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Sports Wagering in New York: What Can New York Learn from the 2018 New Jersey Experience?

Bennett Liebman
Government Lawyer in Residence, Government Law Center, Albany Law School

When New York Governor Andrew Cuomo's proposed budget for the New York State 2019-2020 fiscal year was announced last month, it was accompanied by the news that the state's four upstate private casinos would be authorized to take sports wagers. Sports wagering would be authorized once the state's Gaming Commission finalizes its rules governing the subject.

The Gaming Commission took the first steps to promulgating these rules at its January 28, 2019 meeting, where it gave first passage to the sports wagering rules. These rules are now subject to the public comment and publication procedures established under the State Administrative Procedures Act. Final passage of such rules would be expected to come in mid-spring, and sports wagering would need to be approved at each facility.

Who Gets Sports Betting in New York?

Sports wagering was authorized for the commercial casinos under the Upstate NY Gaming Economic Development Act, which passed in 2013 as the accompanying legislation to the state's Constitutional amendment authorizing casino gambling. The 2013 legislation authorized sports wagering at casinos if federal legislation banning sports gambling was either amended or found to be unconstitutional. In May of 2018, the United States Supreme Court struck down the Professional and Amateur Sports Protection Act of 1992, which had banned sports gambling in most of the United States, outside of Nevada. Based on this decision, the states of Rhode Island, Delaware, Mississippi, New Jersey, Pennsylvania, New Mexico, and West Virginia all began sports gambling in 2018. New York State did not need new authorizing legislation, since the 2013 legislation already legalized sports wagering.

The four private casinos in upstate New York that could be licensed to conduct sports wagering are del Lago in Seneca County, Rivers in Schenectady County, Resorts World Catskills in Sullivan County, and Tioga Downs in Tioga county. Besides the four privately owned casinos, there is the potential -- depending on the wording of the individual compacts -- for the New York tribes with casinos; the Seneca, Oneida, and St. Regis Mohawks, to operate sports wagering facilities at their casinos. Currently, there are seven tribal casinos in New York State, with the Oneidas and the Senecas running three apiece.

The New Jersey 2018 Experience

The experience in New Jersey should be instructive as to how the casinos in New York might fare. It is a neighboring state in the Mid East Coast region, which made the full dive into sports gambling in 2018. New York sports gamblers could reasonably travel and bet at the New Jersey facilities at the Meadowlands Racetrack and at Monmouth Park. New Jersey began sports wagering in June of 2018 and has sports wagering onsite at two racetracks and at seven of the nine Atlantic City casinos. Five of the casino licensees and the two racetrack licensees offer sports wagering to New Jersey residents through the Internet.

The 2018 calendar year numbers for New Jersey show sports wagering gross revenues of $94 million for a period of 6 ½ months. (This revenue is somewhat overstated, since New Jersey currently considers gross sports wagering revenues as including the gross dollar amount of wagers subtracted by payouts to bettors. Thus, wagers placed in 2018 on future sports events, such as those placed on the 2019 Super Bowl, would be considered 2018 gross revenue. The actual revenue on completed sports events in New Jersey in 2018 was $72 million.)

The tax revenue return to New Jersey from sports wagering in calendar year 2018 was $10.4 million. Using the December 2018 monthly numbers (which are more reflective of a more mature market and assuming based on Nevada sports wagering numbers that December wagering constitutes about 11% of annual sports wagering handle), the anticipated annual New Jersey tax revenue would be $21.8 million. The tax revenue numbers ought to be considered a disappointment. New Jersey officials have been using the number of $100 million as the estimated tax revenue from sports wagering for more than a decade, well before any thought had been given to the potential of Internet sports wagering. A $20 million number is hardly what was anticipated. While there clearly is room to grow, it is a long way from $100 million.

Sports wagering constituted 3.2% of the general casino wagering market in New Jersey for 2018. In Nevada, where sports wagering revenues increased by more than 20% in 2018, it only constitutes 2.5% of casino revenue.

