The Empire State took the gambling world by storm earlier this year when regulators launched its mobile sports betting market in January.
Following its rollout, New York became the largest sports betting market in the country. In fact, it basically happened overnight. Just as quickly as New York earned the top spot, it could lose it whenever sports betting in Florida becomes legal.
For years, New York’s neighbor to the south, New Jersey, was considered the gold standard of sports betting. But once New York allowed its roughly 19.8 million residents to wager, it quickly became clear that New York was the country’s dominant market.
Florida is one of only three states with larger populations than New York. None of them currently have legal sports betting.
Florida had a taste of legal sports betting last November, however, when the Seminole Tribe briefly launched its Hard Rock Sportsbook.
Just a few weeks after its debut, a District Court judge ruled that the Florida gaming compact violated the Indian Gaming Regulatory Act. As a result, the tribe shut down its online sportsbook and the gaming compact was vacated. The Seminole Tribe is currently appealing the ruling.
Despite the setback, there are a couple of different routes to legal Florida sports betting. Aside from the currently in question gaming compact, FanDuel and DraftKings funded efforts for a sports betting ballot initiative that will likely be in front of voters in the 2024 election cycle.
Regardless of which form it comes in, here are three key factors that could lead to Florida overtaking New York for the nation’s top gambling market.
Enact a reasonable tax rate
The most controversial part of New York’s online betting market was the tax rate. The state government is taking 51% of revenue from the nine operators in the market.
Before the New York market was live, there was plenty of speculation among experts about what the unusually high tax rate would do to the market.
Here are some of the highest sports betting tax rates in the country:
- Rhode Island: 51%
- New Hampshire: 51%
- New York: 51%
- Delaware: 50%
- Pennsylvania: 34%
- Tennessee: 20%
As you can see, there are three other states with either identical or nearly identical tax rates to New York. But Rhode Island, New Hampshire and Delaware are tiny states with only a fraction of New York’s population.
With such small markets and upside somewhat capped for operators, there isn’t a ton of risk for sportsbooks to operate in that environment. But what happens when the rate is implemented on a larger scale?
Tax rate didn’t impede New York’s initial success
In the short term, New York’s tax rate didn’t appear to affect anything. Despite the high rate, the industry’s largest operators flocked to the state. Caesars, FanDuel, DraftKings and BetMGM are among New York’s licensees.
During the first month of operations, the state set a record with a handle of nearly $2 billion. Operators generated revenue of more than $138 million on those wagers. Furthermore, state coffers received $70.6 million from tax payments.
It looked like the flood gates were open after the first 30 days of New York sports betting. Any doubt about the tax rate affecting the market could be put to bed.
After all, the bets kept pouring in and the state collected about $267 million in taxes over the first five months.
Rates could put long-term health of the market in jeopardy
However, as more time passed, executives began to express doubt about long-term profitability in New York. Some cut their marketing budget or promotional dollars for new customers.
Caesars Digital posted an EBITDA loss of $500 million in Q1, most of which came from New York. BetMGM lowered its New York-focused spending, and its CFO said the effective tax rate was more than 100%. And Bally Bet, which is one of the nine licensees, hasn’t even launched because of the state’s environment.
Furthermore, DraftKings CFO Jason Park said in May that the company “built in a probability of a 2022 tax reduction.” It appears that there was no leeway in the tax rate though and it wouldn’t surprise anyone if DraftKings followed MGM’s actions in New York.
Lastly, an analyst for Bank of America said that these moves were inevitable.
“Yeah, of course they weren’t going to make money,” Shaun Kelley told Legal Sports Report. “It’s not rocket science on the numbers. Anyone who knew gaming knew they weren’t going to make money.”
Possible Florida sports betting tax rates
The latest gaming compact between the Seminole Tribe and the state is currently making its way through a prolonged legal battle. The agreement would legalize sports betting and expand gaming options at both Seminole-owned casinos and pari-mutuel facilities.
But since it uses a ‘hub-and-spoke’ model for sports betting, only the Seminole Tribe would pay state taxes. They would be the only entity permitted to run an online sportsbook. And if a pari-mutuel opens a retail option, the tribe will take a hefty chunk of its revenue and only that piece is taxable.
