New York State: Online sports betting taxes to bring twice as much revenue as recreational cannabis
A good number of US States are waking up to the reality that they cannot stop online gambling. While we will not go into the arguments for or against online gambling, it is reassuring that the States are gradually realising that what cannot be stopped should at least be managed.
In late April, New York went ahead of Connecticut State to join the States where online sports betting is legal. The New York Gaming Commission is responsible for regulating and containing the possible excesses of gambling, especially now that it has gone online
The trend among New York bettors was to seek out the thrills of online gambling in States like New Jersey, where online betting was legalised in 2018. The trend of seeking out online gambling from the nearest States where it is legal is common among US citizens, especially those from the conservative States like Texas. Las Vegas Sands made the legalization of online gambling a hot one, particularly in Texas, which has the potential of becoming the biggest market so far.
On the topic of markets, sports betting numbers are out-stripping online casino numbers by a large margin. This is because many online casinos in the USA offer no deposit bonuses, which reduce deposits. Hopefully, with the more widespread legalisation of online casinos, this discrepancy will even out.
Estimates of tax revenue from online sports betting and recreational cannabis
Meanwhile, there are estimations already of possible amounts attainable from online sports betting in New York State since Gov. Cuomo signed the State budget back in April. Reviewing the budget, the New York State Comptroller, Thomas DiNapoli, drew a comparison between the tax revenues expected from online sports betting and the equally controversial legalisation of recreational cannabis.
In the review, DiNapoli reckons that recreational cannabis would return a tax revenue of about $20 million while online sports betting would turn in about $99 million. The amount attaimable from online sports betting, which is expected to increase in the future, is already about 395% of the amount the State expects from tax on recreational cannabis.
Considering that both the markets for recreational cannabis and online sports betting have not matured, DiNapoli's review threw a slingshot into the future to estimate probable tax revenues expected from these markets by 2025. By 2025, DiNapoli projects that the State would realise a minimum of $245 million annually from recreational cannabis. On the other hand, DiNapoli pegs the possible tax revenue from online sports betting at a whopping $493 million annually.
Following toe-to-toe with the passing and subsequent signing into law of the bill of adult-use cannabis in March, the signing of the State budget in late April by Gov. Cuomo legalised online sports betting in New York. Betting platforms have kept their eyes and ears open, waiting for the New York Gaming Commission to ask for bids. The commission hopes to award operation licenses to at least two online sports betting platforms early enough to allow bettors to engage in the 2022 Super Bowl.
Considering the difference in rates that New York State plans to apply on recreational cannabis and online sports betting, it becomes understandable that the pronounced difference in their estimated tax revenues is not just a difference in viability. The State has pegged the tax on the sales of recreational cannabis at 9%. From the 9%, the State has decided that the local governments will take a 4% chunk. The remaining 5% will be distributed into different State funds in different percentage amounts.
On the other hand, the State is yet to decide on the tax percentage to apply to online sports betting. But the tax percentage will not be less than 12% of the annual gross gaming revenue of the betting platforms. Also, the New York State Gaming Commission has decided that the platforms that end up getting the license to operate would pay a one-off amount of $25 million for the license. Like the tax revenue generated from recreational cannabis, New York State has planned to distribute the tax revenue from online sports betting into different educational programs.
How other benefits of regulating cannabis compare with online sports betting revenue
Meanwhile, it may not be a fair comparison to measure the benefits of legalising adult-use cannabis and online sports betting only in monetary tax returns. This perspective becomes a fair point when you consider Sen. Liz Krueger's comment on the passing of the adult-use cannabis bill by the New York State Assembly. Krueger co-sponsored Crystal People-Stokes, the Assembly Majority Leader.
Before the passing of the adult-use cannabis bill, Sen. Krueger expressed her view on the regulation. She said that far from tax revenue, the major benefits from the regulation would be racial justice and saving the resources the State law enforcement invests into the war against drugs. She believes the resources will be freed up to focus on other vices she described as real crimes.
Krueger’s point about other benefits of legalising adult-use cannabis bills might be valid. However, even with the addition of these benefits to the estimated tax revenue from recreational cannabis, the estimated tax potential of online sports betting will still be far ahead.
