Setting The Stage for Sports Betting in New York
Legal sports betting in New York State is codified under Article 13 of the Racing, Pari-Mutuel Wagering and Breeding Law (PML), Section 1367. However, this law could not take effect until the landmark US Supreme Court Decision of Murphy v. National Collegiate Athletic Association, which ruled that the Professional and Amateur Sports Protection Act (“PASPA”) was unconstitutional, thereby removing the federal prohibition on sports wagering.
After the initial sports betting legislation was passed, ex-Governor Andrew Cuomo was hesitant to push for mobile sports betting in the State, citing potential issues with unconstitutionality. However, as with most things, the COVID pandemic changed the Governor’s outlook, as he did an about-face on mobile sports betting. Simply put, mobile sports betting provided too lucrative of a revenue generator for the State to ignore.
In 2021, a new law was codified, PML Section 1367-a, which allowed for mobile sports betting in New York State as long as wagers were transmitted to and accepted by electronic equipment located at a Licensed Gaming Facility (one of the existing casinos in New York State).
Cuomo’s vision of the mobile sports wagering industry in New York was not one of a competitive free market. The ex-governor pushed hard for a monopoly in which there would be one, or very few, licensed providers. The goal was to follow the blueprint laid out in New Hampshire, which allowed for a single platform provider whose revenue is taxed at a 50% rate. This strategy was not without its detractors, however. State Senator Joe Addabbo and Assemblyman Gary Pretlow pushed forward with their bill, S1183 and A1257, which would have created a competitive market with as many as 28 different sports books in New York.
Ultimately, Cuomo’s state monopoly vision won out. In April, 2021, the 2022 state budget was signed into law. Because New York opted with the monopoly model, regulators needed to select which companies they would allow to offer mobile sports betting in the state. Thus, New York is currently moving forward with a Request for Applications (RFA) to select the mobile sports betting providers for the entire state.
Mobile Sports Betting and the NYS Budget
The 2022 budget for New York State was made possible by bill S2509C and A3009 (the State Senate and Assembly versions of the bill, respectively). The bill enacted major components of legislation into law which were necessary to implement the budget for the 2021-2022 state fiscal year. It is Part Y of the Senate bill that provides for the regulation of mobile sports betting and implements a tax on revenue.
An analysis of the regulations and tax rates can help us understand the State’s strategy and goals in implementing mobile sports betting. What is known at this time is that there will be at least two Platform Providers (defined below) chosen with a minimum of four skins, or Operators (defined below). Those Platform Providers will pay $25 million each for a 10-year license and $5 million for server housing within one of the state’s four commercial casinos. Further, the Provider will have to share 50% or more of total sports betting revenue with the state. The 2022 budget projects $493 million in tax revenue by FY 2025.
It is anticipated that the selection process will conclude by the end of 2021 and mobile sports betting will (hopefully) be ready by the Super Bowl in early 2022. Now, let’s take a look at the process currently underway to determine which companies New Yorkers will be placing their bets through.
A Look at The RFA Process
The New York State Gaming Commission (NYSGC) announced the Request for Applications (RFA) on July 9, 2021. The RFA required hopeful Platform Providers to submit very detailed applications. The Providers were required to include information related to their operational experience as mobile betting providers, their technical capabilities, any compliance and risk management strategies they would implement, company structure and financials, and a host of other information related to the company. Additionally, if a Platform Provider was applying with an Operator partner, they needed to submit the same detailed information related to the Operator-company as they did for their own company. As discussed above, there will be a minimum of two Platform Provider and four Operator licenses awarded. The NYSGC has until January 6, 2021 to make its decision.
Platform Providers and Operators
A deeper dive into the RFA document helps us understand the roles envisioned for Platform Providers and Operators. Section 2 of the RFA distinguishes Mobile Sports Wagering Platform Providers from the Operators. Section 2.1 states that the Platform Providers are the primary applicants under the RFA. Providers will be responsible for the operation and maintenance of a Platform, for the integration of Operator(s), and for accepting and processing mobile sports bets.
Section 2.2 defines six services that will be required to be provided by the Platform Providers: (1). fully integrate the Operator’s wagering system into the Platform; (2). accept and register all wagers; (3).generate all electronic wagering tickets; (4). compute wagering and payoffs; (5). maintain records of all wagering activities; and (6). generate and/or submit to the Commission all required reports. Thus, the Provider is the most important piece on the back end that will be responsible for managing the mobile sports betting experience. However, in a lot of instances, the Provider will not be the brand name that a better interfaces with when he or she opens up an app on their phone to place a wager on the big game.
