Falling on hard times: An industry in crisis

As many industries continue to face the knock-on effects of global lockdowns and social distancing requirements to curb the spread of the global coronavirus pandemic, it is difficult for the wider world to empathize with leisure sectors like online gambling. But the weight of the economic fallout has hit the industry hard, particularly in the immature US market which relies almost entirely on professional and college sports for its livelihood.

The mass postponement and cancellation of traditional sports, as well as the closing of retail sportsbooks in states where online and brick-and-mortar betting are linked, has thrown state regulators for a loop, particularly as they now face many requests for novel markets like esports and foreign league sports, both of which raise significant questions surrounding integrity.

Despite a multitude of set-backs, the general tone across the online sector is one of cautious optimism, particularly as regulators in Colorado move to launch online betting in the state on May 1, and the increasing consumer appetite for esports reflects a trend that has long been expected by those championing the vertical.

Sportradar’s head of esports, Mark Balch, says demand for the supplier’s esports data offering has surged of late. “We’ve been trying to add as much content as we can, new tournaments and game titles, so it’s been flat out for the esports side of things. As well as a few other parts of the business like virtuals.”

Meanwhile, PointsBet USA CEO Johnny Aitken tells EGR North America: “Now is a time in sports betting where creativity and innovation will shine, so despite the unprecedented times, our mission – and our ability to execute it – remains unchanged.”

Perhaps most importantly for operators, the pandemic has shone a light on online betting’s capacity to “serve as additional means for companies to future-proof and protect much needed state revenues during times of crisis,” Aitken adds.

One example is Penn National Gaming using the downtime to update its free-to-play NASCAR offering to include the racing league’s hugely popular esports racing endeavor, which challenges players to virtual NASCAR races against each other.

“This is a way Penn Interactive can continue to create great, interactive products that people love and can really engage with sports fans,” head of interactive Jon Kaplowitz comments.

“After NASCAR cancelled their liveraces, they were able to successfully launch their iRacing series. They were able to quickly pivot and create really interesting and engaging content, and it shows in the ratings. I believe the last tournament was the highest-rated esports program on the internet and in TV history with over a million viewers.

“So, we’re lucky to have a relationship with NASCAR where we are providing an F2P game called the Finish Line,” he adds.

Still in motion

Despite the current uncertainty, Penn Interactive is still preparing to launch its Barstool Sportsbook product in August, as Kaplowitz predicts a summer return for live sports. “That launch timing has not changed. And we do anticipate meaningful revenue and profit contributions from this new business in 2021 and beyond,” Kaplowitz confirms.

As it powers ahead, the firm continues to invest in senior staffers to drive the Barstool brand. Its latest hire, VP of marketing Siska Concannon, previously held the same role at igaming supplier GAN between 2018 and 2019.

“Because our sports betting launch plans have not changed, we’re still actively recruiting for some key roles,” says Kaplowitz. “And obviously there are a whole bunch of operational roles as more states legalize and promulgate rules, hence why we’re hiring a compliance officer to help navigate some of those rules with us, as well as to work with our head of compliance today.”

Juxtaposed against Penn Interactive’s relative operational growth, its retail business furloughed 26,000 employees in March as it grappled with extended lockdown measures across the country. Kaplowitz is sympathetic to those affected by the virus but insists Penn National is well positioned to rebound.

“When you combine the unparalleled distribution network of Penn National with the national audience of Barstool, we think we’re still in a good position,” he says. The temporary layoffs extended into the online world as well, with Scientific Games, William Hill and Foxwoods Online also shedding staff.

Industry consultancy firm Propus Partners predicts the hardest hit will likely be “embryonic stage” betting operators which were largely loss-making entities even before the crisis struck. “In most cases, bar a couple, [operators] will have been loss-making prior to this, as they have been attempting to buy market share in the US or get their technology and regulations, products and staff to go live in new states,” says Propus Partners’ Mark Israney.

“The difficulty is, without knowing what the end date is, how deep are your pockets in terms of being able to keep going?

