Who will win the battle for US sports betting supremacy?
With confidence high that the Supreme Court will deem PASPA unconstitutional, casinos, international online operators and platform providers are gearing up for a possible explosion in legalized sports betting. But are they right to be so optimistic and who are likely to be the industry’s key players?
Words by Julian Rogers
The chances of sports betting being legalized across the US have, to use a betting expression, shortened from unfancied long shot to warm favorite. Just the mere fact that the US Supreme Court is hearing New Jersey’s case is viewed by proponents as a very encouraging sign. “I think our chances are 75%, if not better,” says Bill Pascrell III, a lobbyist with Princeton Public Affairs Group.
With the gambling industry’s key stakeholders feeling bullish that the 25-year-old federal ban on full-blown sports wagering outside Nevada will be overturned, casinos in New Jersey’s Atlantic City aren’t sitting on their hands. Most, if not all, are building or planning to build lavish sportsbook facilities, while MGM’s head of Race & Sports division, Jay Rood, told a recent conference that he was headed to Atlantic City to oversee the creation of a $7m sportsbook at the Borgata. Quite clearly, legalized sports wagering in New Jersey would be a watershed moment worthy of substantial investment.
If PASPA is repealed, analyst firm Eilers & Krejcik Gaming forecasts that it would open the floodgates and that as many as 32 states – or over 60% of the country – could legalize sports betting by 2023. This could generate $245bn in handle and $16bn in revenue annually in a best-case scenario, and if online is included. While 30-plus states may sound a little over optimistic for some, there is bound to be a domino effect if PASPA is struck down. “I’m not sure it’s so much a domino effect as a wave,” says Chris Grove, publisher of LegalSportsReport.com.
So far, 10 states have filed meaningful legislation in 2017 related to sports betting and progress in other states should accelerate at the start of the 2018 legislative session. “I don’t think it’s unreasonable to expect that over 15 states will have meaningful bills and that a double-digit number will have passed a bill by this time next year should PASPA fall,” Grove says.
What exactly all these bills will include is difficult to predict. Most states that legalize sports wagering are likely to allow brick-and-mortar casinos and racetracks to take bets, yet online betting could be a step too far for some lawmakers – for now, at least. However, certain states could opt for a similar setup to Nevada where bettors can place wagers on mobile apps anywhere in the state after registering and depositing at a casino or kiosk.
“It would be foolish to just pass a sports betting law that doesn’t include a mobile app because they will be leaving money on the table,” says Pascrell. New Jersey already allows regulated online gaming, so it seems likely that the Garden State would quickly allow online sports wagering. Pennsylvania, which recently green lighted online gaming, has included online betting, although the law isn’t fully fleshed out yet.
“The online question is a trickier one,” says Grove. “Several early adopters will embrace online, including New Jersey, but I don’t believe you’ll see states move together on this issue. Online gambling has been an incredibly divisive issue within the industry, and is a tough sell politically.”
Although lawmakers will probably be more comfortable with online sports betting than online casino, the fact it has taken almost five years for Pennsylvania to become the fourth state to pass egaming legislation underscores the scale of the challenges that lie ahead. Yet not including online in legislation would mean missing out on a chunk of revenue and taxes. It would also encourage many gamblers to carry on betting illegally with offshore sites.
Early moves
Despite sports betting being a low-margin product compared to a cash cow like casino, there is sure to be a land grab once states start legalizing it in meaningful numbers. Naturally, much depends on how states regulate sports betting, including who gets the main licenses, how much they cost and the level of taxes applied.
“Scientific Games have positioned themselves very nicely with the potential acquisition of OpenBet” – Ed Andrewes
“The key operators across the US are going to be the big casino chains because it is a fairly logical assumption that the existing bricks and mortar casinos in the various states will be in pole position to get licensed for sportsbook,” says Ed Andrewes, owner of EA Gaming Consultancy which provides management services to Resorts’ digital business in New Jersey. “The incumbents already providing it in Nevada will be in a strong position to offer it for the big operating groups throughout the US.”
One big name patently positioning itself to be a major player is Scientific Games (SG) after the gaming technology giant announced in September that it was acquiring digital gaming provider NYX Gaming Group for roughly C$775m. Yet the takeover was met by resistance from William Hill, which provided £80m in cash towards NYX’s £270m purchase of B2B sportsbook and digital gaming company OpenBet in April 2016. OpenBet’s sports betting technology processes almost 70,000 sports wagers per minute during peak demand and powers a number of leading sportsbooks, including William Hill, in regulated markets. “Scientific Games have positioned themselves very nicely with the potential acquisition of OpenBet,” Andrewes remarks.
