The NY sports betting market was supposed to be one of the crown jewels of the US.
It was the first of the ‘Big Four’ states to go live, featuring 20 million people, a vibrant sports culture and the wealthy risk-takers of Wall Street.
To date, though, the tax structure and competitive start to New York sports betting has been more nightmare than dream for sportsbooks.
What’s the damage in New York?
A sampling of some entrants shows the grim picture:
- Caesars Digital posted an EBITDA loss of $500 million in Q1, with the majority of that loss coming from New York.
- BetMGM cut its investment in the state, saying the effective tax rate was more than 100%. “The house cannot continue to play if it is always going to lose,” BetMGM CFO Gary Deutsch said.
- Bally Bet, one of just nine license holders, has not even launched yet because the competitive environment is so “insane.”
No surprises here
Of course, the market structure is no surprise to anyone.
“Yeah, of course they weren’t going to make money,” said Shaun Kelley, an analyst at Bank of America. “It’s not rocket science on the numbers. Anyone who knew gaming knew they weren’t going to make money.”
Regardless, the two consortia featuring nine operators agreed to the 51% tax rate, lack of promo deductions and other heavy terms up-front. They then launched with four-figure free bet offers to fight for share.
Analyst firm Regulus Partners called that bonusing strategy on opening weekend “mutually assured destruction.” Penn CEO Jay Snowden said before launch “no operators will make money in New York.”
New York government played its hand well
So what were sportsbooks thinking? Why did they agree to the tax terms and then launch as normal anyway?
For one, the license bidding process was a stroke of genius from the state, with bidders required to match the highest bid on tax rate to qualify. The five-operator consortium led by Kambi, Caesars and Rush Street, bid a 67% tax rate for a five-operator market or 51% for nine operators. The second consortium including FanDuel, DraftKings and BetMGM then agreed to that 51% rate.
“They had almost no choice …….
Source: https://www.legalsportsreport.com/70547/will-ny-sports-betting-ever-make-any-money/