In the face of New York’s sky-high 51% tax on sports betting, operators find it more challenging to turn a profit and consequently, their incentives and promotions are becoming noticeably leaner in the state. Carlo Santarelli, a seasoned analyst from Deutsche Bank, shed light on the financial challenges that come with operating in New York’s bustling sportsbook market in a comprehensive report.

Santarelli notes that for every dollar earned, sportsbook firms channel a mere 22 cents towards promotional expenditure. With taxes accounted for, a scant 27 cents remain in the coffer. This balance is stretched thin, meant to cover employee salaries, fund marketing initiatives, maintain state-of-the-art technology, and settle federal taxes.

Interestingly, the tight leash on promotions in New York is not echoed in neighboring states. Santarelli points out, “Promotions have been curbed in New York, although we observe no significant disparities in the odds offered compared to its close neighbors.”

Operators in New York, the country’s fourth-largest state, are no strangers to high stakes. Indeed, the sports betting industry managed to rake in a hefty revenue of $1.7 billion in 2023, from which a cool $394 million was earmarked for incentives.

However, New York isn’t the Lone Ranger in imposing a 51% tax – Delaware, New Hampshire, and Rhode Island follow suit. Unsurprisingly, operators find it pivotal to set up shop in New York, drawn by the irresistible allure of robust brand development and lucrative revenue prospects that flow from the city’s teeming betting landscape.

Navigating such high taxation rates inspires operators to be discerning in their distribution of promotions, nudging them towards a more measured approach to these incentives. Case in point, sportsbook operators in New York allocated just 1.8% of total handle to promo expenditures last year, in stark contrast to the 3.5% and 4.8% seen in Pennsylvania and Michigan.

Established names in the field, DraftKings and FanDuel, have cemented their duopoly in the US. This holds particularly true for New York, where these two giants were responsible for 77% of 2023 handle and commandeered 63% of the state’s promotional spending. Penn Entertainment’s ESPN Bet and BetMGM accounted for the remaining 23% of incentive expenditure.

Sports betting giants, DraftKings and FanDuel, have managed to weather New York’s onerous tax conditions without significant recoil in their bottom lines. The Campaign for Fairer Gambling (CFG) reported that the hold in New York tallied at 8.7% last year, marginally higher than the average of 8.4% across all states.

The compelling narrative emerging from New York’s sports betting sector has captured the attention of other states angling for a slice of this tax revenue pie. Illinois Governor J.B. Pritzker (D) has proposed to escalate the state’s sports betting tax to 35%, a substantial leap from the current 15%. In a similar vein, Massachusetts recently toyed with the idea of upping its stakes to a staggering 51%.

Meanwhile, this bold proposition in Massachusetts was rapidly quashed, likely the unfortunate casualty of ill-timed local news which celebrated a newly-implemented tax on the wealthy that netted $1.8 billion, handily exceeding the state’s projected gains.