The month in sports betting: Legislation, legalization, and the drive to profitability

2023 sports betting legislation faces even steeper climb than 2022

Last year was a notably difficult one for sports betting expansion in the US. A near miss in North Carolina (the bill failed to pass the legislature by a single vote) illustrated how challenging legalization can be, even in states with ostensibly supportive electorates and stakeholder alignment on operational details. Meanwhile, a larger miss in Missouri — the state’s fifth unsuccessful attempt to legalize sports betting — emphasized how unrelated issues can derail hard-won progress.

Overall, channel checks view the uphill climb encountered by sports betting bills in 2022 as predictive of future years rather than an anomaly. Indeed, the only states we currently rank ‘more likely than not’ to legalize in 2023 are North Carolina and Vermont.

Other states that have pre-filed sports betting legislation or are likely to consider bills this year, including Georgia, Kentucky, Missouri, Minnesota, South Carolina, and Texas, are at best a coin flip’s odds and, at worst, going to be lucky to get a single committee hearing, in our view.

Entrenched stakeholder divisions, strong cultural aversions to gambling, lack of demonstrated bipartisanship, as well as other, state-specific obstacles lead us to measure our optimism on most of those states.

Profitability outlook for US online gambling operators remains mixed

Across a basket of eight publicly traded US online gambling operators — including FanDuel, DraftKings, Caesars, and PENN Entertainment — management on Q3 2022 earnings calls generally expressed confidence in near-term positive EBITDA generation.

The most optimistic outlook was that of US market leader FanDuel (30% gross gaming revenue (GGR) share of the US online gambling market in Q3 2022, per our proprietary estimates), which maintained its guidance of turning an EBITDA profit for 2023 as a whole.

The path to sustainable operator profitability, meanwhile, looks more mixed, in our view; that said, Caesars and PENN signalled they may have breakeven or EBITDA-positive Q4 2022, which we would regard as an incremental positive for overall sector sentiment.

Trending up: Prospects for online casino legalization in Indiana

The operational details of a forthcoming bill to legalize online casino in Indiana are taking shape. Thus far, the 2023 draft bill is likely to look similar to those filed in previous sessions, reportedly permitting each of the state’s 14 casinos and racinos to deploy three skins for a $500,000 initial license fee, and with revenues to be taxed at 18%.

Channel checks confirm that recent media coverage scrutinizing the emerging US online sports betting market — from outlets including The New York Times and Bloomberg — has negatively impacted online casino expansion discussions, including in Indiana.

To that end, it will be instructive to see whether Indiana lawmakers apply the aforementioned 18% tax rate to GGR or NGR (net gaming revenue). Previous Indiana bills have either limited operators to $10m in promotional credit deductions per online skin, per month (a light restriction, in our view) or prohibited them entirely.

Overall, however, sentiment remains positive, with checks indicating that the negative media coverage is more likely to influence specific operational details of draft bills than materially dampen legalization odds.

Will anyone pony up for MaximBet?

Per industry channel checks, the recently shuttered MaximBet operation from Carousel Group is apparently on the market for $1. The most significant liability any buyer would inherit, we hear, is $5m owed to celebrity rapper Nicki Minaj, who in May of this year was named an investor in MaximBet.

Chatter we’ve heard suggests the assets side of the MaximBet ledger is a bit thin, with the main feature being a Colorado online sports betting player database whose size is in the very low five figures.

That, and the Minaj liability, together with the generally underwhelming performance of smaller media-integrated brands in US online sports betting (e.g., theScore, Tipico, USA Today), means that MaximBet may have a few tire kickers but will likely struggle to find a buyer, in our view.

US leaderboard update: FanDuel still at the top

In the table, we show our proprietary estimates of US online sports betting GGR on a by-brand, by-state basis in the three-month period through October 2022.

FanDuel continues winning the biggest markets, which is helping it to win the national market. Indeed, the Flutter-owned brand currently has 46% national GGR share, according to our tracking. New York, where FanDuel captured an eye-catching 49% of online sports betting GGR share during the August to October period, is currently the brand’s largest single market — and by some distance.