Since sports betting launched in New York January 8 there have been numerous stories written about the setting of records, but is some perspective needed?
Mike Murphy, Founder of BettingUSA.com, gave Gaming America his thoughts on just how significant the early returns are, and why investors are only “lukewarm” to what has taken place in the Empire State. He also passed on information regarding future implications for taxation if and when additional sportsbook operators come online, and even took a peek into his crystal ball to talk about efforts to legalize sports wagering in California.
Gaming America: We keep hearing New York sports betting is setting records – could you please put the early figures into perspective? What is driving the big numbers? Was there huge pent-up demand? How does NY compare to other states when population is considered?
Murphy: New Yorkers flocked to legal sportsbooks in record numbers, but those records are primarily due to the state’s population. The total wagered is far above any other legal state, but New York’s numbers fall back to earth when we consider population.
If you look at sports betting spend per resident, as of December 2021, New Jersey led the way with $138, followed by Iowa $84, then New York $83, Colorado $80, Illinois $61, Tennessee $50 and Virginia $50.
Even though New York missed out on a full week at the start of January, the promotional spend and pent-up demand likely offset the missed week. Our estimates place New York in the upper tier for handle per resident but within the normal distribution curve.
"The cost of being a national sports betting operator is becoming increasingly burdensome."
GA: The New York gaming regulator restricted the number of licensed sportsbooks at first. What is the number now?
Murphy: Following the request for proposal process, New York selected two bids, with nine operators. Seven of those operators have launched in the state – DraftKings, FanDuel, BetRivers, Caesars, BetMGM, PointsBet and WynnBet. The remaining operators are Resorts World and Bally’s.
Regulators can add more mobile sports betting operators beyond the two proposals the state initially selected. To do so, the New York State Gaming Commission would have to adjust the number of operators, which would reduce the tax revenue to the state based on New York’s tax matrix.
If New York adds another sports betting operator, the tax rate will fall from 51% to 50%. That is a negligible amount, but if the state continues to authorize new operators and eclipses 12 total operators, the rate plummets to 35%.
GA: When will other operators be allowed in?
Murphy: The process for Resorts World and Bally’s requires regulatory approval and a want-to from the companies. Regulatory approval is gained through a licensing process and testing the product and systems in place. But as we have seen with Bally’s, there is a reluctance to enter the market until the financials make sense.
For new proposals to get the okay, the NYSGC would have to determine that approving additional operators is beneficial to the state’s sports betting industry and tax revenue.
GA: Why are investors “lukewarm” to the early NY numbers?
Murphy: As noted, the early numbers are on pace with what was expected. The more significant concern is the current level of promotional spending being unsustainable in a market taxing operators at 51%.
We are starting to see some operators pull back on advertising and promotional spending, delay launches and even consider offloading their online division in the case of WynnBet. The overarching reason is apparent; the cost of being a national sports betting operator is becoming increasingly burdensome.
GA: Do you have any information on the efforts to get sports wagering legalized in California? We know one initiative has been approved by the California secretary of state for the November 2022 ballot – one that is supported by the tribes. Online operators are trying to get their own initiative qualified. Will there be more from other entities? The licensed cardrooms, for example?
Murphy: California has a low threshold for ballot access, 8% of votes cast for governor in the last election cycle, which works out to just under 1 million signatures, so there could be multiple initiatives on the November 2022 ballot.
The big question is, who will win the hearts and minds of Californians? Tens of millions were spent on failed ballot initiatives in Florida, and the amount of money that will be spent by the competing interests in California will dwarf that number.
