New York’s Mobile Sports Betting Gain Is New Jersey’s Tax Revenue Loss

By sometime next year, it appears New York will have mobile betting and the "free lunch" for New Jersey taxpayers will be over.
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Turns out there is such a thing as a “free lunch” — it just doesn’t last forever.

Just ask New Jersey taxpayers, who reaped an estimated $10 million for the state treasury from New Yorkers who crossed the state line to legally bet on sports in 2020.

If New York — which just reached an agreement on mobile sports betting on Tuesday as the state drew within short strokes of finalizing the annual budget — takes until the end of the year to implement the betting, and if there is no dramatic alteration in sports activity caused by another wave of the COVID-19 pandemic, then Garden State residents can shoot for as much as $20 million more from their neighbors in 2021.

That timing appears to be almost a lock, because even ever-optimistic state Sen. Joseph Addabbo of Queens — the dean of gaming issues in that chamber — said Tuesday that his “benchmark” for launch of NY mobile sports betting is the Super Bowl next February.

But by sometime next year, the “free lunch” will be over, as New Yorkers will have far less reason to gamble in New Jersey — aside from some who like to visit the Meadowlands Racetrack for the atmosphere, or Atlantic City casinos for live table games or slots.

A report last year by the independent research firm Eilers & Krejcik Gaming concluded that 40% of the retail betting handle at the FanDuel Sportsbook at the Meadowlands came from New York sources. (Just visit the track on a weekend and take note of the license plates in the parking lot. Although there are plenty of ways to fund a virtual betting bankroll, many gamblers still prefer to go cash-only when they bet.)

The same report estimated that 10% of Atlantic City casino sports bets are by New Yorkers, with another 8% of Monmouth Park’s sport bets made by the Empire Staters.

NJ sportsbooks will feel the pinch

New Jersey’s sportsbooks handled a remarkable $6 billion in bets last year, with a hold for the books of $399 million. Nearly 92% of the handle came from online bets.

At the estimate of 20% to 25% coming from New Yorkers, that was a bonus $80-$100 million in revenue for the books.

Under Gov. Andrew Cuomo’s directive, most of those operators likely won’t get a piece of the New York legal mobile sports betting action given the relatively limited amount of competition.

 As for taxpayers, the 2020 New Jersey results went this way:

  • $46.8 million from $5.5 billion bet on computers and mobile devices, at a tax rate of 13%;
  • $3.2 million on $487.1 million wagered at the state’s three racetracks and nine Atlantic City casinos, at a tax rate of 8.5%.

The handle goes to 11 — or is it $12B?

The COVID-19 pandemic crushed betting handle in March, April, May, and June. The month of July — with many major sports back in action — produced $315 million in wagers, and that more than doubled in August to $668 million.

Then came September ($749 million), October ($803 million), November ($932 million), and December ($996 million).

So it’s conceivable that there could be $12 billion bet in New Jersey in 2021 — double the amount wagered in the state in COVID-ravaged 2020.

If the operators double their collective gross revenue to $800 million, that would double the tax collected to $100 million — including $20-$25 million courtesy of New Yorkers.

NY high tax rate a good idea?

NY mobile sportsbook operators are expected to have to fork over about 50% of their gross revenue — same deal as New Hampshire, but quadruple what they surrender in New Jersey.

“Our conclusion is that the scenario with the highest number of eligible operators and the lowest tax rate produces the most revenue for state government,” Grove and Krafcik wrote in their report.

“Additionally, a low-tax, high-competition environment should capture the maximum amount of demand that currently flows to illegal bookies and offshore sportsbooks.

“Capturing more demand from the illegal market means that more consumers will enjoy the safety and protections of a regulated market while also cutting down a source of revenue that has historically been attached or at least adjacent to organized crime.”

But Cuomo — who was opposed to mobile sports betting until he floated a trial balloon in December and fleshed it out in January — has not seemed to focus on the existence of widespread illegal gambling in the state.

DraftKings, in spite of its monopoly in New Hampshire, has offered its customers there the same odds as it offers bettors in all states where they conduct such business. But in higher-tax states, there tend to be fewer alluring “odds boosts” and other bonuses and promotions because of the lower profit margins.

New York’s four commercial casinos as well as the state’s tribal casinos offer legal sports betting, but those casinos are all located 95 miles or more from midtown Manhattan — which is why so many New Yorkers have been crossing the Hudson since New Jersey launched its sportsbooks in mid-2018.

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