There hasn’t been a backlash against daily fantasy sites (DFS) such as DraftKings and FanDuel from the general public. However, the same can’t be said about state governments: The New York attorney general has classified the sites as illegal gambling and forced a shutdown of DFS competitions in the state. So . . . why? After all, DraftKings and FanDuel have been around for a few years. Sure, the insider information scandal and getting bombarded by all those DFS commercials piqued government interest. However, classifying DFS as gambling could have a huge monetary benefit. In New York, it’s potentially applying a 60 percent-plus casino tax.
When states made casino gambling legal, they pointed to tax revenue to appease gambling opponents. Most states have onerous gambling tax laws, and in New York’s case there is a 60 percent graduated tax that can reach as high as 69 percent based on revenue. If DFS weren’t classified as gambling — they were previously categorized as games of skill — they were taxed at a typical corporate rate. Now that they are considered gambling, DraftKings, FanDuel, et. al., could be taxed at the casino rate if the ban is lifted.
Here’s some quick back-of-the-envelope math. The population of New York is 19,746,227, and 64.2 percent are between the ages of 18-65, according to census numbers. That’s a total of 12,677,077 potential gamblers.
Cut that number in half since most fantasy players are male (6,338,539) and say 10 percent play DFS (a 2009 study found that 22 percent of males play fantasy), a number which has likely grown since that report. That brings us to an estimated 633,000 DFS players in New York.
We can use $100 as the monthly spend — 42.4 percent of DFS players spend under $100 per month, 33.5 percent spend $100-$500 per month — and finally use the 10 percent rake to determine DFS revenue. That produces more than $6 million per month in revenue. At the casino tax rate (60 percent), that yields $3.6 million per month and $43 million per year in tax revenue.
So yes, the narrative may be that the attorney general of New York is protecting the public from these nefarious companies, but there is some self-interest involved for the state. Maybe the DFS are eventually allowed back into the state — the attorney general isn’t going to change his ruling any time soon — but it would be a shock if it wasn’t at the tax rate that defines the companies as gaming sites rather than games of skill.
Michael Colangelo is Managing Editor of The Fields of Green and Assistant Director at the USC Sports Business Institute.