What’s happening in US sports betting?
Chris Krafcik and Adam Krejcik from Eilers & Krejcik Gaming analyze the latest market and policy movements across the regulated sports betting landscape
Why Fanatics is popping in New Jersey
The chart below shows New Jersey online sports betting gross gaming revenue (GGR) shares over the six months through January 2024, per our estimates.
Source: Eilers & Krejcik Gaming Estimates / NJDGE
The key part of the chart is the yellow bar that appears in January. That’s when Fanatics’ PointsBet operation suddenly generated nearly $30m in GGR; good for a 17.5% market share. Indeed, $30m in GGR is roughly 17x PointsBet New Jersey’s trailing three-month GGR and 2x its trailing 12-month GGR, per our estimates. In other words, the brand did two years of revenue in one month.
So, what happened? We understand that the swing was VIP-driven, with Fanatics recently ramping up VIP program strategic development. At the time of writing, Fanatics has not yet launched its own sportsbook in New Jersey and is still driving traffic to its PointsBet site. These are our key observations:
- It continues a trend in New Jersey of outsized VIP-led changes. In Q3-Q4 2023, DraftKings nabbed some VIP business from FanDuel that temporarily made DraftKings the state’s OSB GGR share leader.
- The Wall Street Journal recently reported that PointsBet generated more than 70% of its revenue in 2019 and 2020 from 0.5% of its customers.
- Bottom line: While the industry continues to be reliant on a small customer cohort for large chunks of revenues, we expect these monthly swings in individual states to continue.
Strong start for North Carolina
Using GeoComply unique account data, North Carolina’s online sports betting launch looks to be among the most productive of recent times. Some key points:
- North Carolina had launch period average daily adult population penetration of 2.4%. That’s just behind Massachusetts (2.5%) and well ahead of Maryland (2.1%), Ohio (1.8%), and Kentucky (1.5%), per GeoComply data and our estimates.
- The result is unsurprising, as North Carolina benefited from the concurrent launch on March 11 of all tier-one operators, each of which was able to begin registering accounts on March 1.
- We expect North Carolina will be among the fastest-ramping US OSB markets due, not only to competitive dynamics, but also to the state’s ability to attract play from two populous bordering states, Georgia and South Carolina, that do not have legal online sports betting.
Who has the best SGP product in the US?
We published our inaugural same game parlay (SGP) product rankings in mid-February, with two familiar names atop the list but plenty of intrigue further down the rankings.
Here are the main takeaways:
- FanDuel pipped DraftKings to top spot by the narrowest of margins, thanks to overall ease of use, its FanDuel Parlay Hub section, and intuitive journeys within the tab format system.
- Still, DraftKings excelled with bet acceptance rates, rarely leaving users in the lurch with market suspensions or odds changes, but slipped up minorly when it came to processing times and in-app speeds more generally.
- Bet365 had a strong performance in third place, with an SGP builder tool that testers found to have a high ease-of-use factor.
- In perhaps a positive sign for Fanatics’ future market share, PointsBet came in fourth with elite SGP processing times, both for pre-match and live, and strong market depth.
- Area of opportunity? Only seven of 12 apps we tested had live SGP, and testers were unimpressed with what was available thanks to market suspensions or odds changing, and generally slower bet processing and journey times.
- Among the apps that had live SGP, bet365’s bet completion rates were exceptional. It was the only app to complete at least 90% of its live SGPs, and it cleared 97.1% of them without issue – likely an internal decision to take potentially riskier bets in pursuit of more uptime and ultimately a better product.
- Two final takeaways: Customers want more cash-out availability and better sign-posting on what can be put into an SGP. Testers showed clear frustration over apps that would allow them to add a leg to their SGP that the app already knew beforehand would make the SGP ineligible.
Caesars’ multi-brand online casino approach
Caesars’ plan to expand its multi-brand presence in online casino should boast favorable unit economics and serve as an incremental positive for the company, in our view.
