Analysis: Why NY Sports Betting is a “trap” for sports betting providers

Be careful with your wishes. After years of pushing for NEW Sports betting has its market.

But it’s not what they wanted.

Governor Andrew Cuomo Ultimately, it prevailed with a relatively limited market due to the state lottery.

The operators offer a license via RFP. There will be at least two Platform provider selected with a at least four Skins. These platform providers pay $ 25 million each for a 10 year license, and must do more than share 50% of the total income from sports betting.

NY sports betting is a “trap”

Aside from the confusing language surrounding platforms and partnerships, the economy just doesn’t add up.

“Overall, there is a risk that the New York framework will no longer work,” he said Paul Leyland, a games industry analyst Regulus partner. “This is a trap. But it is a trap for those who fall for it and for those who don’t.”

What does Leyland mean?

New York doing math

First, a winning bidder may not be able to make money.

Sports betting in highly competitive markets spend around 25-30% gross gaming revenue (GGR) in marketing. Add the 50% tax and a New York brand may be giving away 80% from GGR immediately.

That’s ahead of other costs like official league dates and payment processing fees. That is not to be mentioned $ 25 million Upfront license fee and $ 5 million in server costs for the casinos.

In short, the economy doesn’t work when bonuses are taxed at such a high rate.

But companies that do not want to commit financial hara-kiri are also in trouble. They have been banned from the largest market in the US for at least 10 years, and their Total Addressable Market (TAM) has been hit hard.

The New Hampshire comparison is flawed

Cuomo knew that New Hampshire is the inspiration for this system. For this reason, the governor expects a bid for a license begin at a 50% VAT

DraftKings won an RFP for NH sports betting 2019 by Offer a 51% Tax rate for a full monopoly. Of course, a monopoly means that it doesn’t have to constantly pump money into marketing and bonuses.

As part of this offer, DraftKings also offered:

  • 21% from GGR for a license in a market with two or three operator
  • 16% from GGR if it were one of four or five Operators in the market

In New York we will see at least four brands, possibly six or more. So when it comes to NH, 16% GGR is a fair tax rate, not 50%.

Also keep in mind that DraftKings won this bidding process in NH by a mile. BetMGM came second and bid 20% by GGR for a monopoly.

What’s the solution for sports betting in New York?

Leyland sees two possible outcomes.

  1. Cuomo’s political problems force him out of office. The industry jointly decides (without consultation) that something less than 40% of GGR is a more workable tax rate and builds its bids on it. This is an option because the law itself isn’t that burdensome. It takes a minimum 12% Tax rate in bids. The 50% tax angle is a rhetoric of the Cuomo government and goes against what lawmakers wanted.
  2. Much more likely the operators will step forward and give Cuomo his 50% tax rate and hope to sort it out later. As Leyland put it:

“Someone with deep pockets in the long-term US market could justify losing money for five years because it’s New York. Then they turn around and say, “Look, we’ve tried to play the game by the rules, but it’s not practical. Let’s work out a new game where we can both win. ‘“

Investors want their high returns

Of course, the second option is more likely as US sports betting is still in growth mode. A company like DraftKings has one $ 22 billion Market capitalization because investors expect massive expansion in the future. Es and other publicly traded companies won’t let these expectations fall lightly.

“The industry is in danger of kidding itself,” Leyland said. “Whenever this industry was faced with a trap, it ran into it.”

Unfortunately, the trap is designed to hit operators whether they walk in or not.

The industry’s best hope now is for Cuomo to leave or the dream of sports betting in New York could quickly turn into a nightmare.

Photo credit: Terry Robinson / Flickr

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