62.5% of New Jersey's sports wagering handle in 2018 was placed through the Internet. In order to place a legal Internet wager, the bettor needs to be physically situated in New Jersey. In December of 2018, the percentage of Internet bets reached 75.5%. The Internet sites in New Jersey did not begin operation until August, with all sites in operation by the commencement of the National Football League season in the first week of September. It is certainly likely that in the future, the Internet handle will continue to be at least 3/4 of the total sports wagering handle. Starting in December of 2018, Pennsylvania began its sport wagering operation. Thus, bettors in the Philadelphia area no longer needed to travel to the to the Atlantic City casinos to place legal sports wagers.

Of the on-site gambling, much of it was conducted at the Meadowlands Racetrack, the site closest to New York City. In December of 2018, 58% of the on-site sports wagering wins were at the Meadowlands. 16.7% was at Monmouth Park in Oceanport, New Jersey, leaving 25.3% to be shared by the seven Atlantic City casinos that conduct on-site sports gambling. Using the December 2018 sports wagering statistics as the basis for an annual projection for sports wagering revenue, on-site sports wagering annual revenue in New Jersey would be $14 million for the Atlantic City casinos, $9.3 million for Monmouth Park, and $32 million for the Meadowlands.

Lessons for New York

The obvious lesson for New York is to not anticipate much revenue for the casinos from sports gambling. The New Jersey onsite numbers are not particularly encouraging, and the New Jersey sites are generally in more populated areas than the four upstate casinos. Tioga Downs is in a rural area on the Pennsylvania border. Pennsylvania now has Internet wagering on sports. There is little reason to expect much sports gambling revenue there. The same should hold true for del Lago, which is located between Syracuse and Rochester. It is not a big population center, and if the Senecas and the Oneidas Nation offer sports wagering, del Lago could find itself in a difficult commercial environment.

Rivers Casino would not have much nearby competition, but it is not in a more desirable location than Monmouth Park in New Jersey, or Charles Town in West Virginia, both of which are doing modest in-person sports wagering business. Monmouth Park, as stated previously, could be presumed to have in-person sports gambling revenue of less than $10 million. Assuming that Rivers did bring in that much revenue, it would increase its current total gaming revenue by about 6% or 7%. It would be helpful, but not a game changer.

Resorts Worlds Catskills would be the closest sports wagering facility in New York to the New York City market, and it would have good access to the northern suburbs of New York City. However, it would compete with the Meadowlands for in-person gambling, and the Catskill region has proven a disappointing area, thus far both for video lottery gambling and for casino gaming. It could potentially perform better than Rivers, but it is unlikely to do much better than that.

The Seneca Nation has the best opportunity for in-person sports wagering. It has the greatest exposure to a population center, with a facility in downtown Buffalo. Its Niagara Falls facility is on the Ontario border and ought to be able to attract Ontario sports bettors as well. Currently, Ontario sports bettors only can legally wager on sports through the Pro-Line lottery offered through the Ontario Lottery and Gaming Corporation, which offers only parlay wagers and less than desirable odds. The Niagara Falls casino could attract Ontario sport bettors.

The Mohawk Akwesasne Mohawk Casino, operated by the St. Regis Mohawks, is near the Canadian border in northern Franklin County. While it is close to a potential sports betting market in Canada served by the sub-optimal Pro-Line game, it is basically not near any area that can be considered a center of population. Unless people will drive about an hour and a half from Ottawa, there ought to be limited St. Regis Mohawk revenue from sports betting.

The three Oneida Nation gambling properties are between Utica and Syracuse. Again, this is hardly the most desirable environment for sports gambling. The most interesting issue is whether the Oneida Nation will take wagers on games played by Syracuse University. New York law bans the private commercial casinos from taking bets on New York university and college sports teams, but the tribes would not be bound by this rule. If the Oneidas take wagers on Syracuse games, they could potentially have a market for sports betting in New York.

Tax Revenue in New York

If one optimistically assumes that the four commercial casinos in New York would bring in at most $25 million in sports gambling revenue, the tax revenues to the state-- with a tax rate of 10% on sports wagering revenues -- would be $2.5 million. It is hardly a large amount of revenue and is actually half the amount that the state receives from daily fantasy sports.

What if New York Went Full New Jersey?

