How Could New York Benefit from the Legalization of Online Gaming in Tax Revenue? What Lawmakers Need to Know

New York, aptly-named the City that Never Sleeps, may well add a new moniker to its ever-growing repertoire of nicknames. The Big Apple (another distinctive title for the state) is all-set to discuss the opening of land-based casinos in Yonkers and Queens. This is all well and good, as it creates new employment and can be another source of tourism for New Yorkers and nearby residents. But what about online casino gaming? Could New York have yet another nickname, say, The City Where Someone Could Strike it Big? Kidding aside, some say that the legalization of online gaming in the state is still light years away, but imagine a scenario where online casino gaming IS legalized. What would it mean in terms of revenue and income, and could it be a potential game-changer? We’re inclined to think so, but we suppose there needs to be more concrete evidence. And this is precisely what we’ll be discussing today: in essence, how could New York benefit from the legalization of online gaming in terms of tax revenue? Here’s what lawmakers – and of course, ordinary people like you and me – need to know.

The vast potential: a world of possibilities

As New York continues to explore different avenues for economic growth and financial stability, the legalization of online gaming presents a significant opportunity for the state. Online gaming (which includes both online casinos and sports betting) has long proven to be a lucrative and worthwhile source of tax revenue in states where it is already legalized, as seen in New York’s own neighbors, New Jersey and Pennsylvania. For New York, embracing this sector could yield substantial economic benefits, as we already know, but it requires careful consideration by lawmakers to ensure that the regulatory framework maximizes these advantages while addressing potential challenges.

The economic gains of iGaming

Online gaming has experienced exponential growth in recent years, and the sector is driven by technological advancements, increased internet accessibility, and changing consumer behaviors and preferences. Aforementioned pioneer states like New Jersey and Pennsylvania have already reaped the rewards of legalizing online gaming, with millions in tax revenue pouring into state coffers – and they are showing no signs of stopping anytime soon.

In New York, where admittedly, the state's budget has faced considerable strain, the introduction of online gaming could provide a much-needed boost. According to reports from Eilers & Krejcik Gaming, we have not even finished the year, but the entire US iGaming market is on-set to reach record revenues of $7.3 billion this year alone. In another report, iGaming in the US is projected to reach $40 billion annually by 2030 - and New York iGaming could capture a significant share of this market.

How much revenue could New York generate?

Of course, the question of the day is, how much revenue could New York potentially earn? The revenue New York could generate by legalizing online gaming depends on various factors, including tax rates, the size of the market, and the types of gaming activities (online casinos, poker, sports betting, table games, etc.). However, estimates can be drawn based on comparisons with other states and market studies.

Estimated revenue potential:

Factors affecting revenue

• Tax rate: The tax rate New York chooses will significantly impact the revenue. Higher rates might reduce operators' margins but increase state revenue, while lower rates could stimulate market growth.
• Scope of legalization: The full legalization of New York iGaming, including online casinos, sports betting, poker, and more, would maximize revenue potential. Partial legalization, such as only sports betting, would limit the revenue stream.
• Market maturity: Revenue would likely grow over time as the market matures, with initial years showing growth as more residents engage with legal platforms.

All in all, New York could potentially generate significant revenue by legalizing online gaming, with estimates suggesting annual revenues between $2 billion to $3 billion, translating to tax revenues of $300 million to $450 million annually. Of course, the exact figures would depend on the specific regulatory framework, tax rate, and market dynamics.

Tax revenue is a key driver of economic benefit

The primary benefit of legalizing online gaming in New York would be the generation of tax revenue. States that have legalized online gaming typically impose a tax on gross gaming revenue or GGR, which is the amount wagered minus winnings paid out to players. The tax rates on GGR vary per state, but they generally range from 15% to 25%.

So for instance, New Jersey, which legalized online gaming in 2013, levies a 15% tax on GGR for online casinos and a 13% tax on online sports betting. In 2023, New Jersey generated over $500 million in tax revenue from online gaming. Pennsylvania, on the other hand, which launched online gaming in 2019, imposes a 54% tax on online slots and 16% on online table games, yielding over $300 million in annual tax revenue.

