After months of enjoying a billion-dollar sportsbooks handle spree, New York online sports betting operators have realized that the 51% tax on GGR is on the extreme side. For this reason, some have collectively filed a tax appeal to the NY State Assembly, asking the state’s legislative House to reconsider what they now term irrational compared to the national average rate of 19%.

The state’s sports betting tax obligations have been applied to promotions as well, which means that even if the player loses, the House is still required to pay taxes on the amount won back. The allure of being a part of one of the largest sports betting markets in the United States was all that the sportsbooks were focused on at the beginning of the year when they agreed to the steep taxation rates and a $25 million one-time licensing fee. Now, with a few experiencing a drop in shares following the tax on promotions, the whole concept is beginning to lose luster, and reality is kicking in.

Taxes on Promotional Play

Promos are a big part of any successful bookmaker as they offer players incentives to place bets at the respective lobby. When mobile sports betting first launched in January, Caesars hit the scene with the most lucrative offers to attract punters, and now, the consequences are being felt. The operator has since halted its marketing plan to remain afloat, as the January move has proved costly.

The tax revenue, which supersedes any other state, has been channeled into worthwhile pursuits like problem gambling rehabilitation, education, and youth programs. However, it’s becoming difficult to convince residents to continue betting in-state, with more and more operators cutting back on promotions as they have proved to be a liability. Out of the $534.7 million made in the last 5 months, the state got to keep $272.7 million, leaving operators with $262 million.

BetMGM   chief financial officer Gary Deutsch summarized the operators’ stance by stating

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“Players would never continue to play if the house always won, and the house cannot continue to play if it’s always going to lose.”

Deutsch had earlier dubbed the harsh tax rate ‘against an irrational investment thesis.’ So, since the big realization, the company has decided to focus on getting back on its feet by holding off on some of its marketing campaigns.

Additionally, during the BetMGM Investor Day Conference in May, the company CEO Adam Greenblatt confirmed the promotional cutbacks saying:

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“We will be taking a very conservative approach in New York until the tax environment improves,”

The Appeal for Tax Reduction

At the beginning of June, the top four sportsbooks in the Empire State filed an appeal to get the lawmakers to reduce the tax rate. The appeal includes a request to offer tax breaks on the promotional play.

Earlier in the year, Assemblyman J. Gary Pretlow tabled a bill that would see New York operators increased to 14 or more by 2023 and a minimum of 16 by 2024. Additionally, the measure proposed that the tax rate gradually reduced depending on how many operators are given the green light to run in the state.

Pretlow’s bill outlines how the state would maintain its high revenue stream by approving more operators, and if there were at least 15 oddsmakers, the eventual tax would be 25% of the gross gaming revenue. Another proposal, referred to as the one-House budget proposal, reiterates the bill by the Assemblyman and reinforces the efforts to bring the rate down.

It should be noted that the 51% rate was insisted upon by former NY Gov. Andrew Cuomo. Now, with Gov. Kathy Hochul in charge, proponents of a tax reduction have expressed that they are more confident that positive changes will come. On the other hand, some statesmen have stated that it may be too early to celebrate an upcoming reduction as the operators were well aware of the rate when applying for licenses to operate in the state. “The state was extremely clear from Day 1,” Sen Joseph P. Addabbo commented.

Potential Repercussions for the Local Market

The New York sports betting tax law has no doubt set the state apart from its counterparts in the nationwide sportsbook scene. However, whether this will be sustainable in the future will depend on the decisions made by players, operators, and legislators.

So far, things are looking a little gloomy as operators have moved to cut back on first deposit bonuses, among other promos. With less lucrative promotions being offered to New York bettors, this may harm the local market that has recently been breaking consecutive records. Neighboring states with more favorable tax rates and hence better incentives for players may once again start receiving punters from the Empire State as they cross borders to play.