US betting market trends: The coming marketing wars

The regulated US sports betting market generated handle of $717.3m for the month of May, which was down 1.12% on April’s total of $725.4m.

The slight decline was mainly attributable to seasonal factors. There were fewer NBA games in May than April (when the NBA regular season ended), although the decline in basketball handle was offset by growth in MLB betting, as professional baseball’s regular season completed its first full month.

In May, as in previous months, Nevada and New Jersey accounted for the lion’s share – or about 88% – of total regulated US sports betting handle. Notably, New Jersey, where online (PC and mobile) sports betting accounted for 82% of total statewide handle in May, generated approximately 44% of total regulated US sports betting handle in May – an all-time high.

We expect the US market as a whole to meaningfully slow during the summer months of June to August, when the sports calendar is far less busy, before rounding back into form during the peak NFL months of September to November.

Coming soon: the marketing wars

We’re expecting an all-out advertising blitz in New Jersey during this year’s NFL season. DraftKings and FanDuel, which casually shelled out $1m on a recent Illinois lobbying campaign, will surely spend aggressively.

But so will some of the state’s retail casino brands, many of which have been relatively tight-fisted so far. Add to that marketing spend from forthcoming brands like bet365 and Unibet, and you’ve got the makings of a battle that could fundamentally reshape the pecking order in New Jersey’s online sports betting market. Who ultimately wins that battle though?

That’s easy: local and national media companies, which will soon be awash with advertising revenue.

FanDuel remains atop in NJ

FanDuel’s lead over DraftKings is no fluke. FanDuel grabbed pole position back in February and hasn’t looked back. The gap between the two brands didn’t widen in May but DraftKings still has a lot of catching up to do.

We do believe DraftKings will make a massive NFL push and think it’s reasonable that the two brands could find a neck-and-neck equilibrium in the near term.

Reframing retail

Retail sports betting in nascent US markets is often framed as a disappointment – especially in New Jersey, where the online sports betting vertical, in terms of handle, typically dwarfs its land-based counterpart by a factor of four.

Early commentary from industry operators, however, suggests that retail sports betting – despite modest direct returns – is generating tangible indirect benefits. On its most recent earnings conference call, MGM executives said that EBITDA at two of its Mississippi casinos jumped by double digits year-on-year thanks to increased footfall from sports betting. Similarly, during its most recent earnings call, Caesars said that sports betting drove year-on-year increases in visitation and food and beverage revenue at its Mississippi properties.

Total regulated US sports betting handle post-PASPA (June 2018 – May 2019)

As many casinos transition from temporary to permanent (or even to destination) retail sportsbooks, we expect the narrative around retail sports betting, given its ability to generate meaningful cross-sell to higher-margin amenities, to become far more positive.

Bills, bills, bills

If one thing has become clear this year, it’s that sports betting legislation plays by a different set of rules than regular old gambling legislation. Six states accounting for about 11% of the US adult population have passed bills this year, and more – including populous New York and Ohio – could very well be on deck.

Why do we say “by a different set of rules?” Some states (Iowa and Indiana) really weren’t a surprise, but Tennessee (a very conservative state that went with an online-only (!) model) and Illinois (whose dysfunctional politics make it a veritable killing floor for gambling expansion legislation) weren’t pegged by anyone as likely early adopters of sports betting.

What’s next? Legal betting in Utah?

Confusion could be costly in Colorado

On November 5, 2019, Colorado residents will go to the ballot box to decide whether to legalize retail and online sports betting.

But the language of the ballot question – which includes the phrase “Shall state taxes be increased by [$29m] annually… to pay for the regulation of sports betting…” – is quite awkward and so likely to give voters pause.

In fact, it’s easy to foresee a world in which a core contingent of voters ask themselves, ‘Why should the state raise taxes to regulate gambling?’ Which, in turn, has us asking ourselves, ‘Is this ballot measure likely to fail?’

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 www.ekgamingllc.com.