New York Lawmaker Files Bill to Cut Online Sports Betting Tax, Add More Sportsbooks

New Yorkers would have access to almost twice as many online sportsbooks under a bill filed Thursday that would also cut the nation's highest tax on sports betting in half.

New York has topped just about every monthly record in its one month of action since launching online sports betting in mid-January, surpassing $1.6 billion in bets, and $63 million in taxes.

But lawmakers like Assemblyman J. Gary Pretlow already want to change the current model — which takes half of operator revenue — before it becomes "unsustainable."

"The revenue numbers look great in the press, but a lot of that wasn't real money. With places like Casesars giving out $3,000 promotion matches, you’d end up having $6,000 per person they're paying tax on," Pretlow told Action Network. "It's unsustainable over the long run. They’re not going to be able to keep giving incentives and make a profit."

His bill (AB 8658) would trigger a drop from the current 51% tax rate on online sports betting to 35% by upping the number of approved operators from nine to 14 by 2023. It would drop to 25% in 2024 with the approval of at least two more operators.

Those rates are more in line with neighboring Pennsylvania and New Jersey, two of the longest running and most profitable sports betting states. It's exactly the change operators have been clamoring for, amid concerns of profitability.

Changing Treatment of Promotions

It's unclear how much revenue in New York's first month came from free bets and promotions, though if other states are any indicator, it was a lot.

In Virginia they accounted for over 43% of sports gaming revenue in January. Virginia, along with states like Pennsylvania, Colorado and Michigan, allow operators to deduct revenue tied to promotions before taxes.

On Wednesday, Pretlow told Action Network it was an "alternative" he'd "rather not do." A day later his bill was amended to include the promo deduction:

(b) A mobile sports wagering operator may exclude sports  wagers  that
    20  were  placed  using promotional wagering credit from its sports wagering
    21  gross revenue.

A New York Post report suggests the high tax rate coupled with no deduction for promotions cost sportsbooks $200 million in their first month.

After their initial blitzkrieg of promotions, companies like Caesars have scaled back their offers. Instead of a $3,000 first deposit match, the company is now giving users $300 in site credit for their first $20 wager.

But the operator's that paid New York $50 million just for a license have always viewed profitability in the Empire State as a longterm project. During a recent earnings call, DraftKings CEO Jason Robins said he's "targeting a two-to-three-year path to profitability for the state."

The bill would also allow operators to carry over losses month to month.

New Legislative Landscape

Pretlow said the ideology in his legislation has "always had the support of [his] colleagues," but former Gov. Andrew Cuomo had insisted on a 50% tax rate, threatening to veto alternatives.

He much more comfortable introducing the proposed tax cuts now that Gov. Kathy Hochul's taken over for the disgraced former governor. She's been bullish on gaming in her seven months in charge, even proposing three new downstate casinos in her 2022 budget.

Normally incumbent sportsbooks would be resistant to the added competition, but because it means they'd pay less than half of what they do now in taxes, the bill full-heartedly has their support, Pretlow said.

The bill also reserves two of the new online licenses for minority-owned sportsbooks, none of which currently operate in the Empire State.

It has been referred to the Racing and Gaming Committee, though no formal vote is yet scheduled.