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Executives with leading operators have warned state lawmakers that excessive tax rates risk stretching the U.S. sports-betting market past its breaking point.

“Over-taxation and over-regulation could actually be a threat to the industry,” Cesar Fernandez, senior director and head of state government affairs with FanDuel, told lawmakers at the National Council of Legislators from Gaming States (NCLGS) conference in Pittsburgh.

“For whatever reason, taxation of the online sports betting business … has been detached from how we treat any other company,” Fernandez said, citing the divergence between how some states tax sportsbook operators with how they treat businesses in general.

Currently, New York taxes online sports-betting revenue at 51 percent, while its graduated corporate tax rate tops out at 7.25 percent. In Colorado, sports betting is taxed at 10 percent, compared with a corporate tax rate of 4.4 percent, and in Indiana the tax rate is 9.5 percent, while the corporate rate is 4.9 percent.

Fernandez called New York a more staggering example of high tax rates compared with other states. He complained to a room of lawmakers and regulators that Goldman Sachs pays seven times less in taxes than FanDuel even though both companies have the same tax structure.

“At the end of the day the state has made the decision that we are not going to overtax almost all but [gaming] companies in our state,” Fernandez said. “I wanted to bring this up because we often don’t see it.”

Despite consistent pushback from the industry, Troy Mackey, committee coordinator with the New York Assembly Racing and Wagering Committee, told lawmakers and regulators attending the NCLGS conference that the 51 percent tax rate will not be lowered.

“When we initially wrote the legislation for sports betting in New York, we wanted to incorporate more companies and we wanted a tax rate around 37 percent,” Mackey said. “The prior administration wanted to use the New Hampshire model, which was a 51 percent tax rate.”

Mobile sports-betting legalization was passed by state lawmakers and signed into law by then-Governor Andrew Cuomo, a Democrat, in April 2021. 

“New York is doing extremely well,” Mackey said. “It is one of those things that you cannot go back now, unfortunately, to reduce the tax rate.”

MacKey said when policymakers tried to revisit the tax rate they ultimately struggled to justify taking away money from education to give to a corporation.

“That is the argument we have been up against,” he said. “So, we tried again to put more entities in New York to reduce the tax rate. We are hoping that will balance it out in reference to reducing the rate for entities involved but folks with a higher pay grade than myself are totally against that.”

Brandt Iden, vice president of government affairs at Fanatics Betting and Gaming, hoped lawmakers attending NCLGS would understand that New York is not a model that any state should be looking to replicate in terms of the tax rate. 

Both Iden and Fernandez warned lawmakers that there is an upper limit as to the tax rate that can be applied to sports betting, although neither executive would say what that limit was.

“The plea to lawmakers is, at what point does the model break,” Fernandez said. “Is there a breaking point? Can it survive in the long term?”

Iden agreed, cautioning lawmakers that “you can’t tax these companies to the point where it doesn’t make sense anymore and we just can’t operate”.

Iden, a former Republican state Representative in Michigan, also expressed dismay at Illinois lawmakers and Democratic Governor J.B. Pritzker’s approval of a sports-betting tax increase via a recent budget law that raised the state's tax rate from 15 percent to a graduated tax structure reaching 40 percent on annual revenue of more than $200m.

“It doesn’t make sense,” Iden said of the tax increase in Illinois. “There was a lot of conversation about whether operators would leave or not. Whether or not they stick around really isn’t the point. They are going to be there. They aren’t going to leave. That’s the reality.”

Iden stressed the industry will figure out a way to make it work, but if operators are overtaxed then companies cannot expand their operations or reinvest in new technologies.

He also advised lawmakers to be “very thoughtful when you are talking about those tax rates because there is a breaking point, and you just don’t want to push it”.