Section 2.3 of the RFA defines an Operator as the entity establishing sports wagering using the Platform. This Section also references the RFA’s corresponding Draft Regulations. The Draft Regulations were published to supplement the RFA and provide greater clarity on the rules and regulations associated with mobile sports betting. Section 5329.4 of the Regulations, in relevant part, states that a Platform can contract with an Operator to operate or assist in the operation of sports pools.
So, the Operator definition and requirements, at least as set forth in the RFA and Regulations, seem to be a bit more vague. However, the best way to look at it is this- the Platform will be the host and provide services like odds-making and processing bets on the back end, while the Operator will be the brand/app/mobile sports book that bettors interact with.
It is also important to note that some Platforms have applied as their own Operators, while other Platforms have proposed using one or more independent Operators in their applications. Both Platform Providers and Operators must be licensed as a a Mobile Sports Wagering Licensee pursuant to PML Article 13 Title 4.
Advertising and Promotional Requirements
Another interesting aspect of the RFA is found in Section 5.6. This Section defines specific requirements for applicants and their advertising strategies. All applicants must provide the following information related to their promotional strategies:
- estimated marketing budget;
- promotion and player loyalty programs;
- advertising plans;
- player acquisition models; and
- efforts to be undertaken to convert customers from wagering through unlicensed channels to wagering legally in the State.
The last requirement is of particular interest. The NYSGC is requiring applicants to put forth a strategy for converting those who are currently gambling illegally to placing wagers through their legal mobile platform. That will be intriguing to see play out once a Platform is chosen. With the extremely high tax rates and little to no competition, there could be very little money in the budget (and not much incentive either) for robust advertising campaigns.
Section 7.2 of the RFA sets forth the evaluation criteria for the applicants. Applicants will be scored based on both technical and pricing factors (see Tables below). The bonus points are interesting to note as those Applicants who partner with tribal nations in revenue sharing agreements will be given a slight advantage. In the event of a tie, the applicant with the higher pricing matrix score will win out (shocker!). The pricing matrix will also correspond to the duration of the license that an applicant could be awarded.
Who Are the Applicants?
On August 13, 2021, the NYSGC released redacted copies of the applications. Altogether, there are six separate applications. Bet365, a popular UK-based company, applied on its own as a Platform and Operator. Additionally, Fox Bet and ‘theScore Bet’ applied on their own as Platforms and Operators.
Kambi, a well-known global sport wagering company, submitted two separate applications. Kambi’s first application listed itself as the sole Platform with the intention of partnering with two Operators- Barstool Sports book and Fanatics Sports book.
The second Kambi application would have the Platform partner with three other Platforms- Caesars, Wynn Interactive, and PointsBet. Additionally, this consortium would partner with five Operators- Rush Street Interactive, Caesar’s Sportsbook, Wynn Interactive, Resorts World, and PointsBet.
There was one other large consortium that applied as well. That consortium was led by FanDuel and included BallyBet, Draft Kings, and Bet MGM as Platforms. All of the aforementioned platforms would have Operators under the same names.
The Kambi-led consortium and the FanDuel-led consortium expressed much different appetites for competition in the New York market if they were to win. Kambi is open to seeing up to nine total Operators in New York at a 51% tax rate. On the other hand, the FanDuel consortium was not so open to future competition. Their application cited an economic report that concluded that anything more than four Operators in the state taxed at 50% or higher would be unsustainable (for the businesses, not the State). This is certainly an intriguing discrepancy between, what seems to be, the two most competitive applications.
I note that these two applications seem to be the most competitive for two reasons. First, these applicant-groups bring together major players in the mobile sports gambling landscape that already have legal operations running globally and in other states. Thus, the technical implementation should be fairly straightforward for either of these groups to get up and running quickly if selected. The second reason these groups would seem to be the front runners has to do with the impetus behind New York allowing mobile wagering in the first place- tax dollars. It is important to remember that each Platform Provider will need to pay a $25 million licensing fee for a ten-year license. Presumably, this would give the consortium applicants an advantage due to the increased revenue the State would generate from the multiple-Platform Provider applications.
And now, eager New York sports gamblers must wait to see what the NYSGC announces. The date everyone has their sights set on is the January 6, 2021, deadline. On that self-imposed deadline, the NYSGC will announce the Platform Provider(s) that it has chosen, and hopefully mobile sports betting will be online and active for New Yorkers by the Super Bowl in February, 2022. As for the long-term outlook, . will Operators be less inclined to offer more creative and consumer-friendly odds, parlays, and special offers due to the lack of competition? It is certainly a plausible assumption. It will be very interesting to see how the New York consumer/bettor fares compared to those bettors in states with a more competitive market. However, for now, all eyes are on January and the conclusion to the RFA selection process.