The chief executive officer of Flutter Entertainment Plc — the Dublin-based parent company of FanDuel — says the spending spree by sportsbook operators in New York could soon come to an end if the Empire State doesn’t make some tax changes.
Flutter CEO Peter Jackson said Tuesday that its FanDuel Sportsbook has so far acquired more than 400,000 new customers in New York, which has already become the biggest wagering state in the U.S. after its early January launch of online sports betting.
The fight for customers in New York among the handful of mobile sportsbook operators authorized to take wagers in the state has involved throwing around lots of advertising dollars and sign-up promotions.
But Jackson claimed they are starting to see signs of FanDuel’s competitors curbing their offers to customers — a trend he said could continue in the state thanks to its 51% tax rate for mobile wagering revenue and its lack of deductions for promotional spending.
“There's an important point to note in terms of long-term profitability in New York and tax take for the state,” Jackson said during his rundown of Flutter’s preliminary results for 2021. “We hope policymakers in New York recognize that while the state benefited from an initial period of heavy investment amongst operators, such investment is not sustainable beyond a few weeks. Absent different treatments of bonusing and/or a lower tax rate, the period of aggressive initial spending is almost over.”
Show us the money
The prediction from the Flutter CEO comes as shareholders of publicly-traded bookmakers appear to be becoming more conscious about the cash companies are burning. That, in turn, appears to be putting pressure on sportsbook operators to lay out paths to profitability for investors, which can be tricky with high-tax states such as New York. As a result, customers could already be seeing fewer ads, free bets, and promotions sent their way — and politicians could be hearing more complaints from sports-betting companies.
New Yorkers have already wagered more than $2.8 billion via the seven online sportsbooks currently doing business in the state. The handle has translated into approximately $179.3 million in gross revenue, which means platform providers owe the state more than $90 million in tax thus far.
FanDuel has clawed out a significant market share for itself in New York. According to the latest numbers from the New York State Gaming Commission, FanDuel had racked up $938.1 million in mobile handle as of the week ending February 20, or about 33% of all legal online wagering up to that point.
Still, Flutter on Tuesday announced its adjusted earnings before interest, taxes, depreciation, and amortization for 2021 were approximately $1.3 billion, down around 18% from a year earlier.
Investors did not respond kindly to the news from the world's largest online betting firm, whose other brands include FOX Bet, Paddy Power, and PokerStars. Flutter’s stock price declined 12.4% on Tuesday on the London Stock Exchange.
You're not alone
Flutter is not the only operator grumbling about the New York tax rate on mobile wagering revenue either. DraftKings CEO Jason Robins even said last month that there is some “chatter” about lawmakers considering lowering the levy.
“The approach we're taking is a wait-and-see on that,” Robins told analysts and investors during DraftKings’ fourth-quarter earnings call. “And, I think if that happens, depending on where it lands, then we'll adjust accordingly. And if it doesn't happen, then we'll adjust accordingly.”
In the meantime, Flutter said in its 2021 preliminary results release that they are seeing faster adoption rates for online sports betting as they expand into new states, which causes bigger losses at first as they acquire more users.
However, while the company now expects states to make positive contributions (defined as gross profit minus sales and marketing costs) 12 to 24 months after launching, rather than its previous guidance of 18 to 30 months, that outlook excludes higher-tax states such as New York.
Flutter's U.S. business also ran an adjusted EBITDA loss of around $323 million for 2021, although the company anticipates those types of losses will end next year.
“Based on our current expectations relating to the timing of new state regulation in 2022 and 2023, we remain confident that our US business will be EBITDA profitable in 2023,” Flutter said in its results press release. “The timing of regulatory developments and new state launches can be difficult to predict and any variance to our expectations across these two years could affect the timing of profitability being reached, particularly if an unexpected large state such as California launches in 2023.”
