Fighting chance: why Colorado is primed to become a major sports betting battleground
On Friday May 1, almost two years after the US Supreme Court overturned PASPA, Colorado became the 18th state to take legal sports wagers. However, the usual fanfare surrounding a sports betting launch was inevitably muted due to the coronavirus pandemic forcing the closure of the state’s casinos. There were no oversized scissors slicing red ribbons or politicians posing for photographers while clutching ceremonial bet slips. Fortunately, there was still online betting, with BetRivers having five-time NBA All-Star and NBA Finals MVP Chauncey Billups be the first Colorado resident to place a legal bet: $100 at odds of +2,000 on Denver Broncos wide receiver Jerry Jeudy to win NFL Offensive Rookie of the Year.
Altogether, four online sportsbooks were quick out of the blocks with iOS and Android apps live on May 1: FanDuel, DraftKings, BetMGM and BetRivers. “We are very pleased with how the launch of BetRivers in Colorado has gone,” Richard Schwartz, president of Rush Street Interactive (RSI), the online division of Chicago’s Rush Street Gaming and the company behind BetRivers, tells EGR North America. “We’re particularly proud that RSI, along with our partner, JP McGill’s Hotel & Casino, became the first sportsbook in Colorado history to accept a legal sports bet.”
The obvious obstacle sportsbooks face, and this isn’t just limited to Colorado, is a dearth of sports for customers to bet on amid the pandemic. During the first weekend of going live, Russian table tennis accounted for more than half (52.7%) of total handle at BetRivers, partly driven by the fact the Kambi-powered sportsbook livestreamed matches. The second highest sport in terms of handle was darts at almost 11%, while the largest bet of the opening weekend was a $1,310 wager on under 14.5 runs between Rakuten Monkeys and Chinatrust Brothers in the Chinese Professional Baseball League in Taiwan. The game finished 9-3 to the Monkeys and the bettor cashed out for just shy of $2,400.
Welcome to the party
The quartet of early entrants won’t have the market all to themselves for long, though. The Centennial State is home to more than 40 casinos clustered in the mountain towns of Central City, Black Hawk and Cripple Creek, and, so far, 33 properties have been granted master licenses to take retail sports bets. Regulations overseen by Colorado Limited Gaming Control Commission (CLGCC) only permit one online skin, yet there is still set to be eventually as many as 20 digital sportsbooks battling it out to win the trust of bettors and sports fans trying betting for the first time.
As well as online products due to land from familiar brands like PointsBet, theScore, William Hill and BetAmerica, online betting products are also in the pipeline from the Las Vegas trio of Wynn Resorts, SuperBook and Circa Sports. And earlier this week UK-based giant bet365 and Flutter’s Fox Bet both went live. In addition, UK bookmaker Betfred is due to roll out retail and online sportsbooks through its partnership with Saratoga Casino in Black Hawk. And London-based betting exchange Smarkets is due to make its debut in the US in May with its in-house-built SBK sportsbook app and competitive pricing generated by an internal trading desk.
If Smarkets CEO Jason Trost is anxious about incumbent US operators grabbing a first-mover advantage, or the competitiveness in Colorado, he isn’t showing it. “There’s nothing to bet on, so I don’t think it matters that much,” he insists on a call from Los Angeles. “Consumers want the best price, so I think we will have a huge leg up on our competition; the pricing that I’ve seen from our competitors in the States is pretty bad. Pretty much all of our competitors, except one or two, outsource all their technology… I’m not too concerned that they have had a head start or have brand name recognition because I don’t think it matters that much if their product is inferior.”
As for which operators are the favorites at this early stage to grab the lead, FanDuel and DraftKings are sure to be leading contenders. Eilers & Krejcik Gaming (EKG) estimates the duo will initially snag a combined 85% of the online market based on GGR, similar to how they have done in New Jersey, Indiana and West Virginia. However, the research firm forecasts that their combined share will erode beyond year one, much like it did in New Jersey, and ultimately settle at 30%-35% once the Colorado market fully matures with 15-20 online sportsbooks. On battle for share of wallet, RSI’s Schwartz says: “We fully expect that Colorado will be a very competitive market for sportsbooks [but] we are confident though that we will obtain significant market share.”
A recipe for success
So why are operators queuing up to enter a state with 5.7 million residents? Well, the betting tax regime is one of the most reasonable in the country at 10% on net sports betting proceeds, which puts it on a par with Indiana’s 9.5% tax rate. The cost in Colorado for a master license covering retail and the single online skin is $125,000. Compared to Pennsylvania where sports betting tax is 36% on GGR and license fees cost $10m, Colorado’s barriers to entry are particularly low. And unlike Nevada, Iowa and Rhode Island, Colorado’s mobile wagering comes without the friction of in-person registration. Operators are able to take bets on a wide array of sports including college sports, although prop bets on college matches are forbidden. Esports is also off limits.
