New York Online Sports Betting Document Gives Tiny Hope for More Sportsbooks

New York Online Sports Betting Document Gives Tiny Hope for More Sportsbooks article feature image
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MIKE SEGAR/POOL/AFP via Getty Images. Pictured: New York Gov. Andrew Cuomo.

More New York online sportsbooks could launch than industry observers may have originally expected, according to a question-and-answer document published by the New York State Gaming Commission last week. This potential expanded access could mean more betting options for New Yorkers, but officials will not release final bidding requirements for one of the nation’s most anticipated online sports betting markets until this summer.

In the meantime, there are a myriad additional logistical and financial unknowns that could still limit hopes for a more robust market.

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Combined Bids Could Mean More Sportsbooks

New York’s 2021 sports betting legislation requires officials to bid out licenses to at least two “platform providers,” which are gaming entities applying for the license. Combined, the winning platform providers will have to partner with at least four “operators.”

In this context, operators are what most gaming officials call “skins” or the customer-facing sportsbook brands most bettors are familiar with, such as DraftKings, FanDuel and so on.

After policymakers approved this sports-betting model earlier this month, it appeared there would likely only be four total skins, a major disappointment for what was at the time the most-populated state to approve online sports betting. Neighboring New Jersey, currently the nation’s highest-grossing sports betting market, has more than 20 skins live now and state law allows for more than 30 total.

Last week’s NYGC document shows that a platform provider can encompass multiple companies bidding in conjunction, meaning hypothetically, two or three (or more) major sportsbook brands could come together under one “platform provider” license. Though it seems far-fetched, it at least opens the door for a possible joint “mega” bid between major sportsbook giants such as DraftKings, FanDuel and BetMGM uniting under one platform provider license and each taking bets through their respective skins.

In this hypothetical scenario, each company would have to pay a $25 million fee to join in on the platform. That could effectively eliminate all smaller companies from jumping on a combined bid, but it wouldn’t be an issue for the aforementioned major high-grossing books.

Many Sports Betting Options Possible

In another potential boost for New York bettors, state officials are hinting they may bid out more than the required two platform provider licenses if it maximizes the state’s revenue potential. That could set up three or even four combo platform providers, each with two or more brands apiece.

So in addition to the hypothetical DraftKings/FanDuel/BetMGM platform providers, another license could be issued to a joint PointsBet/Barstool/William Hill group and another one to 888/Bet365/Unibet.

This, of course, also opens up any multitude of sportsbook brand partnership combinations. New York will also allow virtually any “qualified” bidder, not necessarily just sportsbook companies. This allows a tech company such as Kambi, a gaming conglomerate such as FanDuel and FOX Bet parent Flutter Entertainment, or a host of other gaming-related business entities to apply for the platform provider license — and combine their bids with any other type of company.

To complicate matters further, the document shows that any such company could apply to be a platform provider while also applying as an operator on another group’s platform provider bid. A company can’t gain market access as part of more than one winning bid, but it does open up even more possible conglomerates that can apply to go live in New York.

The 2021 law allows the commission to license additional platform providers at a future date if it’s in the state’s best economic interests, but existing platform providers can not add additional operators; for example, in the hypothetical combined DraftKings/FanDuel/BetMGM platform provider license, the companies couldn’t add Barstool to the mix at a later date.

Additionally, last week’s document confirms that existing land-based gaming entities have no advantage in the online sports betting process. That means retail sportsbooks partnered with the state’s four upstate commercial casinos, Native American tribes or pari-mutuel facilities must bid on equal footing with any other interested party. However, the four upstate casinos will earn compensation from the winning platform provider bidders, which by state law requires online gaming servers to be placed on the physical casino properties.

New York officials will announce the winning platform provider bids sometime this fall with hopes of launching the first online sportsbooks by next year’s Super Bowl.

Combined Bid Issues

The seemingly impossible competitive issues of arch-rivals such as DraftKings and FanDuel reaching a combined licensing agreement aside, there are many questions and problems stopping such a combination.

The question-and-answer document, as expected, doesn’t disclose the tax rate necessary to win a bid, the single most important factor that will determine New York online sports betting. Gov. Andrew Cuomo, who forced through this system despite opposition from lawmakers in his own party, is expecting a roughly 50% tax rate bid from every platform provider.

New Hampshire has a similar rate, but it is paid by DraftKings for monopoly control; New York is looking for two (or more) so-called platform providers and at least four separate sportsbook brands, meaning the market will be split between at least two companies and likely more.

In a company’s best-case financial scenario, with as few competitors as allowed under the law, it will still be difficult to make a profit in what is already a low-margin industry. Most states tax around 10% of gross gaming revenue and only a few charge more than 20%, almost exclusively in limited or single-operator models.

This means platform providers bidding anywhere near Cuomo’s targeted 50 percent rate will effectively be doing so for the intangible benefits of access to such a high-profile market and, ostensibly, to keep competitors out. All the tantalizing aforementioned combined bid options aside, it seems unlikely many companies will be willing to split what is already a thin revenue potential any more than is necessary.

They also could very well be bidding without temporary or possibly permeate access to much of upstate New York.

The state’s three gaming tribes have certain exclusive gaming rights to specific regions upstate, which they believe could be violated by the online sports betting legislation. The 2021 bill gives unspecified preferential bidding priority to tribal-affiliated entities, but in a highly plausible scenario one or more tribes that miss out on platform provider licenses could fight the decision and/or the law itself in court, which in turn could stall or even prohibit online sports betting across huge areas of the state.

Bottom Line

The gaming commission’s Q&A document clarifies previously unanticipated avenues for increased sportsbook access, but the numerous remaining logistical and financial obstacles — among other still unanswered questions — make it appear only a select few sports betting companies will take online sports bets in New York.

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