DraftKings, FanDuel Execs. Warn New York's Record-High Tax Rate Could Jeopardize Market In The Longer Term

DraftKings, FanDuel Execs. Warn New York's Record-High Tax Rate Could Jeopardize Market In The Longer Term

Despite the fact that New York found great success in legalizing mobile sports betting last year, operators are raising a warning flag on the state’s record-high tax rate and how it could jeopardize the gambling landscape in the state. The tax, standing at 51%, is the highest among all states that have authorized mobile sports wagering in the US.

The heads of two of the largest mobile sports betting operators in New York and the US at large, DraftKings and FanDuel, testified at a joint legislative hearing on Tuesday, and urged lawmakers to lower the 51% tax on gross gaming revenue.

In the first year of mobile sports betting in New York, more than $16.5 billion was wagered on sporting events. Thanks to the 51% tax rate, the state collected more than $709 million in revenue to support educational programs, youth sports and problem gambling treatment, according to official data.

But Christian Genetski, president of FanDuel; and Jason Robins, CEO of DraftKings, do not think New York will continue to rake in that much revenue due to the high tax rate, reports Auburn Pub. Genetski, citing estimates, said that New York’s mobile sports betting handle will decrease 10 to 20% annually unless the tax rate is changed.

Should the tax not change, operators warned there will be less money spent on marketing and promotional credits and some operators with smaller market shares could leave the state. Genetski noted that FanDuel is already spending more on marketing in other states on a per capita basis.

DraftKings’ Jason Robins.

This scenario would leave fewer options, less competition and a “much worse” value proposition, according to Genetski, who also pointed out that worse betting odds could be offered in New York if the tax rate is not lowered.

That, along with other actions, could lead to bettors shifting to offshore markets that are not subject to the same regulations, the executives warned. Robins also explained that, while the state’s tax on gross gaming revenue is 51%, the effective tax rate is more than 70%. DraftKings views the state’s revenue projections as “unsustainable” with the current rate.

Robins assured the company believes that a tax rate that is “more in line with the rest of the market” would create a good balance between the state’s need to meet or exceed its fiscal projections while giving licensed operators the ability to provide a “best-in-class” experience for their customers.

A potential solution to this issue has been introduced in the state Legislature. State Senator Joseph Addabbo, who chairs the Senate Racing, Gaming and Wagering Committee, authored a bill that lowers the tax rate if more operators join the New York market.

Senator Joseph Addabbo.

Under the proposed legislation, the tax rate would be lowered to 50% if there are 10 to 12 operators, 35% if there are 13 to 14 operators and 25% if there are 15 or more operators.

However, the fiscal implications of the bill are still being reviewed. Losing money destined for education is currently one of the main concerns around this proposal. “We cannot go back to our constituency and say we did something that reduces revenue as well as education funds,” Addabbo stated, as reported by the cited source.

The consequences of not lowering the tax rate were also detailed at the hearing, as a counterposition. In addition to how it would impact bettors and state revenues, Robins said DraftKings would have to reconsider marketing partnerships with sports leagues and teams.

Genetski used France’s case to exemplify the potential results of not lowering taxes. The country had a strong opening year, with results similar to the ones seen in New York’s first 12 months of betting action, but some operators left the market soon after, citing the high tax rate as the cause, and revenue declined.

“We believe that lowering the tax rate to one commensurate with the next-highest tax rate in the country (Pennsylvania has a 36% tax rate) can fundamentally alter the long-term outcome in New York,” Genetski noted.

New York concluded in December its first year of legal mobile sports betting. Records were broken in the process, with $15.9 billion in total handle, and gross gaming revenue surpassing $1.3 billion.

By the end of 2022, FanDuel positions itself as the market leader with about $6.4 billion in handle and almost $650 million in GGR. DraftKings comes second at $4.5 billion handle and $354 million in GGR. Caesars Sportsbook rounds out the top three with almost $2.8 billion handle and $214 million GGR, according to data from the NYS Gaming Commission.