Equally as important, Colorado itself is inherently an alluring market for betting operators. The state is home to franchises from all four major sports: Denver Broncos (NFL), Denver Nuggets (NBA), Colorado Rockies (MLB), Colorado Avalanche (NHL), as well as the Colorado Rapids (MLS). In fact, all four major sports teams play in Denver, the state’s capital and most populous city (around 716,000 inhabitants in 2019, making it the 19th highest populated state in the country). Denver is also one of the fastest-growing cities in the US.
According to US Census Bureau data, the population of the ‘Mile High City’ has swelled by almost a fifth since 2010. Over 60% of the growth is attributed to people moving to Denver from elsewhere in the US or overseas. What’s more, the population of the Metro Denver area, comprising of seven counties, is forecast to grow from three million to 3.6 million by the end of the decade. Colorado is also a relatively wealthy state; before the pandemic slammed the US economy, Colorado’s median household income was $69,117, according to Census ACS. That is almost $9,000, or 14.5%, above the median average across the US ($60,336), putting Colorado in 11th position for household income.
It also boasted the fourth-lowest unemployment at 2.8%, while fewer than one in every 10 residents lived below the poverty line. Furthermore, the Centennial State is home to a host of start-ups and even unicorns (private tech companies valued at $1bn or more). In fact, last year PointsBet opened a ‘technology hub’ and second HQ in downtown Denver. All these factors combine to make Colorado – ranked in 2019 the second-best state to live in – a compelling proposition from a sports betting standpoint.
RSI’s Schwartz says: “Colorado leaders created regulation for sports betting that is truly among the finest in the US, which makes it a very attractive market for sportsbook operators. The state has all the characteristics to be a very successful sports betting market, including a reasonable tax rate of 10%. Colorado is also a great market for sports betting as it has some of the most passionate sports fans in the US and a full slate of professional teams.”
A cash cow?
RSI believes the brick-and-mortar and mobile sports betting industry in Colorado could eventually generate combined revenue of $200m-$300m annually. EKG’s projections are at the top end of that range at $300m in GGR at “baseline maturity,” with at least 85% to come from online. This “lopsided online-retail ratio,” says EKG, is reflective of retail sportsbooks being located in casinos in three mountain towns at least a 30-minute drive from population centers like Denver and Boulder. Meanwhile, Catena Media’s PlayColorado.com estimates a fully mature market will generate up to $6bn in handle, $400m in GGR and $40m in taxes.
State officials are more conservative with their estimates though, and anticipate collecting an average of $16m annually in tax revenue over the first five years. That would suggest an average industry wide GGR in the region of $160m per year. For every $100 in sports bets, assuming $95 is paid out in winnings, operators are left with $5. A 0.25% slice, or 25 cents, of that $5 goes towards federal excise tax, leaving $4.75 revenue to be taxed at 10%.
Therefore, 47.5 cents of that $100 bet reaches state coffers. This money is earmarked for water projects in the state. Chris Krafcik, MD of sports betting and emerging verticals at EKG, says: “We think that tax scheme will position Colorado operators to price and promote aggressively – and to recapture significant demand that is currently flowing to the illegal market. The bottom line is Colorado policy should give rise to a robust, competitive online sports betting market.”
It is a view shared by Fintan Costello, MD of BonusFinder, which was recently granted an affiliate license in Colorado. “Colorado has done a good job by allowing a great number of licensees and a broad catalog of permissible bets. The way the market will be structured will help to grow the pie for everyone so that even the brands that are not number one in terms of market share in the state will still see good returns and growth in their land-based activities. The fun will really begin when live sports return and when various brands try and grab market share.”
Thanks to its favorable legislation, including unfettered mobile wagering, Colorado – a state with land-based casinos, gambling on horseracing and the state lottery – has all the makings of a thriving market. The competitiveness will also be beneficial for Coloradans in terms of odds, bonus offers and mobile products. In fact, the latter is key for Costello, who has in the past served as head of igaming at Google.
“As we see in other markets, the brands that ultimately win are the ones who control their own core product. Brands relying too heavily on third-party suppliers will need to work closely on customization, flexibility and speed of change to stay credible.” So, the battle between established US brands and new entrants flooding into Colorado is sure to be an intriguing chapter in the history of US sports betting.