New York and New Jersey, as well as being neighboring states, are also both important states in the tale of American online betting. New York, as of this moment, is the largest state by population to have regulated betting (at least pending the result of the Fall referendum in California). New Jersey, meanwhile, was the first state to do so, passing legislation in the immediate aftermath of its successful Supreme Court challenge to the federal restriction on state-regulated gambling.
In that regard, it is worth looking at how the legalization of betting has turned out in both of these states. After all, they’re closely tied together in a sporting sense. Although the Giants and the Jets both carry the name of New York for their official franchises, both play in the same stadium in East Rutherford, which is in New Jersey. While New York has more than twice the population and numerous Jersey residents commute into the larger state, the history of New Jersey sports betting is longer and in many ways more fundamental to the national picture.
How does New York sports betting affect New Jersey?
Although New Jersey’s Supreme Court victory opened up online betting to the rest of the USA, there may well have been some displeased legislators in the Garden State when its larger neighbor finally launched its online betting platforms at the beginning of 2022. Estimates were that around 20% of the people betting in NJ were residents of New York who crossed the Hudson to bet legally in the neighboring state. Now that they no longer have to do that, how will sports betting in New Jersey hold up?
The first chance to evaluate this impact came at the beginning of the year. While New York saw a handle of $1.67 billion in January, and this was more than New Jersey took in the same month ($1.35 billion), NJ’s sports betting handle was still a record for the state. This implies that it at least has the potential to thrive in the presence of a larger competitor right on its doorstep.
What are the implications for tax?
In becoming the first state in the USA to license and regulate online betting, New Jersey pitched its demands for taxation fairly conservatively. Online betting revenues are taxed at 13% in the smaller state, which meant that the January tax revenue from betting in the state poured just over $8 million into the treasury in Trenton.
Meanwhile, in New York, the legislature was more confident in asking for more. Correctly recognizing that it was the larger state, with a bigger market for the betting companies to tap into, they set the line at 51% – almost four times what is being skimmed in New Jersey. That meant that when the tax take was counted, New York had benefited to the tune of over $63 million. It was, in and of itself, a gamble to set the tax rate that high – and all the major sportsbooks looked at the market and went for it, meaning the gamble was successful.
Can New Jersey learn from this?
It would possibly be naive for New Jersey to look at New York and consider that the success of that step means that NJ lawmakers can suddenly push the tax rate up past 50%. In its history, the state has racked up a number of firsts aside from being the first state to accept online betting. Among those, in September 2021, it was the first state to surpass $1 billion in single-month handle for sports betting. In 2021 overall, it took more in online sports betting than any other state – although that is not going to be the case this year, as New York will likely declare a larger handle than all the other legal gambling states combined.
New Jersey can ratchet up its tax rate on online betting – and, seeing what New York has been able to hand to its public education system, it probably should. However, it’s arguable that the sportsbooks would refuse to pay the same tax rate for a state with a smaller population, smaller customer base and less name recognition as a sporting state. So while they could up the rate, lawmakers in New Jersey might be best advised to pitch the number somewhere between the two – not least because New York is already talking about tax breaks for sportsbooks in light of its bountiful take since the beginning of 2022.