Operators For High-Tax Market

November 5, 2021
The New York State Gaming Commission is set to approve the winning bidders for a minimum of four mobile sports-betting licenses at a meeting on Monday.


The New York State Gaming Commission (NYSGC) is set to approve the winning bidders for a minimum of four mobile sports-betting licenses at a meeting on Monday.

Several media outlets, led by the New York Post, have already reported that two major consortiums featuring a total of nine operators will be the winners of the bid process, resulting in licenses for FanDuel, DraftKings, BetMGM and Bally’s, as well as a Kambi-led alliance of Caesars Entertainment, PointsBet, WynnBET, Rush Street Interactive and Genting.

The NYSGC has yet to confirm or deny the reports and has not released any details of the selection process, following an October 25 deadline for bidders to conform to the state’s final tax rate matrix.

If the reports hold true, the selection of nine operators would result in a 51 percent tax rate for online sports betting. As eight separate platform providers are included in the two bids, the state will also receive a $200m upfront payout, with each provider paying a $25m license fee.

The status of the other bidders, which include another Kambi-powered group of Penn National Gaming and sports retailer Fanatics, as well as individual bids from bet365, Fox Bet and now Penn-owned theScore, is unknown.

If the six-member commission were to select up to three additional operators, the tax rate would drop to 50 percent, but going beyond 12 operators would see the tax rate drop to 35 percent, which would be extremely unlikely as state officials have targeted a 50 percent rate and required all bids to have at least one scenario with a 50 percent tax.

On an earnings call on Thursday, Penn CEO Jay Snowden did not confirm whether the company's Barstool Sportsbook had been selected for a New York license but took a fairly pessimistic tone about the market’s potential.

“I think objectively speaking, you’d probably rather be in than not in, but it’s one of those states where if you’re not in, you’re not crushed by that either,” he said. “The state’s going to make money; I don’t think a single operator will make money in New York.”

Snowden and other top executives also acknowledged that the 51 percent tax rate, coupled with the $25m upfront and no deductions for bonuses or promotional play, mean New York will likely look very different from a marketing standpoint than other new U.S. markets such as Arizona, Michigan or Virginia.

“I think that if we end up as one of the operators in New York, that if nobody can make money, we'll lose the least, because we can rely on the Barstool audience organically, and turn that on and activate it in ways that we've done in other states without having to get into the paid media shotgun approach,” Snowden said.

Bill Hornbuckle, CEO of BetMGM co-owner MGM Resorts International, also expects to capitalize on the casino giant's existing New York customers by marketing to its mLife rewards members who visit the Empire City Casino just outside New York City.

“And we’ll be there day one, which is also critical, so I think we’ll get off to a great start,” Hornbuckle told analysts this week of BetMGM's prospects in New York.

“Time will tell with sports [betting] how much money is to be made,” he added. “For us, it’s an omnichannel play, it’s a brand play, and we’re going to have a huge presence there, and hopefully someday we get to online casino, but that’s something for well down the road.”

Lee Fenton, CEO of Bally’s, also would not confirm if he expected his company to be selected during a separate earnings call on Thursday.

Still, the former boss of Gamesys said Bally’s was “comfortable with its position” and the partners the company is bidding alongside in the three U.S. market-leaders, BetMGM, FanDuel and DraftKings.

“No one’s happy with a 51 percent tax rate. I think that will be true for all the partners we’ll be working with as well, but it’s a huge state so therefore the scale of it means that you can have opportunities,” Fenton said.

“Obviously, I think it will change the cost dynamics for all operators that enter that market in terms of how they might address and attack that market, but clearly New York is not a market you want to miss out on.”

The CEO of Caesars offered a similar assessment earlier this week.

“Obviously [higher tax rates are] going to influence your reinvestment rate; you’re looking for ultimately what’s my return on capital. But you can, in larger population states, [where there is] high velocity, high participation, you can conceivably make money at higher tax rates than lower volume states,” added Caesars CEO Tom Reeg.

“Obviously, we prefer the lower tax jurisdictions as an operator,” Reeg said.

Given the details that have been made public, including redacted applications released by the commission and statements from top executives this week, it can be deduced that Caesars and its consortium partners are likely responsible for the tax rates being what they are.

The commission was required to assemble a final tax rate matrix based on the highest rate for each potential scenario proposed by the bidders that won an initial round.

After that stage, the commission allowed every other bidder to offer to match those rates and potentially select additional winners.

Effectively, proposing a higher tax rate would give bidders a better chance of being selected in the initial round.

Although specific tax rate submissions were redacted from the published applications, the Caesars group revealed in its executive summary that it had proposed a tax rate of 51 percent if nine operators were selected, as will reportedly be the outcome.

In addition, the FanDuel-led group submitted an initial proposal that included a 50 percent tax rate for if its bid was the lone bid selected, rather than the 64 percent rate for four operators that was in the final matrix.

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