SG, which runs sports betting for Delaware’s lottery, also benefits from being an omnipresent online and offline outfit. “Scientific Games has licenses in every jurisdiction,” says Joe Brennan Jr, former president of the Interactive Media Entertainment and Gaming Association (iMEGA) and now CEO and founder of daily fantasy sports (DFS) start-up SportAD. “They work with practically every casino and lottery and have already been through all of the regulatory hoops that the international operators haven’t. That is a significant advantage. Having said that, I don’t think acquiring the standard back office for sportsbooks in the international markets would necessarily put them at the head of the line in this country.”
Crowded house
Despite the regulatory hoops Brennan refers to, certain international brands are sure to clamor to jump through them if it means grabbing a slice of the action. William Hill US, for instance, manages over 100 sports betting shops and kiosks across Nevada after entering the Silver State in 2012 via the acquisition of three small sportsbooks. William Hill clearly has plans to expand beyond Nevada and Bank of America/Merrill Lynch is bullish on the bookmaker’s prospects in the US, noting in November that it had a 55% share of the Nevada sportsbook market.
Another important player could be online powerhouse Paddy Power Betfair (PPB). Six years before the merger of Betfair and Paddy Power in 2015, Betfair snapped up pari-mutuel online betting network and TV channel TVG in the US. Betfair US also boasts a horseracing betting exchange and an online casino in New Jersey. The company’s US operations process a combined total of $2bn bets a year. And in May, PPB made a surprise move by purchasing DFS site Draft for an upfront cost of $19m, perhaps with one eye on future developments. “It obviously seems to be positioning the company for a possible US sports betting marketplace,” says Brennan.
Then there is GVC to consider. As well as owning online sportsbook brands bwin (a £1.1bn acquisition in 2016) and Sportingbet, the London-listed group has been a protagonist in New Jersey’s egaming space since the outset four years ago. Indeed, Pascrell suggests that GVC is “positioning itself to be a leader of the pack.”
He says: “They [GVC] clearly get the magnitude and the potential scope of the US sports betting market and I think they have invested a lot of time, energy and research. They have some exceptional experience with [CEO] Kenny Alexander and I believe they are well-positioned to take advantage of this. I know they are focused on it.” GVC’s recent acquisition of Ladbrokes Coral may slow the behemoth’s move west however.
Last year, William Hill walked away from a proposed £4.6bn merger with Amaya (now The Stars Group). Nevertheless, The Stars Group CEO Rafael Ashkenazi told Reuters in November that the Canadian business could raise up to $2.5bn to fund acquisitions of either one large company or three to five small-to-medium companies.
The Stars Group has been operating in New Jersey with PokerStarsNJ since March 2016 and is seeking a land-based casino partner in Pennsylvania. It’s not beyond the realms of possibility for Ashkenazi to be plotting The Stars Group’s foray into US sports betting. In 2015, The Stars Group launched a sportsbook, BetStars, in Europe and also bought US DFS start-up Victiv (rebranded to StarsDraft). Although PokerStars is a well-known and respected brand in the US, not being associated with sports betting means “they have some work to do,” according to Pascrell.
Perhaps unsurprisingly, Brennan struggles to identify an obvious potential market leader at this early stage. “So, is it going to be these brands like William Hill or Paddy Power Betfair who are going to be the big winner? Or is it a platform company? Or is it going to be the American companies largely confined to Nevada? There is no substantial case that could be made for anybody being a guaranteed winner in this marketplace right now. One reason is because this is one of the rare technology markets in which the United States has essentially opted out of internationally. Our technology community leads in virtually every segment that you can think of except this, and that is because of our laws.” What is more certain, though, is liberalization will probably lead to more M&A. Grove says: “The momentum for consolidation in the international gambling market – especially the online vertical – was already significant. If the US sports betting market opens, it will just pour fuel on the fire and bring US companies into the acquisition conversation, [which is] a potential game-changing development.”
On an equal footing
Estimates as to the total wagered illegally in the US annually vary anywhere between $150bn and $400bn. This compares with $4.5bn bet legally with Nevada’s sportsbooks in 2016. Regardless of the true black-market figure, regulated sportsbooks will be looking for legislation to provide a level playing field to enable to them to compete with the US-facing offshore sites.
This includes permitting online wagering, a wide range of betting markets, and in-play betting (25% of William Hill US’ business is in-play). “The biggest thing that could possibly hold it back is if legislators and regulators don’t allow the operators to have a competitive product,” Andrewes says. “This is crucial, otherwise people just don’t come across [from offshore sites].”
In the meantime, Pascrell advises international brands to “put their stick in the ground” sooner rather than later. After all, there will be a finite number of partnerships that can be forged with land-based operators. “It’s like musical chairs – you run out of seats,” he says.
Brennan uses another analogy to illustrate the inevitable jockeying for position in New Jersey: “It’s going to be a gigantic beauty contest with every European and Nevada operator and platform company making their way to New Jersey and saying, ‘pick me, pick me.’” While the Supreme Court’s ruling is not expected for four to six months, many are fairly sure PASPA will be shot down. “Nothing is a slam dunk,” Pascrell declares, “but I would be shocked if the court comes back and says PASPA is constitutional.”