The COVID-19 pandemic is stressing cities and states, crimping revenue collection, and creating massive budget shortfalls. New York is in that boat, and one municipal bond manager believes the state could turn to sports wagering to shore up its deteriorating balance sheet.
New York Gov. Andrew Cuomo (D) may want to take a long look at online betting to help plug big budget gaps. (Image: New York Times)Due in large part to the pandemic, the New York State Division of the Budget is forecasting a fiscal 2021 revenue drop of $13.3 billion, one that extends to $61 billion through fiscal 2024.
For states facing drastic budget issues, including New York, any revenue generators including taxes on gambling should be on the table, says VanEck municipal bond portfolio manager and strategist Jim Colby.
One possible sin tax revenue stream is online sports betting, and we believe New York showcases an opportunity, seen by many states nationwide, for the adoption and taxation of online sports betting,” Colby said in a recent note. “The appetite for gambling within New York and nationwide is, in our view, strong, but it is not yet fully realized by state and local municipalities.”
Sports betting is legal in the Empire State, but online and mobile wagering are not yet permitted. Would-be sports gamblers there need to go to a brick-and-mortar sportsbook in far away from the population center of New York City or over the state line into New Jersey to place bets via a mobile device.
Rumbling With Little BrotherThere s a long-standing rivalry between New York and New Jersey. But the Garden State tops its larger neighbor when it comes to sports betting, and in dramatic fashion at that.
Year-to-date, as of June 29, New Jersey generated $64.3 million in tax revenue from sports wagering, compared to less than $965,000 in the Empire State. That data point confirms the Garden State is benefiting from an influx of gamblers from New York, and that New York s fiscal position is suffering as a result of policymakers failures .
“With respect to the difference in population, New Jersey generates $7.24 per capita in sports betting tax revenues compared to $0.05 per capita in New York,” notes Colby. “This discrepancy can be attributed to New York’s strict gambling rules, which prohibit online betting, bets on in-state college teams, as well as bets on sporting events within the state.”
As the chart below indicates, New York is leaving plenty on the table by not signing off on online sports betting.
Chart Courtesy: VanEckFamiliar, But Palpable ArgumentAs more states tackle the issue of , two arguments in favor of doing so consistently appear. First, gamblers are “doing it anyway despite legality. Second, and more relevant to New York, is the idea of keeping gaming dollars at home.
Research firm Eilers Krejcik Gaming (EKG) estimates that New Yorkers drove $837 million of New Jersey s 2019 sports betting handle, sending $6 million to Trenton in the process.
That could compel Albany to take a closer look at online betting, particularly because new taxes of this nature can prove more effective than raising comparable, existing taxes on things such as alcohol or tobacco.
“These sin tax revenues could provide an advantageous opportunity for states to provide public sectors the necessary funding to avoid drastic expenditure cuts,” writes Colby. “Compared to states that increase sin taxes, states that are in position to implement new sin taxes may have more opportunities for long-term, impactful revenue growth streams to help supplement federal aid and other budgetary actions taken by the state.”
