By Zachary Zagger

Law360 (January 6, 2021, 8:15 PM EST ) New York Gov. Andrew Cuomo on Wednesday unveiled a proposal to authorize online and mobile sports betting in the state in a reversal of his previous position, opening the door for massive expansion of the sports betting market in one of the largest states in the country. 

Cuomo announced legislation as part of the 2021 State of the State, saying the move is needed along with the legalization of recreational marijuana to generate additional tax revenue to address a state budget deficit due to the COVID-19 pandemic.

The move on mobile and online sports betting is a change in position for the governor, who had previously been opposed to such a proposal over concerns that expansion may violate the state constitution. It comes as New York Senate Majority Leader Andrea Stewart-Cousins expressed a desire to legalize mobile sports betting in remarks Wednesday. 

"At a time when New York faces a historic budget deficit due to the COVID-19 pandemic, the current online sports wagering structure incentivizes a large segment of New York residents to travel out of state to make online sports wagers or continue to patronize black markets," Cuomo said in a statement. "New York has the potential to be the largest sports wagering market in the United States, and by legalizing online sports betting we aim to keep millions of dollars in revenue here at home, which will only strengthen our ability to rebuild from the COVID-19 crisis."

New York is among 19 states plus the District of Columbia where sports betting is legal in the U.S., but New York currently only allows in-person betting at a limited number of Upstate casinos.

Mobile and online sports betting has accounted for the majority of betting activity in states where it is legal. It is widely considered to be the future of sports betting and where the most money can be generated for states.

Fourteen states have legalized mobile and online betting, including neighboring states New Jersey and Pennsylvania. At least a portion of the money bet in those states comes from New York residents traveling across state lines.

Meanwhile, Connecticut Gov. Ned Lamont similarly on Wednesday announced plans to push for mobile and online betting and legalization of marijuana to raise money in that state.

However, Cuomo said that he wants mobile and online sports betting to be run differently than it is in New Jersey, where mobile and online sports betting is tied to brick-and-mortar casinos. That could garner opposition from the casino industry and raise other constitutional questions.

Under the proposal, the state gaming commission would license private sector mobile and online operators directly, similar to how the state runs the lottery. The idea is to enable the state to grab a larger share of the gaming revenue in taxes.

The New York Gaming Commission will issue a request for proposals to license a mobile and online sports betting operator, but the operator must have a partnership with an existing licensed casino, according to a statement from the governor's office.

"Many states have done sports betting but they basically allow casinos to run their own gambling operations," Cuomo said during a press conference on the state's COVID-19 response on Wednesday. "That makes a lot of money for casinos but it makes minimal money for the state. I am not here to make casinos a lot of money. I am here to raise funds for the state. So we have a different model for sports betting."

According to figures released by New Jersey for November betting, sportsbooks in the state took $931.6 million in bets. But once winning bets were paid out, the books only generated $50.6 million, leaving about $6.2 million for the state in taxes.

New York state budget director Robert Mujica said the difference with Cuomo's proposal could be between the state collecting $50 million in tax revenue versus potentially $500 million.

"Everyone else is making a lot of money off of sports betting, the jurisdiction where it is in, the state, is not," Mujica said. "There are a few states that have done it a different way where the state contracts with the private sector who runs the sportsbooks but the state ends up getting the majority of what is left over after everything is returned to the bettors."

The U.S. Supreme Court opened the door for state legalization of sports betting in its 2018 Murphy v. NCAA decision that wiped away a federal restriction. 

While New Jersey has done so through its existing casino industry, some states like Rhode Island run sports betting through the state lottery. Tennessee is unique in that it is the first state to allow mobile and online sports betting on its own without any attachment to existing gambling infrastructure.

Still, New York constitutional questions remain for online and mobile sports betting. Sports betting at casinos was preemptively authorized in 2013 along with a state constitutional amendment that allowed for casino gambling in the state.

But legal experts have said it is not clear that the constitutional amendment allows sports betting outside of casinos. Prior legislative proposals have called for betting operators to be tied to those casinos and have the online servers located on the premises of the casinos to comply.

--Editing by Michael Watanabe.

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