The minimum tax on NY online sports betting will be 12%, but it could end up being much higher due to an auction system.

Cuomo Signs Off On Mobile Sports Betting In New York; Could It Pave The Way For Other Online Gambling Verticals?

New York sports fans will soon have access to mobile betting. On Monday, Governor Andrew Cuomo signed the state budget bill, which included the provisions to make that happen. Logically, if not politically, iGaming should not be far behind.

The sports betting portion of the budget bill creates a duopoly framework. Two platform providers will provide the technology. Each platform will then have four skins, or brands, for a total of eight options for New York sports bettors. That’s a rather limited selection for a market the size of New York. Next door New Jersey has less than half of New York’s population, yet is home to about 20 brands already, with more to come.

New York’s platform providers will pay $25 million for their licenses, plus a substantial proportion of revenues in tax. In return, they’ll enjoy 10 years of limited competition in one of the richest and most populous states in the country.

Proposals can be submitted from Jul. 1 until Jul. 30. The NY State Gaming Commission will then take up to 150 days to rank the proposals before coming to a decision. The decision could equally come earlier. Either way, though, the first sports betting apps are not likely to launch before the end of the year.

Competition for platform licenses could send tax rates soaring

One criteria for deciding which platforms to select was listed in the budget bill. Applicants have to propose what rate of tax they are prepared to pay, with a minimum of 12%. Both successful applicants will pay the tax rate of the highest bidder.

These auctions are of course designed to wring the maximum from operators. Pennsylvania employed a similar strategy in auctioning Category 4 slot machine licenses beginning in Jan. 2018. The first license went to the Mountainview Thoroughbred Racing Association, LLC, with a bid $50.1 million. In retrospect, this was a staggering premium for Mountainview to pay to ensure it could hit its strategic objectives.

Subsequent licenses went for much less. Mountainview itself later acquired a second license for just $7,500,003, a mere $3 above the $7.5 million minimum set by the state.

Will operators likewise overbid for access to New York? How high will the winning bid be? Pennsylvania sportsbooks have proven willing to pay that state’s 36% tax rate on sports betting. Thus, there’s certainly room to go quite a bit higher than 12%.

Investors are currently pricing companies with US sports betting market exposure at a premium. So the winning bidders could well see a jump in their share price as an added benefit to securing market access.

All that said, one factor which might deter very high bids is that the Gaming Commission does have the power to add additional licenses, even within the initial 10 year license period. Even if it doesn’t exercise the option, the fact that it could choose to break the duopoly at any moment will undermine its perceived value.

New York iGaming to follow?

There is no doubt that the legalization of mobile sports betting is directly related to money. New York needs the money. COVID hit the city of New York particularly hard and some of its wealthiest residents embarked on an exodus to the country. Property tax revenues plunged by $2.5 billion even as the cities expenses ballooned.

Across the border, New Jersey sports betting generated in excess of $60 million in revenue for March. Whatever the New York tax rate winds up being, those numbers hold a lot of promise for the Empire State. Online casino and poker would be even better, though, having generated revenues of almost $114 million in the same period for NJ.

Legalizing online poker and casino games could more than double NY gaming tax revenues. The fiscal outlook for New York is not good even after President Biden’s latest $1.9 trillion stimulus bill. Doubling the income from online gambling taxes may soon be a pitch that is impossible to ignore.

Furthermore, as we’re seeing with Illinois this year, success with mobile sports betting can facilitate subsequent discussions for other forms of gambling expansion. If Cuomo’s plan works out as he hopes, iGaming could become part of the conversation in New York in future years.

- A former founder of Poker Industry Pro and Head of Content at PokerNews publisher iBus Media, Joss Wood is a graduate in English from the University of Birmingham. Joss also holds a master’s degree in Organisational Development from the University of Manchester. His career path has taken him from the British Army, through business and finance to seven years as a successful professional poker player.
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