The New York state gaming commission has recommended that nine sports betting operators, including DraftKings, Caesars, FanDuel and BetMGM, receive mobile licenses to operate in the state, which is imposing a controversial 51% tax rate on sports betting revenue.
The other operators recommended for licenses are Bally Bet, PointsBet, Resorts World, Rush Street and WynnBet. Operators whose bids failed include bet365, Fox Bet, Barstool Sportsbook and the yet-to-launch sports betting initiative being developed by Fanatics.
It’s unclear how quickly the operators might get up and running, but it’s likely they will push to be ready for the NFL playoffs, some of the most-wagered sporting events on the U.S. calendar every year.
Regardless of when they start, operators will need to navigate that high tax rate, which has many wondering if any New York operator will turn a profit in the state. It was a topic of discussion during many earnings calls for operators over the past few weeks.
“I don’t think a single operator will make money in New York,” Penn National (Nasdaq: PENN) CEO Jay Snowden told analysts last week. “So I’ve always struggled with the—would you rather be in or not? I think objectively speaking, you’d probably rather be in than not be in. But it’s one of those states where if you’re not in, you’re not crushed by that either, maybe from a [total addressable market] perspective and from a revenue perspective. But I think it’s just going to be a margin killer.”
DraftKings (Nasdaq: DKNG) CEO Jason Robins was more optimistic, citing ways the company could reduce spending to increase its margins in the state.
“There’s a lot of levers we can pull, such as cutting back on rate of promotion and spending less on external marketing,” Robins told analysts last week. “Those are things I would expect everyone in the industry would do, because I don’t think anyone is going to want to run at a long-term unprofitable rate in any state. Certainly, early on, we will approach it just like we do other states, where we’ll invest into it and look for that two-to-three-year path to profitability.”
Questions also abound for the operators that failed to get a New York license. The state has a population of 20.2 million, fourth most in the country. It’s also home to nine franchises in the five major pro leagues. The questions might be most relevant for Fanatics, which has yet to fully unroll its sports betting plan.
Bids for the New York licenses were due earlier this year. DraftKings, BetMGM and Bally Bet were all part of one successful group, led by FanDuel. Caesars (Nasdaq: CZR), PoinstBet, Resorts, Rush Street (NYSE: RSI) and WynnBet were part of another, led by tech platform Kambi. Fanatics and the Barstool Sportsbook (a partnership with Penn National) were together on a losing bid. Fox Bet, bet365 and theScore Bet applied as standalones.
Sports betting is already legal at various casinos in New York state, but most of those are far from New York City, the state’s population hub.