New York Inches Forward on Mobile Sports Betting

DraftKings Chief Executive Jason Robins said at a Goldman Sachs conference in June that the company is “excited and hopeful that we’ll be able to put a very competitive bid forth and be selected as one of the handful of operators in New York.” FanDuel spokesman Cory Fox said the company is excited for the opportunity to offer its services in New York and was reading the request for applications closely.

The state estimates mobile betting will eventually generate $482 million in annual tax revenue from a roughly $1 billion sports wagering market. But New York isn’t making it easy for gambling companies, according to people familiar with the state’s plans. Companies must offer to pay the state at least 50% of their revenues, which some say could reach 60% to 65% in the competitive process.

New York State Budget Director Robert Mujica, a fiscal adviser to Gov. Andrew Cuomo, said the state expects major industry players will apply. “New York is a massive market,” Mr. Mujica said. “One way or another, providers will participate, so we think they’ll put their best foot forward.”

After several years of deliberations, Mr. Cuomo and New York state legislators agreed to legalize online sports betting as part of the state budget adopted in April. Legislators pushed for a model, similar to New Jersey, where casinos would join with mobile betting companies. A tax rate would have been fixed in law.

Instead, the state will choose at least two platform providers, which would supply the technology, and four operators, which would offer the consumer-facing brands. New York’s gaming commission will score licensees based on an applicant’s track record and plans, but also on how high a tax rate they are willing to pay.

New York officials said they based their plan on the system in New Hampshire, where the state lottery solicited bids and DraftKings launched as the sole mobile operator at the end of 2019. The New Hampshire lottery receives 51% of the gross gaming revenue from mobile sports betting, after allowing for promotional expenses. The state received $13.3 million of revenue from mobile sports betting between July of 2020 and June of this year, according to the lottery.

In a pivotal moment for the U.S. gambling industry, the Supreme Court in 2018 cleared the way for states beyond Nevada to legalize sports betting. Now, 31 states and the District of Columbia have legalized sports betting, though not all states allow for mobile betting.

Daniel Wallach, a lawyer who advises gaming companies, said he expected bidders in New York could go as high as offering 60% of their revenue, after paying out winning bets, to the state.

“It would be the highest revenue-sharing model for mobile sports betting in the United States,” he said.

Bill Pascrell III, a lobbyist who represents a group pursuing licensure in New York, said the state is making a significant mistake by limiting the number of sports-betting operators.

“They’ll learn…probably a year or so after they launch, why they’re going to want to retool it, and they’re going to want to retool it because of what’s going on in New Jersey,” said Mr. Pascrell, whose father is a member of Congress representing northern New Jersey.

By comparison, in the Garden State, there are more entities, each paying much lower tax rates to the state. More than a dozen companies offer digital sports betting with a tax rate of 13%, according to the state Division of Gaming Enforcement website. Last year, gamblers in New Jersey wagered $5.5 billion on sports online, amid casino shutdowns in the pandemic, and $487 million in person. Total sports wagering revenue for the year was nearly $399 million, up about 33% from the previous year; online casino revenue was $970 million, double the revenue from the previous year.

FanDuel and DraftKings recently reached agreements with Connecticut’s two tribal casinos to run online wagering. FanDuel has joined with Mohegan Gaming & Entertainment, owner of the tribal casino Mohegan Sun, while DraftKings has joined with Foxwoods Resort, owned by the Mashantucket Pequot tribe.

Under an agreement with the tribes, Connecticut set a 13.75% tax rate on sports-betting revenue, and an 18% tax rate on the first five years of online casino gambling, such as betting on slot-machine and roulette games on mobile phones. That tax rate increases to 20% for the next five years. The state’s amended tribal compacts laying out the gaming agreements still need approval from federal regulators.

Meanwhile, Connecticut’s lottery is seeking its own partner to run online sports betting for the state. Lottery officials are in contract negotiations with one company after a competitive application process. The lottery hasn’t publicly identified the companies while the selection process is ongoing.

Write to Katherine Sayre at [email protected] and Jimmy Vielkind at [email protected]