“Obviously if you’re an offshoot of a major casino, or one of the large European operators, because the prize is perceived to be so big within the US, then I would suggest that they continue running their businesses for as long as possible,” Israney adds.

“Let’s be hopeful and assume this lasts three months. My expectation is that they would come roaring back, but there could be a few smaller companies which have bet the house on going live in one state that might not survive this.”

European giant and MGM JV partner GVC Holdings is expecting to save up to $25m a month to mitigate this quarter’s losses by stalling staff bonuses, applying for business rates relief and furloughing retail betting employees in the UK across its Ladbrokes and Coral brands.

And in the case of GVC and its fellow European brethren, offering alternative betting markets in the UK, Germany or Belgium will be met with much more success in Europe than the US where nascent bettors will struggle to adapt to the pivot from traditional sports.

Indeed, Propus Partners’ Marc Thomas expects Americans will be much slower to adapt as many of these novel markets will be alien to the nascent US bettor, yet PointsBet’s Aitken insists the response to the more niche markets has been “encouraging” in New Jersey.

“Bettors have really taken an interest in our table tennis offerings. Likewise, we’ve seen steady action from clients on new futures added for the more mainstream sports, such as our NFL player props for the 2020 season.

“The world’s desire to consume live competition will continue to grow over the coming weeks, so we look forward to offering clients even more options as leagues across the globe look to either start or resume their respective seasons.”

So how has PointsBet fared during all of this, especially considering it is a young US business lacking a complementary igaming product to fall back on?

Aitken says that by owning its entire technology stack, the firm has been able to move quickly and innovate features and bet types in real time in order to adapt to new circumstances.

“We look forward to rolling out online casino in Michigan and have assembled a world-class team to oversee this vertical, with chief innovation officer Seth Young and president of technology Manjit Singh,” Aitken hints.

Johnny Aitken, PointsBet US CEO

The rise of online casino

Unsurprisingly, igaming is peaking in states like New Jersey and Pennsylvania. Penn Interactive’s Kaplowitz says Penn’s Hollywood Casino site has experienced “record handles” and customer engagement levels in March and April.

“I’m sure this is happening across the industry in Pennsylvania and I think what we will see in the month of March will be the highest revenue numbers so far. Pennsylvania is on a faster trajectory than New Jersey was in terms of already having hit $20m in monthly revenue and is continuing to increase significantly.”

In March, when professional US sports disappeared from sportsbook offerings one by one, PokerStars in Pennsylvania saw customer acquisition rates almost double on the previous month, during which it reported revenue of $1.8m.

Michigan’s regulator initially earmarked an online gaming and betting launch for early 2021, but considering the circumstances, Rebecca Giden, senior analyst for boutique research firm Eilers & Krejcik Gaming, estimates the roll-out could be dragged forward to Q3 or Q4 of this year, should the governor agree to expedite regulations and implement emergency rules to speed up the process.

“I absolutely see this situation as turning up the urgency and intensity across the gaming spectrum. I think in states that have legalized igaming and are working towards implementation, like West Virginia and Michigan, all the stakeholders will be asking for expedited regulations and licensing so they can go ahead and start to offer this product now,” Giden tells EGR NA.

“On the other side, states that either have considered legislation in the last couple of years but not moved forward with it, or states that haven’t considered it at all, I imagine they will either now consider it or consider it more seriously,” she suggests.

Looking ahead

Casting their sights on North America’s biggest sporting tournament of the year, Propus Partners’ Israney and Thomas claim the biggest impact could come from a postponed NFL season, should coronavirus precautions be carried into the summer, or perhaps if a second wave strikes later in the year.

While firms have lamented the loss of March Madness, which is the biggest betting event of the sporting calendar, the NFL season acts as a crucial launchpad for new products and campaigns as it presents huge customer acquisition opportunities.

“The NFL season is what all of the new entrants into the market are geared toward,” Israney comments. But pressure from the gaming industry is falling on deaf ears as the sector finds itself in an awkward position during the pandemic, along with many other leisure industries.

