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Daily fantasy sports tax revenues prove to be a fantasy for New York

ALBANY — When New York legalized daily fantasy sports in 2016, state officials boasted of the jobs and tax revenues that would be created.

One legislative memo described “abundant” tax money that would flow into a state fund that helps pay for the state’s more than $25 billion education tab each year.

Turns out, abundant was an exaggeration.

Preliminary numbers show just $3 million in tax payments to Albany last year flowed from 15 companies licensed to offer fantasy sports wagering in New York, industry officials said Wednesday. The taxes come out of about $20 million in revenues to the companies through the first 11 months of last year.

“I thought it would be higher,’’ Assemblyman Gary Pretlow, a Westchester County Democrat, said after the racing and wagering committee he chairs held a hearing Wednesday to hear what the daily fantasy sports industry has brought New York.

Beyond giving lawmakers a broad-brush of the taxes paid and revenues earned, company executives offered few specifics about their industry’s first full year of life in New York.

“Proprietary” was a word used more than once by top executives from DraftKings and FanDuel, the industry giants, when asked how many New Yorkers are registered to make the sports fantasy wagers.

But company executives did suggest ways in which New York regulators could help drive more revenues to their industry, such as allowing more sports — from golf to soccer — for daily fantasy sports wagering. They also asked New York to help the industry operate more nimbly by halting an initial plan that requires all games offered to consumers to be preapproved by the state.

The industry also wants New York to allow for “real-time” fantasy wagering, so fans viewing NBA games can make “transactions while games are underway,’’ said Peter Schoenke, chairman of the Fantasy Sports Trade Association.

“I think it will generate more revenue for the state,’’ said Griffin Finan, government affairs counsel for Boston-based DraftKings.

Schoenke, in a subsequent email response, said there were “a lot of misconceptions” around the United States a couple years ago about the size of the daily fantasy sports industry and incorrect comparisons to other industries — such as casino gambling — that “may have skewed expectations” about taxes and revenues. He said his trade group last June estimated 17.3 million daily fantasy sports players in the United States, up from 7.2 million in 2013.

“The fantasy sports industry continues to grow and the law confirming paid fantasy sports contests are legal games of skill in NY and 17 other states has helped,’’ Schoenke wrote.

How many players reside in New York is uncertain, but it would appear there are far less than the 3.5 million estimated players that Pretlow counted as daily fantasy sports consumers during the Assembly floor debate in 2016 when the measure passed. DraftKings on Wednesday said the company has “several hundred thousand” customers in New York.

The U.S. Supreme Court is expected to rule in the coming months in a case that could pave the way for sports wagering — such as direct bets on the outcomes of pro and college games — across the nation.

A ruling that declares unconstitutional a federal ban on such wagers would set off a feeding frenzy by gambling facilities in New York to get state permission to add the lucrative sports gambling to their betting menu.

Some state legislators are pushing to legalize online poker in New York, which has seen three new commercial casinos open in the last year or so. Tax revenues for those gambling halls have been far below initial projections. Another large casino is scheduled to open next month in the Catskills and the Oneida Nation announced Wednesday it will open on March 1 its third casino in Central New York.

Daily fantasy sports came to New York in 2016, a year after state Attorney General Eric T. Schneiderman shut down the industry with his claim that fantasy sports amounted to an illegal form of gambling that violated the state’s constitution and laws. His legal aim was taken against the two biggest operators, DraftKings and FanDuel, who he accused of engaging in deceptive advertising practices that mislead consumers about the fantasy sports wagering system.

Lawmakers and Gov. Andrew M. Cuomo responded in 2016 by declaring, in law, the contests to be legal forms of skilled wagering, not illegal games of chance. The major daily fantasy sports companies spent some $1 million lobbying to get the 2016 law approved.

Since then, 15 companies have gotten temporary operating permits from the state Gaming Commission. Only a “handful,’’ one industry official said Wednesday, are based in New York State.

The 2016 law also set a 15 percent tax on the gross revenues gotten in New York by fantasy sports firms, and to pay a tax of up to $50,000 annually.

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