The newly legalized New York sports betting market has the potential to be the US market leader. But very high levels of competition and taxes mean operators will have to optimize all aspects of their operations, including player retention and activation, writes Enteractive Chief Business Officer Andrew Foster.
The launch of regulated online sports betting in New York provides a glimpse of what the US market will look like should the likes of Florida, Texas or California also regulate their respective sports betting sectors.
The likelihood of those three other states doing that in the near term is not high currently, but most industry observers believe it will happen in the next few years. The fact that those states are the four most populated jurisdictions in the US and, once regulated, operators believe the massive scale and reach of the industry will truly come into play for them and drive volumes is part of the rationale behind the major US brands investing billions in marketing and customer acquisition with so far no sign of being profitable.
For those reasons, it is worth looking at New York more closely to see what a hyper-competitive, high potential state might look like. Again, specifics matter and in the case of New York it’s linked to the high tax rate of 51% that the authorities have set. This compares with rates of between 15% and 35% in states like New Jersey, Pennsylvania, Ohio, Michigan or Illinois.
The difference in tax levels is key: a lower rate means operators are left with more revenues that they can reinvest in highly costly marketing (promotions and free bets) and advertising.
New York’s tax rate means none of that is possible and for operators New York essentially will be a loss leader where they will acquire market share, raise their profiles with consumers and sell strong stories to investment funds and analysts.
NY by the numbers
Importantly, there is also increased scrutiny about operators’ likely paths to profitability from investors; and with many betting brands pencilling 2022 as the year when they expect to break even in the US and 2023 as the time when they start to become profitable, time is approaching when they will have to turn predictions of vast market promise into real profits.
As the tweet below from the geolocation firm GeoComply shows, betting volumes on day one of activity in New York very quickly overtook those from Pennsylvania, the next biggest state.
GeoComply said that New York saw 5.8 million bets placed between 9am and 9pm on Saturday, against 2.3 million in Pennsylvania and 2.1 million in New Jersey over the same time period. Over the whole weekend (8-9 January), the total number of bets was 17.2 million, with 8 million of them coming from New York City alone.
The state will count nine operators all vying for New Yorkers’ wagering spend, although at the time of writing, only five were live: Caesars, FanDuel, DraftKings, BetRivers and BetMGM. Those operators are likely to be top five in the state, but with brands like WynnBet, Bally Bet, Pointsbet and Resorts World also readying for launch, the level of competition is set to be intense.
There is no doubt that some operators will rein in some of the huge bonuses they have offered in other states where taxation is lower, but equally the need to recruit players in such a high profile market will mean marketing dollars will continue to flow.
Some commentators believe the tight operating environment may push bookmakers to focus on prices and core competencies such as trading and risk management to generate stronger margins. That is unlikely at the moment however, because the market is still so new that operators are not at the stage where they can spend time on those features.
Other issues that will impact the New York market will include whether New Jersey operators are able to continue attracting New York residents, especially the high spending players, across the Hudson with better odds and bigger bonuses thanks to the lower tax rates that apply in the Garden State.
Despite all these scenarios, with 20 million residents, New York will likely soon be the biggest state to regulate sports betting when it comes to turnover and revenues. But that should not distract from the fact that profits will be harder to come by there, as they already are in other states with lower tax rates.
This broad layout of the issues that affect New York state is why positive communications and one-to-one engagement with players is crucial in reducing churn and increasing lifetime values. For New York-licensed operators it also represents a lever they can pull to maximize their investment in a state that will be highly competitive and costly.
Enteractive has enabled many operators to be successful in other markets, with highly localized consumer communication strategies that can also help brands connect with players in New York and in other regulated states across the US.
Andrew Foster is the Chief Business Officer for Enteractive and has been with the company for five years. Hailing from Johannesburg, S.A., Foster spent almost seven years in the South African gambling industry before making the move to Europe in 2016.