Analyst: New York OSB a low-return business

May 24, 2024 11:15 AM
Photo: Shutterstock
  • David McKee, CDC Gaming Reports
May 24, 2024 11:15 AM
  • David McKee, CDC Gaming Reports

Online sports betting operators (OSB) in New York State are spending an average of 22 cents out of every dollar they make on promotional outlays. After that — and a 51 percent tax levy — they’re left with 27 cents per dollar to spend on advertising and marketing, labor, federal excise taxes, and platform and processing fees.

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That was the discovery of Deutsche Bank analyst Carlo Santarelli, who was able to obtain hitherto-undisclosed data on the amount of OSB promotional spending in the Empire State. Given last year’s $1.7 billion revenue haul for sports betting, Santarelli’s calculations arrived at a $394 million splurge on player-targeted promotions.

Santarelli contends that this is actually a relatively limited spend, particularly compared to other states in which tax rates are lower. He pointed out, in an investor note released Thursday morning, that consumers were warned high levies would be met with unfavorable hold percentages and lower player incentives.

“As it pertains to New York, promotions, relative to other states, have been lessened, though we don’t believe the offered odds are materially different than neighboring states,” Santarelli continued. He did note that promotional tendencies had been ramping up in the early months of this year.

“That said, NY promotions remain well below neighboring states and this is almost entirely due to the consequences of the high tax rate,” the analyst resumed. To make his point, he observed that in the fourth quarter of 2024, New York OSB providers spent only 1.8 percent of money wagered (handle) on promotions, compared to 3.5 percent in Pennsylvania and 4.8 percent in Michigan, two states with lower imposts.

“While NY doesn’t provide detail by operator as it pertains to promo spending, given that the market structure is challenging and more so for smaller-scale operators, we can likely assume that the share of promotional dollars for the likes of DraftKings and FanDuel outpace their respective promo-spend share in other states,” Santarelli wrote.

Indeed, market leader FanDuel represented 34 percent of promotional activity and DraftKings another 29 percent out of a combined 77 percent handle share in New York.

The third-most active operator was ESPN Bet, which represented 12 percent of promotional activity. BetMGM generated another 11 percent, followed by Caesars Sportsbook at two percent.