What would happen in New York State following the lead of New Jersey - besides allowing sports wagering at its four commercial casinos -- passed legislation allowing these casinos to use the Internet to take wagers from everyone residing in New York? One could assume that the state would claim that the situs of the wager would be a server located on the casino property and thus would be open to everyone geographically located inside the state.

New Jersey has 45% of New York's population and would (using December 2018 figures) likely have $187 million in annual sports wagering revenue. That number in New York State would equate to $416 million in sports wagering revenue. New York's current 10% tax rate would yield $41.6 million in tax revenue. Under the bills that have been introduced on sports wagering in the state in 2018 and 2019, the tax rate would be set at the lower rate of 8.5%. At an 8.5% tax rate, the yield to the state would be $35 million.

The initial $35 to $41 million dollar amount does provide some tax revenue. It is more than the $5 million that New York State receives from daily fantasy sports and the $15 million it receives annually from pari-mutuel taxes. Yet it is a drop in the budget -- not only compared to the overall state budget - but to the $2.4 billion the state receives from the traditional lottery and from the $950 million from video lottery terminals. To put this in perspective, it is considerably less than what the state receives from video lottery proceeds at the racinos at Saratoga Harness ($62 million in FY 2018) and at Finger Lakes ($48.7 million in FY 2018). A game changer, this isn't.

What ought to be most troublesome for New York is the potential claims from the Indian tribes. The most recent state budget indicates that the tribes, from their exclusivity fees -- the tribes pay fees to New York based on the state agreeing to keep areas near the tribe's casinos free from casino gambling -- are scheduled to pay about $212 million annually to the State. If there is Internet betting authorized in New York State, the tribes are certain to argue that a bettor placing a sports wager from inside their exclusivity zone to a commercial casino is violating their exclusivity rights. In the case of the Seneca Nation, the exclusivity rights include much of western New York, from the suburbs, to the east of Rochester, to the state's southern and western borders with Pennsylvania. The Oneidas have exclusivity in 10 counties in central New York. If New York authorizes Internet sports wagering, the tribes will certainly put that $212 million into question. The state might not be willing to take any action that would threaten the exclusivity payments. If New York sports wagering, even assuming significant growth in the wagering market, could produce a maximum of $100 million in government revenue, it will not come close to making up for a loss of the exclusivity payments. The state will need some arrangement with the gaming tribes before it can reasonably decide to make any significant expansion into the field of Internet sports wagering.

Current New York Loss of Sports Gambling Revenue to New Jersey

This issue should be a non-starter. New York is not losing significant revenue to New Jersey due to sports betting. It would be likely that the one site that New York bettors would be wagering at in New Jersey would be the Meadowlands. If New Yorkers constituted 1/3 of the in-person sports bettors in the Meadowlands in December of 2018, that would account for $1.2 million in gross revenue. Assuming again that December accounts for about 11% of overall sports gambling, that would equate to about $10.9 million of gross sports wagering revenue annually from New Yorkers. Under New York's current 10% tax rate for sports wagering, that would be a loss of $1.09 million annually. Under the bills that have been introduced on sports wagering in the state setting the tax rate at 8.5%, that would make the lost tax revenue $926,000. That is not a large amount of money that New York has arguably lost to New Jersey on account of sports wagering. It really should not merit any discussion. The share of toll revenue paid to the Port Authority from New Yorkers using the Lincoln Tunnel or the George Washington Bridge (with a $12.50 toll for EZ pass users in peak times) to get to the Meadowlands might by itself make up for this minimal loss of revenue.

Summary

In short, there ought to be one simple lesson to New York from the New Jersey experience: Don't get your hopes up too high. There will be no financial windfall for either the casinos or the state from in-person sports betting conducted at the four upstate casinos. Expansion of sports wagering to the Internet would be needed to make sports wagering a significant success. Even with Internet sports wagering, tax revenues to New York would not increase markedly, and the expansion to Internet sports wagering could lead to significant issues -- and potential revenue losses -- in dealings with the tribes that have gambling facilities in New York.

The one thing not to worry about is New Yorkers driving to New Jersey to bet on sports. This is probably not costing New York State anything.

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This page contains a single entry from the blog posted on February 12, 2019 2:34 PM.

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