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New York Online Sportsbook Hopefuls’ Wait Continues

New York Online Sportsbook Hopefuls’ Wait Continues article feature image

David Dee Delgado/Getty Images. Pictured: Andrew Cuomo during a press conference at One World Trade Center.

It’s been nearly a week since New York officials were scheduled to release application details for the state’s limited online sports betting licenses, prolonging what remains one of the critical developments of the early years for legal U.S. wagering.

The New York Gaming Commission was scheduled to release its request for application (RFA) for online sportsbook hopefuls July 1. Instead, what could be the nation’s most populated legal online sports betting state remains stalled in what has been — and will remain — a lengthy rollout process over the ensuing months.

The RFA will not only continue this process but shed light on what will assuredly be a hotly contested bidding war for just a handful of possible licenses approved by New York policymakers earlier this year. Unlike more competitive markets available in neighboring New Jersey and Pennsylvania, the more heavily controlled model favored by Gov. Andrew Cuomo will be legal online sportsbooks’ only entry point.

As a concession to lawmakers in his own party, Cuomo agreed to an usual hybrid structure that requires a government bidding process but will require at least four customer-facing sportsbook brands. The winning brands — and even how the applicants will structure their bids — remains an ongoing question.

“Everybody’s talking to everybody trying to map out their options,” said Yaniv Sherman, Head of U.S. and SVP at 888 in an interview with the Action Network. “I think everybody’s waiting for the RFA to drop.”

New York Market Structure

Operators hope the pending RFA release will better layout a winning bid strategy in what remains a labyrinth of a bidding process.

The initial online sports betting legislation and a follow-up question-and-answer document gives core criteria for the selection process but leaves much undetermined. The key determinant, as pressed by Cuomo, will be tax rate, but that figure will be determined by a complex bidding process.

Cuomo publicly expects winning bidders to agree to a roughly 50% (or more) tax rate. Boston-based DraftKings, which agreed to a 51% rate in exchange for monopoly access in New Hampshire, is the only U.S. sportsbook that pays such a rate.

Though New York’s population is far larger than New Hampshire’s, Empire State bidders are instead working for what is essentially a sports betting oligopoly. It remains to be seen which entities would pay such a steep price, but it would appear to effectively eliminate all but the nation’s most financially viable operators.

Would be-bidders know they are applying for what will likely be one of two “platform provider” bids and they’ll have to remit a $25 million licensing fee if they win. The winning platform providers will then subcontract out to the customer-facing brands bettors are familiar with.

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This platform provider bid model is unlike any other American state market. New York officials have outlined a wide range of scenarios for bidders to apply for one of these licenses:

  • One conglomerate applies for a platform provider license and agrees to use two of its own brands (or “skins”). An Example would be Flutter Entertainment, which then uses its FanDuel and FOX Bet brands
  • A sports betting services provider such as Kambi. It could then enter existing partners such as Barstool Sportsbook and BetRivers
  • A combined “super” bid between unrelated competitors. Theoretically, a triumvirate of U.S. market share leaders FanDuel, DraftKings and BetMGM could agree to serve on one platform provider license.
  • A partnership between one of the aforementioned larger sportsbook operators and a one or more smaller brands

Additionally, each subsequent company enjoined to a bid will have to pay the $25 million licensing fee if it wins. In the hypothetical FanDuel/DraftKings/BetMGM bid, the state would receive $75 million.

Operators can also submit several bids in multiple positions. For example, a company could apply to be its own platform provider and it could also file a separate application to be a part of a different bid entirely.

“They’re going to throw everyone in and make them game theory specialists,” Sherman said.

Next Steps

Once released, applicants have 30 days to submit their bids. The gaming commission will then have 150 days to select the winners.

This could mean a December announcement for what would be the most coveted sports betting license in U.S. sports betting history — despite a company’s limited net revenue potential. It also means legal online books would likely miss all the lucrative NFL regular season in 2021.

With what will almost assuredly be some of the nation’s highest fees and tax rates, New York online sportsbooks will have little room for profit in what is already a comparatively low-margin industry for the gambling sector.

Cuomo projects $500 million in direct tax revenues for the state, but sportsbook stakeholders such as 888’s Sherman worry the hefty fees could hurt the market overall. With less competition (and revenue potential) in New York, operators may be less inclined to spend on marketing that can help capture dollars from the unregulated offshore market.

The self-imposed market access limits in New York also prevent many operators from reaching their own revenue potentials.

New York, along with other “Big Four” states California, Texas and Florida, makes up roughly one third of the nation’s population. With 20 million residents and the nation’s largest metro area, New York represents a massive market that will be unreachable for many operators and a limited revenue potential for the handful that do earn a license.

“New York is the forward-looking indicator for the next level of development in the sector,” Sherman said. “As New York goes, so does the market.”

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