Hold Your Bets

Four Guidelines for Legalized Sports Betting in New York State

September 05, 2018
On May 14, 2018 the State of New Jersey won a landmark ruling from the Supreme
Court of the United States overturning the Professional and Amateur Sports Protection
Act (PASPA) that had effectively prohibited states outside of Nevada from allowing
full sports betting. PASPA exempted states (Delaware, Montana, Nevada, and
Oregon) that had existing laws related to legal forms of sports betting already in
place. Of those four states, Nevada was the only state where traditional, single-game
sports betting on all professional sports through licensed bookmakers was legally
permitted.

The illegal sports betting market in the United States on all sporting events is
projected to be $150 billion annually, of which New York is estimated to comprise
between $2.8 billion to $8.7 billion. Operators retain between 5 percent and 6 percent
of the total amount wagered after distributing winnings, so legalizing sports betting
could generate $8.25 billion in Gross Gaming Revenue (GGR is the amount retained
by the sports betting operator after the payment of prizes) that would be available as
taxable revenue for states. In New York GGR is forecasted between $155 million to
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$475 million.2

Several states in close proximity to New York, including New Jersey and Delaware,
have rushed to enter the sports betting arena following the Supreme Court
ruling. New York’s legislators also took the first steps: bills drafted in the 2018
legislative session would permit and regulate sports betting and authorize and require
casinos, and their potential affiliates, to pay a state tax of 8.5 percent of gross sport
wagering revenue and a royalty fee of 0.2 percent of the handle (the amount wagered)
to the State that would be directed to the governing bodies of the various professional
and collegiate athletic leagues.3 The sponsors of the legislation estimated tax revenue
from the GGR in New York State would be between $10 million and $30 million
annually. Governor Andrew Cuomo argued that the issue is complicated and that
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there was insufficient time to work out details before the end of the legislative session
on June 20, 2018. Accordingly, the bill did not come up for a vote and the legislature
is not due back in session until January 2019, which provides time to analyze this
complex issue and draft appropriate legislation.

State leaders should consider these four guidelines as they decide whether and how to
expand sports betting in New York:
1. Revenue estimates should be conservative. While a new source of revenue would be
welcome, the State should estimate conservatively revenue benefits from sports
betting. Since sports betting has been illegal, it is difficult to predict how much of the
illicit activity will transition to the legal market and how many new participants will
engage. Furthermore, behavior will vary from state to state or in areas within states
based on demographic factors such as adult population, per capita disposable income,
and ease of access to gaming markets.

Previous estimates on other types of gambling revenues in New York have been
overly optimistic. On November 5, 2013 New York State voters approved a
constitutional amendment to expand casino gambling, and subsequently four
commercial casinos were opened (Tiago Downs in Nichols, del Lago Resort and
Casino near Waterloo, Rivers Casino and Resort in Schenectady, and Resorts World
Catskills). In New York State Fiscal Year 2017-2018, the casinos, with the exception
of Resorts World Catskills which was not open until late in the year, generated
gaming taxes of $112 million; however, these results were far short of
projections. Resorts World Catskills was downgraded by Moody’s Investors Service
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this past June and reported losses of $58 million for the six month period ending June
30, 2018. Many critics attribute the poor performance of the casinos to the
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oversaturation of the gaming market due to the number of casinos that have opened in
the northeast.

2. Taxes should be designed thoughtfully in a competitive marketplace. Many states,

including several in close proximity to New York State, are entering the sports betting
arena. Initial tax rates on GGR vary widely, and the economic impacts are
uncertain. New Jersey set its sports betting tax rates at 8.5 percent for land-based
sports betting revenue, 13 percent for online wagering run by casinos, and an
additional tax of 25 percent on gaming revenue received by racetracks. In Delaware
the state lottery administers sports betting in a revenue sharing agreement, and the
state receives 50 percent of the remaining GGR after paying its sports betting
contractor.

Lower tax rates would arguably enable operators to spend more on marketing and
customer service, invest more in technology, and potentially set odds that are more
attractive to bettors. Conversely, setting higher GGR tax rates may result in fewer
operators willing to enter the local marketplace, less investment in infrastructure and
marketing, and less attractive odds. Ultimately this may result in fewer people
transitioning from illegal to legal sports gambling.7
3. Sports betting’s potential impact on other gambling revenues should be
considered. In addition to falling short of revenue expectations, the recently opened
commercial casinos in upstate New York have also taken a large share of revenue
from competitors including racinos at Finger Lakes Gaming, Vernon Downs, and
Saratoga Springs that feature slots and electronic table games. The trend of
newcomers taking share from incumbents is consistent with what has been occurring
in other gaming markets, particularly in the northeastern portion of the United
States. In Atlantic City, New Jersey, competition from new casinos that opened in
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neighboring states, coupled with impacts from Superstorm Sandy, contributed to

gambling revenues falling by half from $5.2 billion in 2006 to $2.6 billion in 2016,
resulting in the layoff of 11,000 workers.
9

There is also the potential that sports betting could impact other types of gambling
including state run lotteries, which generate more than $3 billion in revenue for
education aid in New York State. 10

4. Legislation should take into account that gambling taxes are regressive, and
increased prevalence of gambling will impose social costs. Taxes on GGR are
regressive since low-income people bear an outsized burden, violating the principle of
vertical equity in taxation. Expanding the opportunities for gambling in New York is
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likely to increase the prevalence of “problem” gambling, which has been shown to be
at its highest level in disadvantaged neighborhoods and is associated with a range of
behaviors, including crime, abuse, job loss, and bankruptcy, that impose social costs
on others. Furthermore, pathological gamblers are more likely to suffer health
problems. 12

To address this concern, the New York State Office of Alcoholism and Substance
Abuse Services (OASAS) announced in January 2017 that inpatient residential care
would be available at six Addiction Treatment Centers granted waivers allowing them
to admit and treat individuals with problem gambling as their primary diagnosis. In
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addition the New York State Commercial Gaming Fund allocated $3.5 million in the
Fiscal Year 2019 Enacted Budget for problem gambling services.

