An article published by the New York Post over the weekend revealed an interesting tidbit of information regarding online sports betting in the Empire State. According to the Post, DraftKings New Jersey and FanDuel New Jersey both estimate that up to 10% of their sports betting customers actually reside in New York but make trips across the border to place mobile wagers in New Jersey.

One sports bettor told the that he makes a 35-minute each-way trip from Harlem across the George Washington Bridge to place mobile wagers. As soon as he crosses the border, DraftKings instantly detects he is in New Jersey and enables sports wagers.

“I hope sports betting gets to New York soon,” he told the Post. “There’s going to be a massive wave of people who would gamble.”

That some people are crossing into New Jersey to bet on sports is no surprise, but both sites reporting that at least 10% of their customer base come from New York is no small matter. That number is almost hard to believe and one has to wonder if someone at the New York Post confused daily fantasy with actual sports betting. Daily fantasy is legal in both states while sports betting is only legal in NJ.

If that stat is true, it’s just further evidence of what many have been saying for quite some time: New York State has some serious pent-up demand and will be a big market if and when it finally gets around to legalizing mobile sports betting in New York.

New York is likely to gain legal online sports betting at some point. The state has been toying the idea for years now, and even got a referendum approved in 2013 allowing the state’s four commercial casinos to accept in-person sports wagers. That law is technically in effect, but the Gaming Commission has held off on issuing regulations as lawmakers debate a more comprehensive approach.

One bill has already been introduced to bring in-person and mobile sports betting to New York in 2019 and more efforts are likely to join that one as well. A number of New York casinos and gaming companies have already formed partnerships in anticipation of legalization, so confidence is high on all sides.

Big Potential for the New York Sports Betting Market

With a population of nearly 20 million people, New York is a highly-anticipated gaming market for obvious reasons. Not only does the state have the population to support a thriving gaming industry, but it is chock-full of sports fans with two MLB teams, two NBA teams, two NFL teams, three NHL teams, two NHL teams, two MLS teams, and a plethora of women’s and minor league teams to go along with it all.

The potential is massive, especially when we consider New Jersey (population 9 million) achieving in total sports betting handle between June and November of 2018. New York, with more than double the population and more than a few residents already crossing into Jersey to place bets, can easily become the largest sports betting market in the US if the right laws are put in place.

Mobile betting and tax rates will be critical in determining the future of the New York sports betting market. If lawmakers get these two issues right, New York could easily rival New Jersey in terms of active customers, betting handle and tax revenue.

Mobile Betting is Key

The importance of mobile betting is fairly self-explanatory. If lawmakers approve online and mobile betting, licensed operators will have statewide reach and be able to appeal to those who don’t live near casinos. Additionally, the added convenience of online wagers will go a long way toward attracting more frequent wagers from casual fans.

Taxes Also Need to Be Done Right

Lawmakers will also need to strike the right balance on tax rates. It’s only natural for government types to want to extract as much money as possible from a newly-legal industry, but setting tax rates too high will be counter-productive if licensed operators are unable to compete with neighboring states and offshore betting sites.

The first bill to be introduced so far in 2019, , looks like a good start. S17 allows mobile betting and establishes a reasonable tax rate of 8.5%. The bill does call for an integrity fee of 0.20% of betting handle to be paid to the leagues, but that it still a lot better than original proposals calling for a 1% fee on betting handle (total volume of wagers placed).

For comparison’s sake, New Jersey assesses a 13% tax on internet sports betting but does not have an integrity fee.

If we go with the standard assumption that sports betting operators tend to keep about 5% of the total betting handle as revenue after paying winners, New York’s 0.20% fee on handle works out to the equivalent of a 4% tax on revenue.

The number works out this way by assuming for every $100 in wagers placed, a sportsbook pays out $95 to winners and ends up keeping about $5 on average. A 0.20% fee on that $100 worth of handle would be $0.20, which would 4% of the $5 kept by the sportsbook.

If we combine the 8.5% NY sports betting tax with another 4% or so in integrity fees, licensed operators would be looking at an effective tax rate of about 12.5%. This is right in line with New Jersey’s 13% tax, which has proven sustainable.

Good Start, But Challenges Remain

One of the key difficulties facing NY sports betting right now is getting a bill past Senate Finance Committee Chair Liz Krueger. She has long opposed sports betting legislation and can easily block any sports betting bill that comes before the committee. However, Governor Cuomo can bypass her if he opts to introduce a sports betting measure through the next budget bill.

Overall, New York seem to be heading in the right direction regarding sports betting. The integrity fee in S17 is entirely unnecessary, but the reduced size of the fee combined with a reasonable tax rate are a good starting point.