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Online sports betting tax revenue for New York may fall short of official projections

5 January 2022

(PRESS RELEASE) -- Gaming experts from PlayNY.com, a leading source for news and analysis of the fledgling New York gaming market, predict that New York will find it difficult to reach $500 million in annual tax revenue by fiscal year 2024 that proponents of legalizing online sports betting originally projected.

Former Gov. Andrew Cuomo's administration budgeted for proceeds from online gambling to reach $99 million in FY 2022, $357 million in FY 2023, and $500 million by FY 2024, which would easily be the most ever for one state. With the regulations for online sports betting now clearer, the New York market will be highly lucrative for the state but fall short of being a $500 million windfall by the market's third year, said Eric Ramsey, data analyst for the PlayUSA.com Network, which includes PlayNY.com.

"For New York to reach $500 million in annual tax revenue, it will take a groundswell of demand that would be unprecedented in U.S. sports betting history," Ramsey said. "New York will be unique in its size and structure among U.S. sports betting markets, so it would be unwise to say it's impossible. But hitting that goal by Year 3 is probably overly optimistic."

With New York's 51% tax rate, New York's nine online operators will need to combine for $1 billion in gross gaming revenue, a threshold that has never been reached by a U.S. market over the course of a single year. Presuming those operators will "hold" an average of about 7.5% of all wagers, reaching the official projections would require operators to handle more than $13 billion in bets over the course of a year.

Pennsylvania, a populous state that currently has the highest commercial tax rate in the U.S. at 36%, is the closest comparison among U.S. markets. Pennsylvania's 14 sports betting operators are on pace to generate more than $6 billion in wagers this year. That will yield about $115 million in state taxes.

With nearly two dozen active sportsbooks, New Jersey is on pace to handle $11 billion in 2021, which makes it the largest sports betting market in the U.S. With a much more operator-friendly tax structure than New York, New Jersey is on pace to reach roughly $120 million in state taxes.

But even if New York falls short of its $500 million goal, sports betting will almost certainly generate significantly more in tax revenue than any other state. If wagering reaches New Jersey's level of around $11 billion annually, it could create more than $400 million in tax revenue for the state.

"New York's model might end up being the right choice for the state, even if it can't be successfully replicated in most other places," Ramsey said. "Bettors will have a variety of sportsbooks to choose from, fostering a healthy market and competitive pricing. And given the allure of the New York landscape, operators proved themselves willing to pay taxes at a rate typically reserved for much smaller monopoly markets."

The key is buy-in from operators, even as many acknowledge that New York will likely not be a profitable environment. But larger operators also see New York as a prized opportunity to expand their brands to one of the most visible markets in the world.

"There are tens of billions of wagering dollars waiting to be captured in New York, but the question remains whether operators can capture enough to reach the budget projections," Ramsey said. "To reach those lofty goals, New York's nine operators will have to offer a competitive enough experience to compete with neighboring states, offshore sites, and neighborhood bookies despite the high tax rate. Will it be enough? We shall see."

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Online sports betting tax revenue for New York may fall short of official projections is republished from Online.CasinoCity.com.