Will anyone make any money?

Will anyone make any money?

The New York The sports betting market was supposed to be one of the crown jewels in the United States.

It was the first of the “Big Four” states to be shown live 20 million People, vibrant sports culture and affluent risk takers Wall Street.

So far, though, the tax structure and competitive start-up of sports betting in New York has been more of a nightmare than a dream for sportsbooks.

What’s the harm in New York?

A sample of some of the participants shows the bleak picture:

  • Caesar Digital Spread EBITDA loss of 500 million dollars In the first quarter, the majority of those losses come from New York.
  • BetMGM reduced its investment in the state, saying the effective tax rate was more than 100%. “The house can’t keep playing if it always loses,” BetMGM CFO JAri Deutsch He said.
  • Bally Betone of only nine licensees, has yet to start because the competitive environment is “crazy”.

No surprises here

Of course, the structure of the market does not surprise anyone.

Yes, of course they won’t make money.” Sean Kellyan analyst at American bank. “It’s not rocket science on numbers. Anyone who knows games knows they are not going to make money.”

Regardless, the two consortia of nine operators agreed to 51% Tax rate, no promotional discounts and other heavy conditions in advance. Then they launched the free four-figure bet offers to fight for the post.

company analyst Regulus partners This bonus strategy at the opening weekend was described as “Mutually Assured Destruction”. The son of Executive Director Jay Snowden “No operator in New York is going to win,” he said before the launch.

The New York government played its hand well

So what was the book of bets thinking? Why did they agree to the tax terms and then start business as usual anyway?

First, the bidding process was a stroke of genius from the state, as bidders must match the highest bid on the tax rate to qualify. The consortium of five operators led by CampyAnd the tsar and Rush Streettry a 64% Tax rate for a market of five operators or 51% for nine operators. The second consortium including VandelAnd the kings Then BetMGM agreed to it 51% modified.

The gambling lawyer said, “They had no choice but to accept.” Jeremy Kleiman. “It is the largest active market in the United States and even larger than some countries.”

New York also has a strategic value. Its media market is very large, and it can turn the national marketing economics in favor of the operator.

Room fluctuations in the sports betting tax rate in New York?

Executives also hoped – rightly or wrongly – that there might be room to maneuver the tax rate once it became clear that no one could make money.

As CFO of DraftKings Jason Park He explained to investors in May:

Back in January, we built the potential for a 2022 tax cut in New York, which didn’t happen.”

There has already been some movement toward lower taxes. Society Member Gary Brettlough And the Senator Joe Adabo Legislation was introduced that would bring in more operators, thus lowering the tax rate under the existing matrix.

Adabo later backed down a bit, saying he didn’t want to reduce the state’s bumper tax revenue.

Reap out of the bottle

One reason for this stalemate is the huge amount of tax revenue coming in. New York has already generated more sports betting taxes than any other state $267 million.

On this front, sports books They didn’t do themselves any favors walking out of the gate with north rewards 3000 Dollarswhich helps to artificially pump the handle.

“Caesars’ offer of $3,000 was the craziest thing I’ve seen in 20 years in the industry,” said one gaming executive.

Doing sports betting bonus calculations in New York

Think about the economy: Someone made a $3,000 deposit with Caesars and got a $3,000 bonus. Then they lose the entire $6000 to Caesars.

However, Caesar will pay $3,060 USD In tax on $6000 of the total GGR, reducing it $60 on the customer. This is before taking into account the payment JB Smoove and other marketing costs.

“It sends an unfortunate message when operators rush into this market,” he said. Jeff Afrahgaming lawyer and founder of the trade group idea.

‘Turn off the taps’ in sports betting in New York

The Caesars reacted quickly, cutting off their promotion in half About two weeks after launch. Executive Director Tom Rig He later said the company had achieved its goals with this bold early spending.

To their credit, said Kelly, the Caesars pivoted. “I can’t answer why they didn’t expect this. But I can tell they turned very quickly. They saw that they had to close the taps in the middle of the quarter.

“I also give credit to BetMGM. They realize you can’t simply play the same rules of the game and not lose money. Everyone loses money but New York is next-level losses.”

different world

It is also worth noting operators You agreed to terms in a different market environment. in the middle for 2021Stock prices were on the rise, and operators were rewarded for growth at all costs. In that environment, getting into New York was easy.

In the current market focused on profitability, New York is the albatross.

In fact, the market has a detrimental effect that goes beyond only losses. For example, New Yorkers who used to cross into Palestinian AuthorityAnd the New Jersey And the CT The bettor can stay at home and bet the 51% tax rate instead of 14.25% In New Jersey, for example.

What’s more: New York Sports betting had a Great effect on cannibalism DFS Revenue in New York, according to DraftKings. In essence, the company moved revenue from the high-margin DFS business to the negative-margin sports betting business.

Time for a change in sports betting in New York?

What’s Next? How can sports books make sense of New York?

The obvious solution is to change this tax rate. The industry argues that a lower tax rate creates a more sustainable environment in the long run, by allowing books to offer a better product. Promotion and marketing also bring in players from abroad.

“You hope countries will look at this as a partnership and not as a money grab,” Kleiman said. “This structure pays off in the short term, but in the long term it creates an appalling situation.”

Hope in 2023?

In this context, Kleiman “likes to believe” New York lawmakers will change the tax rate next year. Kleiman argued that the first effort to do so was simply too much, and too soon.

“The fact that they considered a change as part of the budget two months after launch shows that New York knows that this market cannot function in the long term,” Kleiman said. “I think it is only a matter of time.

“It was very early in March, but now we are starting to see the consequences for the market.”

market forces

But not everyone is convinced that the state will abandon its position. Kelly expects operators to blink before the state does.

“I would bet a lot more on operators regressing than the environment actually changing,” Kelly said. “Even if there’s the math behind taking a lower percentage from a higher number, it’s hard to see the case going backwards. The first thing you’ll see is other operators following this lead from BetMGM and backing away from marketing. It’s the only rational economic thing to do.”

In fact, if all nine operators cut spending at once, market share might remain relatively unchanged while everyone earns a little extra money.

What’s more: If the index continues to decline during the summer months as the sports calendar slows, tax intake will begin to fall. Then the operators have some data to support the argument about a sustainable market.

No complicity in sports betting in New York

However, what are the odds of everyone agreeing with this plan? FanDuel, for example, has deep pockets and has vowed to keep spending to squeeze its advantage among American sports bets.

“I don’t think the industry is going to jump on board as one and copy BetMGM,” Ifrah said. “They wouldn’t be upset if someone fell on their sword and they could take a share. All these guys have shareholders who only care about one thing.”

Instead, Ifrah said the change would come from advocating and proving the economic argument. As already noted, this can be an uphill battle.

As Kelly said, “Once the money comes through the door, it’s very hard to come back.”

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