If New York were to legalize online gaming with similar tax rates, the state could potentially generate hundreds of millions of dollars annually. This revenue could be directed toward critical public services (such as education, healthcare, and infrastructure), helping alleviate budgetary pressures and improve the quality of life for New Yorkers.

Job creation and economic activity

In addition to tax revenue, the legalization of online gaming in the state could stimulate job creation and economic activity in New York. The online gaming industry requires a range of skilled professionals - including software developers, data analysts, marketing experts, and customer support staff by the thousands. By attracting online gaming operators to set up shop in New York, the state could create thousands of high-paying jobs and attract related businesses, such as technology firms and payment processing companies.

Moreover, the increased economic activity generated by online gaming could have a multiplier effect, benefiting local businesses and boosting consumer spending. For instance, online gaming operators often engage in extensive marketing campaigns, which can lead to increased demand for event sponsorships, advertising services, and media production. This ripple effect could further enhance the state's economy and contribute to long-term growth.

Addressing potential concerns

Of course, while the economic benefits of legalizing New York iGaming are crystal clear, it is obvious that lawmakers must also consider potential challenges and risks. And one of the primary concerns associated with online gaming is the risk of problem gambling. The convenience and accessibility of online gaming platforms can make it easier for individuals to develop gambling addictions, leading to financial hardship and other negative consequences.

But in order to mitigate this risk, New York lawmakers should implement robust responsible gaming measures as part of the regulatory framework, just like its neighbors do. This could include mandatory deposit limits and self-exclusion programs, and it could also include requirements for operators to provide resources and support for persons struggling with gambling addiction. Additionally, a portion of the tax revenue generated from online gaming could be allocated to fund problem gambling prevention and treatment programs.

Another valid concern is the potential for illegal and unregulated gaming activities to proliferate if the legal framework is not adequately enforced. To address this, New York should establish strict licensing requirements for online gaming operators and invest in enforcement mechanisms to ensure compliance with state regulations. This could involve collaboration with law enforcement agencies and the use of advanced technologies to monitor and detect illegal gaming activities.

Learning from others

New York can benefit from the experiences of other states that have already legalized online gaming. By studying the successes and challenges faced by states like New Jersey, Pennsylvania, Delaware, Connecticut, Michigan, and Rhode Island, New York can develop a regulatory framework that maximizes tax revenue while minimizing potential risks.

One case in point is New Jersey: NJ's success in generating substantial tax revenue from online gaming can be attributed to its competitive tax rates and strong regulatory oversight. Similarly, Pennsylvania's decision to impose higher tax rates on certain types of online gaming has resulted in significant revenue generation, but it has also led to concerns about the potential impact on the casino operators' profitability and long-term viability.

So what should lawmakers in NY pay attention to? We are sure they know this already and have already studied the benefits extensively, but lawmakers should also carefully consider the appropriate tax rates and regulatory requirements to strike a balance between maximizing revenue and ensuring a sustainable (and competitive) online gaming market. This may involve conducting economic impact studies and consulting with industry experts to gather input on the best path forward.

A strategic iGaming opportunity for New York

The legalization of online gaming represents a strategic opportunity for New York to bolster its economy and generate significant tax revenue. By learning from the experiences of other states, like NJ and PA, and implementing a well-crafted regulatory framework, New York can harness the economic potential of online gaming while addressing potential challenges such as problem gambling and illegal activities.

For lawmakers, as we’re sure they’ll agree, the key to success lies in striking the right balance between revenue generation and responsible regulation. It all comes with careful planning and a commitment to protecting the interests of New Yorkers, and the state can potentially unlock the benefits of online gaming and position itself as a leader in this rapidly growing industry. We are unsure yet of New York’s plans, as there is still a lot of stigma when talking about gambling per se – but as New York continues to navigate the complexities of economic recovery and fiscal stability, the legalization of online gaming could prove to change the game in New York as we know it and deliver substantial benefits, and then some.

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