- Caesars Sportsbook has agreed to a multi-year marketing partnership with the New York Knicks, New York Rangers, Madison Square Garden Arena and the MSG Networks.
- In addition to branding and marketing, some form of ‘hospitality experiences’ will be available at Madison Square Garden for Caesars players.
- New York’s sports betting could ‘crash and burn’ due to an absurd 51% tax rates that make it difficult for a company to turn a profit.
There’s a lot to say about the New York mobile sports betting market and none of it is good. It might be *marginally* better than the ‘single operator’ monopoly that deposed Governor Michael Cuomo advocated but not by much. There’s at least a veneer of competition in the market but the state went to great lengths hoping to make the market look a lot more competitive than it actually is. The licensing process was downright bizarre. There are nominally 9 sportsbooks entering New York but only two ‘primary applicants’. For example, Betfair Interactive is one of the two ‘primary applicants’ awarded a license in partnership with ‘operator partners’ FanDuel, Bally Bet, BetMGM and DraftKings. So…uh….why not just award four separate licenses to the aforementioned ‘operator partners’ the way an intelligent jurisdiction would do? It no doubt has to do with political favoritism or carrying water for financial benefactors.
Not that it will really matter since no one involved will be able to make a profit. That’s because New York is charging a ludicrous 51% tax rate of gross gaming revenue. That means sportsbooks will be competing for market share in one of the most expensive media ecosystems in the country yet will be keeping less than half of the money they bring in. Players can’t win–as with Tennessee’s insane ‘10% mandatory hold’ this type of regulatory mechanism intended to increase revenue to the state eventually gets passed on to the bettors. That will keep players at offshore sportsbooks and in the NYC area at least crossing the river to bet in New Jersey. This not only makes sure that sportsbooks can’t make money in New York but also that the state’s revenues will underperform–even at 51%. It takes an unprecedented level of idiocy to create a regulatory framework that all but guarantees that no one can make money in a state with a population of 19 million plus.
All New York had to do was get a pair of powerful binoculars and look across the Hudson River to the state of New Jersey to find a model of successful–and insanely profitable–sports betting regulation. New Jersey has less than half of the population of New York (8.87 million) and in October did a mere $1.3 billion in betting handle. New Jersey’s regulatory framework isn’t perfect but a competitive marketplace and reasonable tax rate (8.5%) has created a revenue juggernaut. New York could have just copied the New Jersey model and they would have been in the same situation. Unfortunately, they did just the opposite and it’s difficult to wrap your head around the hubris required to dismiss a neighboring state that is writing a billion plus dollars in bets per month. New York’s sports betting regulations pretty much guarantee that the Garden State won’t take a significant hit.
Best case scenario for the companies in New York–breaking even on the actual sports betting and using the visibility afforded by being in the market to build a brand. This quote from Penn National’s Q3 earnings call by CEO Jay Snowden sums it up nicely:
So New York is an interesting one. I have discussed New York with my team ad nauseam, and I’ve — I feel the same way today that I felt day one, which is I feel really mixed about New York because of the way that the gaming law is structured and the fact that the tax rate is being self-imposed with a minimum of 50%. And when you keep in mind that, that 50% tax is in addition to a really high license fee as well as that 50% tax is on gross pre promo spend, not net. I don’t think anybody is going to make money operator wise.
The state couldn’t make money. I don’t think a single operator will make money in New York. So I’ve always struggled with the — would you rather be in or not? I think objectively speaking, you’d probably rather be in than not be in, but it’s one of those states where you’re not in you’re not crushed by that either maybe from a TAM perspective and from a revenue perspective, but I think it’s just it’s going to be a margin killer. I think it’s going to be an EBITDA detractor.
And New Jersey, we’re live in and a lot of the New York residents live in North Jersey and Manhattan, which is easy to get over. And I think that competitively, New Jersey is just going to be able to do things and offer things that New York can’t. I’m not saying anything that is — I don’t think — I mean, New York has their own prerogative in terms of how they want to structure the law, and they’re pursuing that. And if we’re in and we’ll play by the rules, I think that if we end up as one of the operators in New York, that if nobody can make money, we’ll lose the least because we can rely on the Barstool audience organically and turn that on and activate it in ways that we’ve done in other states without having to get into the paid media shotgun approach.
