New York Plans Sport Bets, But It May Not All Be Good for Gambling ETF

New York Governor Andrew Cuomo is supporting legalizing wagers on sporting events, but his decision may not be all too good for the biggest sports exchange traded fund play.

The Roundhill Sports Betting & iGaming ETF (BETZ), which provides exposure to sports betting and iGaming industries, rose 0.4% Thursday after increasing 3.1% Wednesday in response to Cuomo’s announcement.

In a briefing Wednesday, Cuomo, who had previously opposed online sports betting, said he is backing the legalization as part of his State of the State policy proposals on January 11.

While investors have turned to sports betting operators and the sector-related ETF in hopes of legalization of the businesses in populous states, Cuomo’s announcement underscored that the economics would flow back into the state of New York in the form of taxes rather than to shareholders of betting operators, Barron’s reports.

This potential shakeup raises the risk that New York and other big states, like California and Texas, could move to control online sports gambling through a lottery-type system or heavily tax the industry, like Pennsylvania, which would leave little left for sports betting operators.

“We want to do sports betting the way the state runs the lottery where the state gets the revenues,” Cuomo said at a virtual press conference from Albany on Wednesday.

Morgan Stanley analyst Thomas Allen warned that New York might adopt a tax rate closer to Pennsylvania’s 36%, compared to New Jersey’s more attractive 14.25%. Consequently, the high New York tax would counter the trend of lower tax rates in states that have legalized online sports gambling, such as Michigan at under 10% and Virginia at 15%.

“Many states have done sports betting, but they basically allow casinos to run their own gambling operations,” the New York governor said. “That makes a lot of money for casinos, but it makes minimal money for the state, and I’m not here to give the casinos a lot of money. I’m here to raise funds for the state, so we have a different model for the state.”

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