Last week, New York lawmakers approved a $212 billion budget for 2021-22 that includes plans for mobile sports betting. The state intends to select at least two mobile sports betting platform providers and no fewer than four mobile sports betting operators through a competitive bid process. Gov. Andrew Cuomo believes the Empire State will generate more long-term revenue with his limited-operator approach than it would under the casino-operated model put forth by Sen. Joseph Addabbo and Assemblyman Gary Pretlow, which would allow for 14 online sportsbook licensees within the state. The New York state budget projects mobile sports wagering will generate $99 million for the state in Year One (ends 3/31/22), $327 million in Year Two and $500 million by Year Three. While it’s fair to question those figures (a lot of uncertainty remains about the market), Daniel Wallach (founder, Wallach Legal) says that if the only goal is to maximize state revenues, Cuomo is probably taking the right approach. “There is no disputing that the state’s revenue share under Gov. Cuomo’s plan will be considerably higher than the tax revenues that New Jersey has generated using a taxation and licensing model that is comparable to the [flat tax rate] structure Sen. Addabbo and Assemblyman Pretlow had proposed,” Wallach said. The state of New Jersey kept $50.1 million in state taxes and an additional $15 million in local taxes from sports betting in 2020.
Our Take: As Chris Grove (partner, Eilers & Krejcik Gaming) noted, New York “could have generated the greatest amount of immediate revenue through an open license process with a minimum bid and upfront payment.” But Cuomo instead chose to limit the number of licenses issued because he believes a competitive bidding process, for just a few open spots, will produce the most favorable terms—and ultimately the most revenue—for the state long-term. New Hampshire ran a competitive bidding process and did a deal that entitled it to 51% of mobile sports betting gross revenues. For perspective, New Jersey receives no more than 14.25%.
New York is asking operators for 50-55% of gross revenues. Not only does Wallach believe it will get that much, he suggested there could be bidders willing to offer as much as 60%. “The fear of missing out [on New York] is so magnified compared to other states that I am expecting several outlier bids that go beyond the norm,” he said. “If you are not one of the obvious candidates, it might be the only way to ensure participation in what could soon be the largest mobile sports betting market in the country. At the very least, this RFP process guarantees the state no worse than a 50-50 revenue split, which could translate into a state revenue share of at least several hundred million dollars annually.” For what it’s worth, NY Sports Day (an independent website that has been covering New York sports since ’04) estimated the 14 mobile apps would have generated $324 million in annual tax revenue and licensing fees under the Addabbo/Pretlow plan.
It made sense for DraftKings to give up 51% of gross revenues to the state of New Hampshire because it was gaining market exclusivity (meaning it could cut back on marketing spend) and “a head start on sign-ups in Massachusetts,” Wallach explained. But with a minimum of four mobile operators set to gain licensure and no head start into a bigger market, New York might be overplaying its hand. Dustin Gouker (head of content, U.S., Catena Media), for one, isn’t convinced access is worth 50% of gross revenues or more. Remember, on top of the revenue split, licensees will pay a $25 million license fee, $5 million per year in hosting fees and the federal excise tax (.25% of handle). “There is a number at which it starts to become difficult,” Gouker said. “[The budget language] doesn’t look good economically for an operator.”
Of course, New York is currently viewed as the “holy grail” of mobile sports betting (at least until California, Florida and Texas pass legislation), and access remains important from an optics standpoint. “If you’re DraftKings or Penn National or whomever, and you’re preaching growth, and you’re not in the biggest market in the United States, that’s bad from just a purely 30,000 foot view,” Gouker said.
The limited operator model should generate more long-term revenue for the state of New York, but those gains are likely coming at the consumer’s expense. “If you have a fewer number of operators paying a high revenue share, it decreases their ability and incentive to offer bonus promotions and giveaways,” Wallach said. The high revenue split may also decrease operators’ ability to offer pricing and lines on par with the Garden State or the black market. But Gouker didn’t sound particularly concerned that New York sports bettors would take their business elsewhere. “People are not terribly price sensitive, so [N.Y. operators] could probably raise the vigorish a bit and get away with putting forth a less competitive product [without losing too much of the target audience].”
DraftKings and FanDuel are perceived to be front-runners for two of the four operator skins guaranteed under Gov. Cuomo’s plan. Licensing those two companies would allow the state to “repatriate New Yorkers from their New Jersey apps and bring a lot of that money back home,” Wallach said. However, Wallach noted it is possible for more than four mobile operators to gain licensure if the New York State Gaming Commission, which will select the winning bidders, believes it is in the state’s best interests.
Cuomo should sign off on the approved budget shortly. But an elongated RFP process means that New York sports bettors are unlikely to be legally placing mobile wagers before the end of 2021. The deadline to publish the RFP is July 1. Then there is a 30-day period for submissions and the state has another 150 days to select the vendors (and that doesn’t even account for any lawsuits that may arise). Using that timeline, “the NFL [regular] season is already not in play,” Wallach noted. The Super Bowl next February might be the best-case scenario.
New York’s sports betting plan does not include a provision for kiosks at pro sports venues. But Wallach says the dream of placing bets at Madison Square Garden or Yankee Stadium is not necessarily finished; there is no prohibition against it in the bill. “A bidder for a New York mobile license could incorporate those venues in its bid proposal,” he said. “If I were going to put together a bid package, I would want as many partners, who could differentiate the bid in ways not prohibited by the statute, as possible.”