Is Michigan the new New Jersey?

New Jersey has long presented the most realistic view of a mature online sports betting market, with the top five players ensconced in their positions over the last year or so.

But the highly anticipated Michigan launch in January created something of a hotbed for both igaming and online betting activity thanks to favorable tax conditions, a looming Super Bowl, and all the top brands setting off from the starting line at the same time on January 22.

Michigan lawmakers have arguably implemented one of the most operator-friendly regulatory frameworks of all betting states, particularly when considering those with state-run monopolies or in-person registration requirements. The Michigan Gaming Control Board offered up betting licenses to all commercial casinos in the state, as well as the tribes, most of which chose to partner with online operators.

State lawmakers also implemented a low betting tax of 8.4% on all operator adjusted gross sports betting receipts. The data speaks for itself: in its first nine days of operation, Michigan recorded $115m in online betting handle, surpassing Morgan Stanley’s initial prediction of under $100m.

In February, its first full month of betting, handle came in at $301.9m. Comparatively, it took six months of online sports wagering in New Jersey for the Garden State to eclipse $300m in handle ($305m in January 2019). Of course, the two states do not present an entirely fair comparison when considering the staggered start for betting operators in New Jersey.

“Michigan is a diverse and sports-crazed state,” Matt Schoch, Catena Media lead analyst for its PlayMichigan site, tells EGR North America. “All of the big operators took off together at the starting line and had every chance to produce. The taxes are friendly too, so there was no reason to opt out of the fight. Funding, strategies, and outcomes will evolve, but Michigan provides a clear picture of the current landscape,” Schoch adds. “Michigan is an incredibly important look at the current market.”

Add to it that online casino and poker is permitted and operators invested a great deal into their Michigan offerings in 2020. The online poker proposition certainly gained traction once the United States Court of Appeals for the First Circuit sided with the New Hampshire Lottery Commission and agreed that the Wire Act only applies to sports betting and not all forms of online gaming. Michigan state lawmakers have also been bullish on joining the interstate poker liquidity pool, which currently includes New Jersey, Nevada, and Delaware.

Flutter’s PokerStars and BetMGM were the only two to be operating poker in Michigan at the time of writing. The 11 operators live with igaming in the mid-western state racked up a total revenue of $79.7m in February, while Pennsylvania’s came in at $77.8m for the same period.

Pennsylvania has operated a thriving igaming market since July 2019, even if the tax rate on slots is eye-wateringly high, with around a dozen operators now available in the state. In its FY 2020 earnings report, Rush Street Interactive (RSI) reported daily online casino handle in the Wolverine State had already surpassed New Jersey.

RSI CEO Greg Carlin told analysts at the time: “The reception and demand in Michigan has exceeded many expectations and we’re pleased by our success so far. We continue to see acceleration in results in Michigan with the average daily casino handle during the first week of March up over 65% on what we averaged in January.

Market share will not be determined in one month or one quarter but over the longer term.” According to data provided by the Michigan Gaming Control Board, RSI’s BetRivers brand landed sixth in terms of igaming GGR in February, with a market share of 5.4%.

Similarly, DraftKings CEO Jason Robins said early results in Michigan had shown that igaming revenue per capita was 1.9 times higher than in New Jersey during Super Bowl LV. The Boston-based operator secured an 18% igaming market share in Michigan in February, coming in as the third largest casino by GGR.

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Monthly data is presenting an incredibly interesting picture of which customer acquisition efforts are working best for operators, as the early entry advantage that has helped dictate market share in other states does not apply in Michigan.

“Many players signed up on launch day, as expected,” Catena Media’s Schoch says. “But having the Super Bowl with a little runway leading up to it, then a full month of basketball, hockey, golf, the Daytona 500 and more MMA, gives us a more complete New Jersey-style picture of where the market stands.

“The through line with the leaders is how much they are spending. You have to spend money to compete. Advertising still works,” Schoch says of leading brands BetMGM, DraftKings, and FanDuel.

The former has managed to dethrone DraftKings from second place in terms of monthly betting handle in February. Schoch puts this down to Bet- MGM’s heavy marketing efforts. “[BetMGM] ambassador Jamie Foxx has basically moved into the living rooms of most Michiganders with the amount of times BetMGM ads run, and FanDuel isn’t far behind,” he notes.

“That, and the aggressive early bonusing from the top operators, jumps out. We know Draft- Kings and FanDuel will keep that up, though BetMGM has already scaled back a little in February. The impact that will have if it continues will be telling.”

True enough, FanDuel was one of 10 operators to report a negative adjusted betting revenue for February on a big promotional spend of $5.3m. DraftKings and Penn National Gaming’s Barstool Sportsbook closely followed with bonusing expenses of $4.9m and $3.1m respectively.

Although Barstool Sportsbook maintained the same bonusing spend from January to February, its online market share slipped from 24% to 13.3%, as the top four brands’ grip over the market weakened slightly, and PointsBet took fifth spot with a 2.3% share.

“February’s numbers raise the question of whether Barstool has the juice to stick with the other three,” Schoch comments. “PointsBet has spent big in Michigan marketing and could see a small bounce from an eventual online casino launch and the cross-selling opportunities that come with it.

“You have to give credit to Barstool and their viral marketing push at launch, which put them in a great position in January,” he adds. Barstool Sports founder Dave Portnoy spent the first few weeks of legal betting in Michigan filming his popular pizza review show in Detroit, and channeling Barstool Fund charity proceeds into small businesses in the state.

But as the brand shifts its focus onto a new launch in Illinois and Portnoy swaps Detroit-style for Chicago deep-dish, Schoch rightfully points out that product and promotions have become more valuable channels for maintaining high customer acquisition levels.

Ultimately Schoch says the hype around Michigan likely won’t last longer than a year. Jurisdictions with larger populations will launch online betting, and igaming will become much more widespread.

“Don’t get me wrong, there is real money to be made here, so Michigan will always be important in that sense. But as far as an operator making a statement with strong results here, that probably has a shelf life of another year or two before it becomes just another state,” Schoch concludes.