Sports betting in New York presents an economic opportunity. In addition to revenues

from taxing sports betting, there are potential economic benefits from job creation,
including additional income and payroll, and sales taxes. Nationally, the estimated
state and local benefit is estimated at $3.4 billion, of which $254 million is
attributable to New York. Furthermore, the demand for illegal sports betting could
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 decline as bettors shift to a legal alternative, generating law enforcement savings as
the costs associated with investigation and prosecution of illegal activity decline.

The legalization and taxation of sports betting must be carefully considered. It is

important that revenue estimates are prudent and account for market saturation and
substitution from other forms of gambling. The tax structure should provide stability
and the potential for continued economic growth. The State also needs to account for
the harmful social impacts and costs that likely will ensue.

By Timothy Sullivan

Footnotes
1. Global Market Advisors, An Examination of Sports Betting in America & Forecast of Revenues by
State (November 2017), p. 1, http://globalmarketadvisors.com/wp-content/uploads/2017/11/GMA_An-
Examination-of-Sports-Betting-in-America-Forecast-of-Revenues-by-State_FINAL.pdf.

2. CBC staff estimate based on applying 5.5 percent on estimated New York handle as reported by Global
Market Advisors. See: Global Market Advisors, An Examination of Sports Betting in America &
Forecast of Revenues by State (November 2017), p. 44, http://globalmarketadvisors.com/wp-
content/uploads/2017/11/GMA_An-Examination-of-Sports-Betting-in-America-Forecast-of-Revenues-
by-State_FINAL.pdf.

3. “Sports Governing Body” means the organization that prescribes final rules and enforces codes of
conduct with respect to a sporting event and participants therein (this would relate to the various leagues
for professional sports and the National Collegiate Athletic Association.) Affiliates of casinos include
licensed racetracks, off-track betting corporations, the video lottery operator at Aqueduct Racetrack, and
the New York Racing Association. See: New York State Senate, Bill S7900C, An act to amend he racing,
pari-mutuel wagering and breeding law, in relation to regulation of sports betting (March 7, 2018), pp. 1-
3, www.nysenate.gov/legislation/bills/2017/s7900/amendment/c.

4. New York State Senate, Bill S7900C, An act to amend he racing, pari-mutuel wagering and breeding
law, in relation to regulation of sports betting(March 7,
2018), www.nysenate.gov/legislation/bills/2017/s7900/amendment/c.

5. New York State Gaming Commission, Commercial Gaming Reports, New York State Fiscal Year 2017-
2018, (accessed August 2, 2018), www.gaming.ny.gov/gaming/index.php?ID=1.

6. Moody’s Investors Service Inc., Moody’s downgrades Montreign Operating Company, LLC’s CFR to
Caa1 placed under review for downgrade (June 11, 2018), p. 1, www.moodys.com/research/Moodys-
downgrades-Montreign-Operating-Company-LLCs-CFR-to-Caa1-placed--PR_384946; and U.S.
Securities and Exchange Commission, Empire Resorts, Inc. Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended June 30, 2018 (August 7,
2018), p. 2, www.sec.gov/Archives/edgar/data/906780/000090678018000011/nyny-06302018x10q.htm.
7. Oxford Economics, Economic Impact of Legalized Sports Betting (May 2017), pp. 5-
14, www.americangaming.org/sites/default/files/AGA-Oxford%20-
%20Sports%20Betting%20Economic%20Impact%20Report1.pdf.

8. Moody’s Investors Service Inc., Cannibalization of gaming revenue continues in the northeast (January
22, 2018), pp. 1-2, www.moodys.com.

9. New Jersey Casino Control Commission, Casino revenues hit $5.2 billion (January 10,
2007), www.nj.gov/oag/ge/docs/Financials/PressRel2006/200612_revenue.pdf; and New Jersey Office of
the Attorney General, Division of Gaming Enforcement Announces 2016 Gaming Revenue
Results (January 12, 2017), www.nj.gov/lps/ge/docs/Financials/PressRel2016/December2016.pdf.

10. New York State Lottery, Financial Statements and Supplementary Information Years Ended March 31,
2017 and 2016 With Independent Auditor’s Report (July 19, 2017), p.
10, https://nylottery.ny.gov/sites/default/files/news_finances/NYL%20Financial%20Summary.pdf.

11. Adam Millsap, “Sports Betting Should Be Legal, But It’s Bad Tax Policy,” Forbes (Dec 5,
2017), www.forbes.com/sites/adammillsap/2017/12/05/sports-betting-should-be-legal-but-its-bad-tax-
policy/#750ed24a4d66.

12. Grace M. Barnes and others, Effects of neighborhood disadvantage on problem gambling and alcohol
abuse, (Research Institute on Addictions, University of Buffalo, February 8, 2013); and Marcia Van
Wagner and Dwight Denison, Gambling Revenues (Citizens Budget Commission, November 29, 2004),
pp. 12-13, https://cbcny.org/research/gambling-revenues.

13. New York State Office of Alcoholism and Substance Abuse Services, “NYS OASAS Announces
Expansion of Services for New Yorkers Struggling with Problem Gambling” (press release, January 6,
2017), www.oasas.ny.gov/pio/press/ProblemGambling010617.cfm.

14. Oxford Economics, Economic Impact of Legalized Sports Betting (May 2017), p.
37, www.americangaming.org/sites/default/files/AGA-Oxford%20-
%20Sports%20Betting%20Economic%20Impact%20Report1.pdf.