Under the compact, the Tribe pays a tax on total gaming revenue. It wouldn’t’ be specific to sports betting. Therefore, if Florida sports betting comes through the compact’s route, this debate is moot.
There is another option for Florida sports betting, however. The ballot initiative.
FanDuel and DraftKings funded efforts to get a sports betting initiative on the ballot for 2022. It failed for this year’s election cycle, but it’s very likely this issue is in front of voters in 2024.
The initiative would allow for entities aside from the Seminole Tribe to operate online sportsbooks. If this ends up being the roadmap for Florida sports betting, regulators will need to establish a tax rate.
It’s clear from New York’s quagmire that regulators can’t get too greedy. Or Florida sports bettors will suffer from fewer choices and promotions.
Follow New Jersey’s lead
Florida regulators will have the opportunity to put the overall health of the industry before an immediate fill of state coffers. This should result in a long-term prosperous market for all involved, which ultimately ends with significant tax revenue anyway.
Florida shouldn’t try and reinvent the wheel. Look at what already works and mimic that. New Jersey clearly solved this puzzle years ago but lacks Florida’s population.
Just copy and paste the New Jersey model which taxes online betting at 13% and retail at 8.5%. Despite having less than half the population of New York, the Garden State’s total handle is roughly 80% of its neighbor to the north.
Allow for as many licenses as possible
Enough about tax rates. As far as the issues that concern the actual bettor, the corporate tax rate is probably very far down on the list.
But sports bettors do care about choices. Like in any market, consumers are always happier when they have more of them. Sports betting is no different in that regard.
Florida needs to make sure that its bettors have as many options to choose from as possible. This means regulators should offer as many licenses as possible.
Most of the very successful markets give their residents a ton of online sportsbooks to choose from. For example, there are 21 different apps in New Jersey.
Virginia, which quickly flourished and became one of the country’s more booming gambling industries, has 18 licensees (although only 12 have launched).
And to round out the Mid-Atlantic region, Maryland has up to 60 online sports betting licenses available. However, it’s unlikely that regulators award all 60 of them, and the state is clearly having issues launching its online market. But the state’s retail market is thriving, and the delayed online launch is the only thing holding Maryland back from becoming a success.
More licenses only come from the ballot initiative
If Florida is going to offer a ton of licenses, then the ballot initiative would need to pass in 2024. If legal sports betting only comes from the gaming compact, then online bettors will be limited to the Hard Rock Sportsbook.
You only need to look at the state’s casino market to understand the need for competition.
Yes, most aspects of most Seminole-owned casinos are world-class. There are amazing restaurants, fantastic hotels, amenities, and of course a plethora of gaming options.
But when it comes to rewards, the Seminole Tribe doesn’t give much back to its gamblers unless they are high rollers.
Poker players in Las Vegas receive $2/hour in rewards that can be redeemed at the property’s restaurants. In Florida, poker players get half that. And good luck getting any comps at a table game if you aren’t betting something close to the max.
Remember those promotional dollars that were being cut in New York? There will be much less incentive to offer bonuses to bettors in the first place without competition.
Keep the barrier to entry as low as possible
The third and final factor is a bit less concrete than the first two. It requires a small balancing act from Florida regulators.
Every state requires an upfront fee to obtain a license. It fluctuates massively from state to state. In Colorado, an online sports betting license costs just $75,000. On the other hand, New York charged $25 million for market access.
New Jersey, which we already established has this whole thing figured out already, charges $100,000.
It makes me think that staying on the lower end of the spectrum is preferable. Especially since keeping the barrier low will also result in more operators and ultimately a more competitive market.
When Florida legalizes sports betting, there will be a ton of demand from operators trying to get a piece of the action. Since there will be so many companies clamoring to get involved, Florida doesn’t have to be the cheapest game in town. But it shouldn’t try to charge an exorbitant amount either.
I’m not smart enough to recommend an actual number, and I’d err on the cheaper side. But I also recognize that access to a market of this size is worth quite a decent sum. Just don’t try and gouge the businesses.
