Customers Could Feel Sting as New York Sports Betting Tax Rate Creates Concern Despite Big Numbers

In the first 31 days of mobile sports betting legalization, New York took in $1.98 billion in bets, an all-time record for any state.

But as sportsbooks worry about profitability, there's a legitimate question as to whether the state — with a 51% tax rate on gross revenue — is fool's gold.

Sportsbooks took in $138.5 million on that nearly $2 billion in bets and New York takes more than half of that — and it gets even worse.

Any promotional dollars or free bets are also taxed at the 51% rate, a fact that recently became public.

"Every business needs a chance to make a profit," Jason Robins, CEO of DraftKings, whose company's stock was getting pounded on Friday off concerns about future profitability, told Action Network. "New York's tax rates make it hard to make money versus other markets with lower tax rates."

In the first 30 days of mobile sports betting in New York, DraftKings says it acquired 300,000 users, which is 2.3 times the average of the adoption in the first 30 days in other states on a population adjusted basis.

DraftKings currently has 23% of the New York mobile betting market.

But absolute numbers aren't good enough. Robins said if things don't change at some point, what New York is charging will be passed along to the consumer.

"That might manifest itself in worse odds or might mean we need to dial back on our promotional intensity," he said.

As of now, sportsbooks in only one state has passed the cumbersome deal it has with a state onto consumers. Parlay odds in Tennessee are worse than any other state due to the fact that Tennessee required sportsbooks to net 10% a month to guarantee that the state hits revenue targets.

The tax on promotional activity as well has gotten very little play until New York Yankees president Randy Levine started talking about it. Levine, who served as New York's deputy mayor for Economic Development under Rudy Giuliani, is concerned that the tax rate will negate the power of New York's sports gambling business.

"We're now the number one state in bringing in money," Levine said. "But these are public companies. These books are winning, but they're really losing given the current tax rates and the fact that promotional activity is also absurdly being taxed."

There is a fix. New York gave licenses to nine mobile sports books. And while Gary Pretlow, chairman of the Assembly's Committee on Racing and Wagering, introduced a bill to prevent existing books from lowering the rate, that could change if more sports books are licensed.

"These companies understood the 51 percent and that's going to stay the same," said state senator Joseph Addabbo. "But we're willing to talk about what we can do with other things like the tax on promotions. It's important that we have the best product in the state."

Addabbo said he's concerned if sportsbooks start talking about giving New York bettors worse odds.

"I hope these sportsbooks would make their intentions known to the gaming commission in the next six weeks so we can attempt to offer some solutions before the 2022 state budget is completed," Addabbo said.

There are no guarantees there will be additional sportsbooks, but there's a grid that was originally presented that shows that if the licensed sportsbooks in the state increase above the allowed nine, the rate will drop to under 40%. But, for the nine current books, the question will be whether the 10% drop is worth the increased competition.