- At Q4 2023 earnings, Caesars management said there were no plans to aggressively market the new brand, which will be “very well known” and “unique … in all of the markets where we operate.”
- The Horseshoe brand seems a likely choice given its halo and mid-market regional bona fides. The Las Vegas-based Horseshoe Casino, a potential destination tie-in, was also recently opened.
- We estimate Caesars’ Harrah’s brand accounts for about 0.5% GGR share in the New Jersey online casino market. We regard that as a floor for the multi-brand boost and believe the ceiling could be closer to 2%-3% GGR share.
- With Caesars trending around 5% GGR share of the national market, multi-branding could bring it up to 7%-8% share – a respectable result, but one that would remain well shy of the double-digit shares controlled by each of DraftKings (28%), FanDuel (23%), and BetMGM (14%).
Hard Rock swoops for 888’s US assets
In late March, 888 announced the sale of its US B2C assets to Hard Rock Digital; financial and other details were not disclosed. We believe the bulk of the value is tied to online casino. Hard Rock likely gets 888’s Michigan market access and online casino business, as well as 888’s New Jersey online casino business. Together, we estimate the two businesses are generating ~$2m in average monthly GGR. Also, given the small top-line benefit of the 888 US casino businesses (for context, we estimate Hard Rock’s Florida online sports betting monopoly is generating >$40m a month in GGR), market access – particularly to populous Michigan where Hard Rock is not operational – appears to be the principal source of value for Hard Rock in this deal.
Eye-catching growth at Jackpocket
US lottery courier, Jackpocket’s online casino in New Jersey, which launched in November 2023, is showing positive early signs.
- In February 2024, Jackpocket had $802k in GGR, which was roughly 4x its January 2024 total and 5x its December 2023 total.
- The February total beat a number of brands including Stardust, Harrah’s, PokerStars, bet365, and Tipico, per our estimates.
- Jackpocket’s New Jersey online casino GGR line warrants watching, even though the sample size is small and the February 2024 result could be boosted by bonusing spending.
- Why? It’s a source of signal regarding the viability of lottery courier (very low customer acquisition cost (CAC) to online casino cross-sell (very high LTV).
- This CAC-to-LTV arbitrage opportunity is principally why DraftKings agreed to pay $750m for Jackpocket, a sum that represents ~10x Jackpocket’s calendar year 2023 revenue and ~6x its calendar year 2026 expected adjusted EBITDA.
M&A watch: What, where, next?
Three quick thoughts:
- Emerging verticals to the fore. Tier-one US operators, as demonstrated by the DraftKings-Jackpocket transaction, are getting more serious about widening their top of funnel and enhancing their cross-sell capabilities with regulation-lite, gambling-adjacent product. We believe further M&A on this front is in store, with a number of emerging verticals targets (eg PrizePicks, Lotto.com) offering potentially compelling user acquisition, cross-sell, brand, and technology opportunities.
- Playing catch-up. With BeyondPlay, Flutter/FanDuel is set to close the casino jackpot mechanic gap with DraftKings, which brought that capability in-house with its Blue Ribbon acquisition in 2021. Meanwhile, the other core BeyondPlay product – multiplayer experiences with players pooling bets, watching along, and chatting live – could be where FanDuel is ultimately looking as it seeks to tap into younger, less sports-led demographics for casino.
- What next? In addition to ongoing emerging verticals M&A, we expect activity in the online sports betting pricing/trading space, with micro-betting specialist SimpleBet and Huddle logical targets for B2B and B2C acquirers. Ditto the online casino game development space, with US operators and suppliers, as ever, on the hunt for quality content and differentiation potential.
Eilers & Krejcik Gaming LLC is an independent research and consulting firm with branches in Orange County, California and Las Vegas, Nevada. The firm’s focus is on product, market, and policy analysis related to the global regulated gambling market. Clients include operators, suppliers, private equity and venture capital firms, institutional investors, and state governments. To learn more about the firm, visit http://www.ekgamingllc.com.