Citing a commitment to its investors, BetMGM has revealed that it is scaling back spending on promotions and bonuses for its New York sports betting app. The state taxes sportsbook revenue at a rate of 51%, which BetMGM Chief Financial Officer Gary Deutsch identified as “unsustainable,” during the company’s Investor Day last week.
“The house cannot continue to play if it’s always going to lose,” Deutsch told investors.
This marks the first public disclosure by one of the top sportsbooks that the market for New York sports betting apps may be too costly to be profitable for operators.
Unlike most other states, New York does not allow sportsbooks to remove the cost of new user promotions, other betting promos, free bets, bonuses, and marketing from their taxable revenue. With a tax rate of 51%, New York is gathering a record amount of tax dollars since launching its online sports betting market in January.
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New York State Raking In Revenue
From January, which was a partial month for the state, through April, New York received $163.1 million in tax revenue from sports betting. Compare that to $26.9 in taxes for neighboring New Jersey for the same period for sports betting, or $3.5 million in a mature market like Michigan.
Even though those other markets are not as large as New York in the volume of revenue, New York reaps far more in taxes. In New Jersey, sports betting operators are taxed at 14.5% for online activity.
Observers of the industry have speculated that operators may find it painful to do business in New York given the tax rate. Already, in only three-plus months with legal online sports betting, New York has moved to third all-time for tax revenue in the United States, with more than $200 million.
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Uncertain Future For New York Sports Betting Operators?
But the steep cost of doing business in the Empire State leaves the future uncertain for some operators like BetMGM, which are paying close attention to their bottom line.
“As rational allocators of capital with sophisticated investors in Entain and MGM, we simply can’t apply our capital against an irrational investment thesis,” Deutsch said during last week’s investors call.
The high cost of being in the New York market isn’t lost on legislators. In February, the New York State General Assembly floated the idea of exempting free bets from taxation, while also lowering the tax rate to 25% by 2024. But once the lawmakers saw how much money was coming into the state treasury from sports betting in 2022, the effort was abandoned.
AP Photo/Frank Franklin II