- New York in January became the largest US state to embrace online sports betting.
- Companies including DraftKings, FanDuel, Caesars Sportsbook can now take mobile sports bets there.
- But the state's 51% tax rate could be a big hurdle in the industry's path to profitability.
New York last week became the largest US state to embrace online sports betting.
On January 8, the Empire State began allowing gambling companies including DraftKings, FanDuel, Caesars Sportsbook, and Rush Street Interactive to take mobile sports wagers. Five more operators are slated to enter the market ahead of the Super Bowl, the most bet-on event in the US.
New York's roughly 20 million residents could be a boon for the nine sports betting platforms with licenses in the state.
But its sky-high tax rate on gambling revenue will make it a more challenging market for operators than others like New Jersey.
New York's 51% tax rate is among the highest in the nation, tied with New Hampshire, Robert Linnehan, a sports betting regulatory reporter for XLMedia's EliteSportsNY.com, told Insider. (That tax rate is for operators, not individual gamblers.)
That'll make it harder for operators to profit off their customer bases in the state, said Jason Ader, CEO of SpringOwl Asset Management and 26 Capital Acquisition Corp.
"Everybody wants to be in New York because it's a trophy market in terms of the size of the state and its importance, but the tax rate is really prohibitive," Ader said. "It's very hard to make money in sports betting. Put 51% tax rate on it and it's maybe a bit more like a fool's gold rush than a gold rush."
Sports betting is generally not yet a profitable business in the US. Companies are spending heavily on marketing and promotions to acquire customers.
The operators in New York, such as DraftKings and FanDuel, may be better off keeping their most valuable sports bettors wagering in nearby New Jersey.
The Garden State's tax rate on sports betting is much lower than New York's, at 14.25% for mobile and online sports betting. And some avid New York-based gamblers have already been crossing state lines to place their bets there legally, since New Jersey regulated online sports betting in 2018. The New York sportsbooks may be incentivized to focus their marketing and promotions on casual and first-time bettors, and encourage the whales and sharps to stay in New Jersey.