New Jersey Handle Still Impressive, But New York Tax Numbers are Gaming-Changing

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New Jersey Handle Still Impressive, But New York Tax Numbers are Gaming-Changing
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The much-anticipated first comparative numbers are out for New York and New Jersey sports betting markets and there are a few interesting nuggets in the figures.

For starters, concerns that the New Jersey sports betting handle would suffer significantly because it had been getting an estimated 20% of its sports wagering action from bridge-and-tunnel bettors making their way across the Hudson from New York were allayed by Jersey’s robust record-setting handle in January.

However, the numbers that may have broader implications are the taxes collected by the respective states.

First, the Numbers

  • Handle: The New York New York sports betting handle in January was $1.67 billion. New Jersey’s January handle was a record $1.35 billion, or about 81% of New York. So, Jersey more than held its own against the fourth-largest state in America by population.
  • Revenue: New York’s January revenue was about $124.1 million and Jersey’s full January revenue was $60.2 million, or about 45.5% of New York. There was a substantial difference in hold between the two states that helps explain the revenue percentage disparity compared with the handle.
  • Taxes: However, where there’s real separation — and it’s a financial category that should surprise no one – is in tax collections. New York, with its now famous (or infamous, depending on one’s point of view) tax rate of 51% collected about $63.3 million in taxes for education from sports wagering. In contrast, New Jersey’s full-month sports gambling tax collection was about $8 million. The Jersey tax rates are 8.5% for retail sportsbooks and for internet, where the bulk of the betting is done, the tax rate is 13%.

Now, the Question

As gambling operators come hat-in-hand looking to open up shop in various jurisdictions, an inevitable talking point is that they need a “reasonable” tax rate — however “reasonable” is defined.

Operators have a laundry list of justifications for arguing for as low a tax rate as possible including being able to compete with unregulated offshore sportsbooks — who pay zero taxes. Legal operators will argue that a reasonable tax rate allows them to offer customers decent, competitive odds. And while it may not be part of their formal presentations in front of lawmakers, legal operators would also contend that they need some financial wiggle room for marketing, such as promotional incentives to acquire and retain customers.

However, New York took a hard line on sports gambling taxes. The tax rate is 51%. That could go lower if more gaming operators are allowed into the market but for now, it’s 5-1 — take it or leave it. And most operators, including all the big guys, swallowed hard and took it.

The big sports betting handle in January is a double-edged sword. Because while the immediate customer enthusiasm was encouraging for operators, it could also be argued that the legal operators in New York did just fine relative to offshore books despite shouldering a 51% tax rate and in dealing with whatever effect the tax rate had on the gambling product they’re able to offer.

When Will Other States Catch On?

Sooooo, how long before New Jersey and other jurisdictions begin to get the idea that perhaps they’re leaving money on the table with tax rates in the lower double-digits?

Already, in Hawaii, a jurisdiction with no legal gaming, not even the lottery, talk of sports betting is accompanied by a proposed tax rate of 55%. If New York can get 51%, so the reasoning goes, why can’t the Aloha State get that 55%.

While the online sports gaming industry has been giddy about the New York results so far, it may want to consider further implications should taxpayers and lawmakers elsewhere take notice of the full range of financial results.

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