“There’s a weird dichotomy in the respect that sport is not one of the important things at the moment, but of the unimportant things, sports is one of the most important,” Israney adds. “And I think the [industry] is right in that sport is a bellwether of things getting back to normal.”

Whispers that certain sports could be played behind closed doors in coming months are looking likely, but considering the immense social and cultural value professional sports have in North America, Propus’ Thomas thinks it is unlikely major US sports will go ahead without a crowd.

“With LeBron [James] saying that he’s not going to play in the arena, there will be a lot of others that follow suit. And if the basketball doesn’t go ahead, then there’s no way the NFL will go ahead. I just cannot see the Americans playing behind closed doors at all,” says Thomas.

Despite the restrictions to sport, the NFL has announced it will continue with its draft for the upcoming season, with players being selected virtually via video chat. Previously, the draft wouldn’t generate much interest from betting consumers, but a spokesperson for one sportsbook said he expected operators to give it a significant push considering the extraordinary circumstances.

On the regs

As an alternative, the US has seen some increasing demand for esports in recent weeks, but as with igaming states, operators are restricted by regulatory constraints. Giden suggests that while regulators are sympathetic to the situation, proper legislation and due diligence takes time and most are not willing to rush the process.

However, small steps are being made in the right direction, with Nevada passing new regulations to allow for betting on certain esports tournaments, as well as NASCAR’s virtual racing competition.

“[These sorts of innovations] present opportunities and challenges,” Giden says. “What first comes to mind for me from a regulatory perspective is making sure those smaller events that haven’t gotten much betting volume [in the past] have a robust infrastructure for integrity, and that operators can efficiently manage risk for those events, and [properly] inform consumers.”

Giden’s point rings especially true for a recent regulatory miscommunication between an operator and the regulator, the West Virginia Lottery Commission. After applying to offer political betting markets, the regulator seemed satisfied with FanDuel’s proposals and prematurely gave the go ahead for the operator to offer odds on this year’s presidential election.

However, the regulator swiftly shut down these markets after claiming it needed more time to research and consider the application. Soon after, West Virginia Secretary of State Mac Warner condemned the initial approval in a statement. “Gambling on the outcome of an election has no place in our American democracy,” he blasted.

Meanwhile, Colorado’s regulator is navigating similar regulatory uncertainty as its May 1 betting launch date looms. According to director of the Colorado Division of Gaming Dan Hartman, mobile betting will still go live in May, perhaps with an emphasis on esports, which was included in the regulations early on in the process.

“In our regulations we’ve set up a commission to approve an initial sports catalog. And we’ve had some recent talks with operators about finalizing that catalog now to put in front of the commission. We can take an initial draft and then, subsequent to that, I can approve additions. I think there will be some more talk about moving esports to the forefront,” Hartman confirms.

He admits his team is toying with an initial soft launch and fast-tracking mobile over retail betting to ease operators’ worries, but insists they are working very closely with stakeholders to consider all options.

Many stakeholders like Aitken and Kaplowitz have shifted their mentality to consider the positives of this extended period of downtime for the industry.

Consider the potential for novel innovations in betting features and marketing, and the creative breakthroughs many will be experiencing. And not least, consider how the situation will push regulators to adapt to the changing betting and gaming landscapes in the States.

“This enforced cessation of business may give operators a unique and unexpected opportunity to look at their existing product suite and reflect as to where improvements could be made, or where new products could be added,” says Omer Dor, CEO of oddsmaker Sports IQ Analytics.

“For example, operators have an opportunity to look at how player props markets are integrated into their suite as well as to sharpen up on the quality of their in-play offering.”

One major adjustment will be felt in states where retail and mobile are linked by restrictions like in-person registration and cash-out, so the sector is having to rethink its approach to suit the current climate. And, perhaps most importantly,

Aitken notes: “The pause in competition has given operators the chance to assess strategy, explore new tactics and test what works in every facet of their business.”

Although the temporary loss of sports will have a severe impact on revenue for months to come, the industry can, for the first time since PASPA’s repeal, take a step back and plan its next move.