The month in US sports betting: Likely winners of the New York online betting bidding war

Now that New York lawmakers have established a framework for legal online betting in the Empire State, which operators are likely to score in the bidding war for one of the four skins on offer? At first blush, we like DraftKings’ chances – deep-ish pockets, a New York customer database, a defensible case for aggressive revenue generation and market share capture, and the ability to operate via – and host other brands, including a score-boosting tribal partner – its own tech platform. Ditto Flutter and BetMGM, which have local player databases, big war chests, and directionally relevant B2B experience (e.g. Flutter-PMU).

On a related subject, the B2B/white-labeling question is where things get weird in New York. For instance, would bet365 – which does not white label its in-house tech – consider doing so for purposes of bidding for New York licensure? Or would Kambi – rather than platform-less Barstool – lead a licensing bid composed of Barstool and other brands (e.g. BetRivers) that take Kambi tech? The Kambi-Barstool question gets even weirder once we start considering the PAM layer of the stack, which Barstool takes from White Hat Gaming.

Can Barstool hang with the big three in Michigan?

It’s far too soon to answer this question, of course, but it’s worth taking a quick look at online handle trends in the newly opened Michigan market. The Michigan case study is interesting to consider because Barstool, FanDuel, DraftKings, and BetMGM launched concurrently. A few things to note about Barstool’s early results:

• Barstool saw its share of online handle fall to 13% in February from 24% in January; FanDuel (29% vs. 28%), DraftKings (24% vs. 24%), and BetMGM (25% vs. 20%) maintained or grew share month on month.
• Barstool saw significant average daily handle degradation month on month (-48%); FanDuel (-4%), DraftKings (-8%), and BetMGM (+19%) fared significantly better on this metric.
• That degradation came despite a 96% month on month increase in promotional spending at Barstool; FanDuel (-16%), DraftKings (+9%), and BetMGM (-44%) were more conservative with promo spending month on month.

A few takeaways jump out from the comp. First, some of the month on month degradation at Barstool may be attributable to its hitherto cautious approach to ad spend (Barstool ads recently began to appear in Michigan but the volume and mix of ads from the Big Three is generally greater, per our on-ground observations).

Credit: RiverNorthPhotography/iStock

Second, Barstool added online casino to its app in Michigan in February, which could have resulted in app performance issues. Lastly, first-mover advantage in Michigan does not appear to have resulted in higher handle share capture for Barstool; indeed, in Pennsylvania, where Barstool was a relatively late entrant, its share of online handle is currently trending around 13%.

Cue the Arizona market-access scramble

Arizona’s Michigan-style model – under which 20 statewide online sports betting licenses would be split evenly between the state’s Indian tribes and sports stakeholders – is sure to set off a scramble for market access. DraftKings came out firing, inking a deal with the PGA Tour. FanDuel followed with a deal of its own. Kindred Group has a deal. And we fully expect a flurry of new deals to be announced in the coming weeks.

We think market-access economics in Arizona will be less eye-watering than in, say, Michigan; unlike Michigan, Arizona is – and will likely remain – an online sports betting-only market, which will limit player values. Also, Arizona’s online sports betting GGR ceiling ($295m per our estimates) isn’t all that high. We expect the usual suspects to secure market access, but for a few of the more cost-conscious operators to potentially pass on Arizona for the aforementioned reasons. We note that Indiana (a $306m GGR ceiling market, per our estimates) has only seen 10 online sports betting brands launch since it opened in October 2019.

Louisiana unlikely to disappoint during year of unpredictable policy

Louisiana lawmakers pre-filed over half a dozen sports betting bills ahead of the recent start of the legislative session. The bills include a notably less traditional group of potential participants than most currently legal states. Specifically, the bills would make bars/taverns and video poker-licensed truck stops eligible operators of betting kiosks.

Baton Rouge, Louisiana, US skyline from Louisiana State Capitol

We understand, however, that sports betting policy discussions remain in their infancy, and that some fairly interesting proposals – the placement of online sports betting account-funding kiosks at retailers, for example, or even a mixed online sports betting market comprised of commercial casino skins and a skin run by the Louisiana Lottery – are expected to be considered. We’ve also heard that Caesars has dropped its bid in Louisiana for an in-person registration requirement for online sports betting, which will likely help smooth the path for online sports betting legislative passage. Watch this space – we remain lean-positive on Louisiana.

Esports betting included in newly passed state bills

Esports has turned a corner, legislatively speaking. Of the four states to legalize sports betting for the first time this year, three (i.e. Arizona, Maryland, and Wyoming) explicitly included esports in their definitions of sporting events (South Dakota’s legislation is silent, so esports events’ eligibility is TBD). That’s in line with last year’s esports approval ratio, and higher than the ~66% of first-wave states that approved esports events as eligible betting events.

We expect esports betting approval ratios to continue to increase as regulated esports betting matures, demand for esports betting increases, and lawmakers become more familiar with the sport. But we note that integrity issues, like the match-fixing that is currently the subject of an FBI investigation, could significantly negatively impact the sport’s prospects as a legal betting option.

Eilers & Krejcik Gaming LLC is an independent research and consulting firm with branches located in Orange County, California, and Las Vegas, Nevada. The firm’s focus is on product, market, as well as policy analysis related to the global regulated gambling market. Clients include operators, suppliers, private equity and venture capital firms, institutional investors, as well as state governments. To learn more about the firm, visit http://www.ekgamingllc.com