Reflective of the often testy relationship between New Jersey and New York, it would appear that BetMGM’s initially upbeat analysis of the Empire State’s nascent sports betting market has soured: from sweet, fizzy cider to acerbic vinegar.
The New Jersey-headquartered transatlantic lovechild of Vegas behemoth MGM Resorts International and London Stock Exchange-listed Entain has switched down to a decidedly low key after posting a distant fourth in New York’s sports betting handle last month, April.
Market leader FanDuel, with a take of US$600 million (£477.3m/€562.4m), pulled-in over four times as much as BetMGM’s US$142 million (£112.9m/€133m); compared to DraftKings, US$327 million (£260m/€306.5m), and Caesars, US$215 million (£171m/€201.5m).
Citing New York State’s “irrational” 51 per cent rate of iGaming tax– the highest in the country, alongside New Hampshire–as the principal driver, BetMGM’s Chief Financial Officer, Gary Deutsch informed media watchers that the sports betting combo would henceforth adopt a “conservative” approach to marketing—or growing—their offering in the state.
Amid much fanfare and pent-up demand, New York State launched regulated sports betting this January after years of intense lobbying.
But for BetMGM the shine has definitely come off the Big Apple state.
“The specific problem in New York is that it has a high 51 per cent [tax on] gaming revenue,” said Deutsch. “And it [also] applies that rate to ‘phantom’ revenue from promotional credits.”
Effectively, this means: “that the real tax rate on net gaming revenue is well over 100 per cent.
“We simply can’t apply our capital against an irrational investment thesis.
“Players cannot continue to play if the house always wins. And the house cannot continue to play if it will always lose,” Deutsch concluded.
Lure of Low Taxes and Low Hanging Fruit
Meantime, BetMGM is projecting likely net revenue of some US$1.3 billion (£1.03bn/€1.21bn) for this year — up from 2021’s US$850 million (£676m/€796.8m).
As for EBITDA, the iGaming vertical is predicting a similar loss to last year, US$430 million (£342m/€403m).
Dismissing any notions of sour grapes (or bad apples) because they have less than five per cent of market share in the Empire State, Deutsch insisted that BetMGM’s executive team were anticipating lower taxes in the future.
“We expect this tax environment to change, and given the positions of Entain and MGM it makes strategic sense to take our time here,” he argued.
Nevertheless, BetMGM boss Adam Greenblatt still compared current New York tax rates to a “contagion”.
“[Hopefully] it will be clear over time that [a] more sustainable tax system [will] lead to greater levels of play in the regulated market, which is beneficial to all interests,” said the BetMGM CEO.
“The best way to sustain the health of the industry is to [follow] a strategy of more responsible marketing,” reasoned Greenblatt.
“BetMGM is taking steps to work with our industry peers to address this.”
With New York proving to be something of a “poisoned apple” (an iGaming market for BetMGM where they appear “damned if they do, damned if they don’t), Greenblatt, at this moment in time, seems little tempted by the rich fruit lying south of the US border in Latin America.
“Currently BetMGM’s exclusive jurisdiction for all things iGaming and sports betting is the US,” he said.
“Our shareholders have agreed specifically that BetMGM can compete in Canada [Ontario’s newly regulated sport betting market]. And from a geographic perspective, that’s about as far as we’ve got so far.”
And he added rhetorically: “Does it make sense to look South?”
Certainly it’s a conversation and a story for another time.