US betting market trends: Google paid ads and the introduction of Fox Bet

The regulated US sports betting market generated handle of $690.4m for the month of June, which was down 3.7% on May’s total of $717.3m. The slight decline was mainly attributable to seasonal factors.

There were fewer NBA games in June than May (when the NBA playoffs were in full swing), although the decline in basketball handle was offset by growth in MLB betting, as professional baseball’s regular season completed its second full month.

In June, as in previous months, Nevada and New Jersey accounted for the lion’s share – or about 87% – of total regulated US sports betting handle. Notably, New Jersey, where online (PC and mobile) sports betting accounted for 83% of total statewide handle in June, generated approximately 40% of total regulated US sports betting handle in June – or just shy of its all-time high of 44%, which it achieved in May.

We expect the US market as a whole to dip again in July and August, when the sports calendar is far less busy, before rounding back into form during the peak NFL months of September to November.

Google changes the game Google recently opened the door for a pilot program whereby licensed New Jersey online sportsbooks can purchase paid ads across Google’s network. While operators had some limited ways to purchase these ads in the past, this policy change will have a material impact on the marketing landscape in New Jersey.-

Winners: Operators with paid media expertise and above-market player values who can outperform and outbid competitors. Sportsbooks who have casinos attached can also capture increased returns and may be able to sneak in some casino ads alongside the sports ads.

Losers: Operators who aren’t versed in paid media or lack an attached casino. We also see material downside for affiliates that are shut out of paid Google ads for the time being and which will now have additional competition in search results thanks to the insertion of paid ads.

Coming soon to New Jersey and Pennsylvania: Fox Bet

We’re hearing that the Fox Bet brand will launch in New Jersey and Pennsylvania in late August, or just prior to the start of the NFL season.

In New Jersey, the BetStars brand has underwhelmed. In the five-month period that ended May 31, 2019, we estimate that it accrued <1% market share. That’s in contrast to FanDuel and Draft- Kings, which dominate the market, and to a second tier of operators that control moderate share.

We have a hard time seeing Fox Bet displacing the DraftKings-FanDuel tandem (especially given that tandem’s structural advantages and penchant for marketing overspend), but we do believe that Fox Bet could soon stake a firm claim in the market’s second tier.

Apple angst

In the New Jersey online sports betting market, we understand that 50%+ of players and 45%+ of revenue is derived from bettors who use iPhones. With the start of the NFL season and Apple’s September compliance deadline less than two months out, we’ve got the makings of a have/have-not dynamic that could significantly benefit existing operators.

If we assume that existing operators are able to use non-compliant apps after September 3, but that new market entrants are not able to deploy non-compliant apps, then those new entrants – given the slow pace of app approval at Apple – could be at a material disadvantage come the busiest stretch of the US sports betting calendar.

For non-endemic operators, Illinois is a mystery wrapped in an enigma

Non-endemics (DraftKings or bet365) that want to operate Illinois online sports betting under their own brands won’t have it easy – not even close. In our view, the branding/skins provisions in a newly enacted state law leave open four options for non-endemics.

The first, and most obvious, is to bid for one of the state’s three online-only licenses. The second is to partner with a sports stadium. The third is to strike a strategic partnership with a casino or track under which the casino or track would agree to use the non-endemic’s brand on its physical property.

And the fourth is to buy a casino or track. All options come with strings attached (this is Illinois, after all). Online-only licensure comes with a $20m upfront fee and a labyrinthine-looking competitive bidding process. A sports stadium partnership comes with cost (we assume non-endemics would foot most/all of a stadium’s $10m license fee) and unique challenges (the seasonal nature of sports and a stadium’s very limited operational radius among them).

A marketing partnership with a track or casino won’t come cheap. And neither, of course, will a casino or track. Maine operators would get a small but significant tax win If a recently passed Maine bill becomes law, it would allow operators to deduct their federal excise tax payments from their gross gaming revenue for purposes of calculating state taxes.

Using the bill’s 16% tax rate for online, and assuming a 5% hold rate, we estimate that the deduction would reduce online operators’ total tax liability by approximately 4%. In a low margin business like sports betting, even incremental savings can be hugely impactful.

Although Maine online operators (given the modest GGR opportunity) are unlikely to plow such savings back into local marketing or product, we think that money could be rerouted to other, higher-priority emerging markets where the economics of sports betting are particularly challenging.

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.