I don’t know who’s going to be able to afford doing really any of that given the tax rate would be the highest in the country or at least tied with New Hampshire, and we know drafting has been clear. It’s very difficult to make money in New Hampshire. So it’s a long answer because it’s a pretty complicated issue. That’s our position on New York.
For those of you not familiar with betting jargon TAM means ‘total addressable market’–or the overall demand for a service or product. EBITDA means ‘earnings before interest, taxes, depreciation, and amortization’. I read a quote (I think it was on Twitter–I forget the source) that suggested the best move for a sportsbook would be to just send limos to pick up their NYC area players, drive them over the river to New Jersey to place their bets, and then take them home. At some point, we’ll talk more about the mess New York has made of what could be a huge revenue boost for the state and driver of economic investment.
Caesars Sportsbook will be launching in the state and they’ve made sure they get plenty of visibility. They’ve announced a multiyear deal with Madison Square Garden Sports (NYSE: MSGS) (“MSG Sports”) and Madison Square Garden Entertainment (NYSE: MSGE) (“MSG Entertainment”) that will make them an Official Sports Betting Partner of the NBA New York Knicks, NHL New York Rangers, the Madison Square Garden Arena and the MSG Networks.
Here’s what Caesars gets out of the deal according to the press release announcing it:
Caesars Sportsbook will have a branded, premium hospitality space inside Madison Square Garden that will be open for all Knicks and Rangers games, as well as additional select events. Caesars Rewards members – including customers that sign up for the Caesars Sportsbook mobile app – will have an opportunity to access the space, which will undergo a full refurbishment leading into the 2022-23 Knicks and Rangers seasons. Once complete, the space will be highlighted with Caesars Sportsbook branding and feature unique programming, including special guest appearances, giveaways, and enhanced activations, all available through Caesars Rewards.
Through this partnership with Caesars Sportsbook, a part of the largest gaming and entertainment company in the US, MSG Networks and Caesars Sportsbook will also launch a new content series on MSG Networks and its social media channels featuring Caesar himself, JB Smoove. A longtime Knicks fan and avid New York sports fan, JB Smoove embodies the legendary Caesar in Caesars Sportsbook’s national advertising campaign and the new content series “One Course with JB Smoove” will integrate Caesars Sportsbook betting odds and content.
Since sportsbooks only make money by taking bets–and by not paying more than half of said betting revenue to the state–it isn’t clear how partnering with JB Smoove adds value for shareholders. I actually like JB Smoove but that’s not really the point. The only way that the Caesars board could maintain their fiduciary responsibility to CZR stock holders is to not do business in New York. But at least they get ‘prominent exposure’:
Caesars Sportsbook will receive prominent exposure inside Madison Square Garden, including TV visible signage, in-arena LED messaging, GardenVision features and activations on the court and ice during Knicks and Rangers games. Digital boards outside of Madison Square Garden and in the new Moynihan Train Hall will also feature Caesars Sportsbook branding on display to the millions of people who walk by every day.
Eric Hession, Co-President of Caesars Digital, drops the right corporate buzzwords in his quote:
“Caesars Sportsbook is ready for expansion into New York. To partner with these legendary New York brands for compelling creative content and branding uniquely positions us to reach the avid sports fans in the region.”
Ron Skotarczak, Executive Vice President, Marketing Partnerships, MSG Entertainment, is happy to have a deep pocketed ‘mark’ on the hook:
“We’re thrilled to welcome Caesars Sportsbook – a renowned brand in the sports betting industry – to the MSG Sports and MSG Entertainment families. Caesars Sportsbook is a key player in the growing world of sports betting – and we look forward to utilizing this partnership to further strengthen our brands’ connection with Caesars customers, while also providing the company with significant exposure across our unrivaled set of assets.”
I often throw around a quote from legendary Las Vegas casino owner Benny Binion. Asked why there was no entertainment at Binion’s Horseshoe Club he quipped: “Ain’t no man gonna blow my money out the end of some damn horn.” He must be rolling over in his grave watching the spectacle in New York.
