The month in US sports betting: Could M&A increase DraftKings' igaming appeal?

After the US sports betting market meaningfully bounced back in August, we expect September to see elevated revenue. Using September results from a few states that have reported so far – including the key online sports betting markets of Indiana, Pennsylvania, and New Jersey – we estimate that total US revenue in September will come in around $157m (+23% month on month, +13% year on year).

After September’s month on month gain – which was driven by a very robust sports calendar that saw all major leagues active – we look for a bit of a downturn in October, during which the NHL, NBA, and MLB will wrap up their seasons.

DraftKings’ next big move?

We are increasingly convinced that DraftKings will need to look outside of its primary brand to drive the kind of growth and total addressable market necessary to maintain its sky-high valuation story. One potential path that doesn’t get as much attention as it should is that DraftKings could acquire a casino-first brand like Golden Nugget.

Doing so would allow DraftKings a clear path to acquiring casino-first customers versus the sports-first customers that make up its primary addressable market today. If New Jersey is any indication, DraftKings – which appeared to grow the casino market rather than stealing share from competitors – will leave significant amounts of top line and bottom line on the table if it commits exclusively to its core brand for the US online casino and poker markets.

In Indiana, echoes of New Jersey as FanDuel continues to reel in DraftKings

In New Jersey, DraftKings enjoyed a 26-day head start over FanDuel. But six months later, FanDuel overtook DraftKings (in terms of GGR share) and has consistently maintained its lead ever since. Channel checks have attributed FanDuel’s edge to a combination of factors that range from more aggressive marketing spend to better product to superior trading and management nous.

In Indiana, we’re seeing what looks like a version of the same story play out – only a bit slower. DraftKings launched online sports betting 20 days earlier than FanDuel and used that advantage to take a big early lead. But FanDuel has steadily narrowed the gap and in August 2020 came within shouting distance of DraftKings.

Although both markets are still in their early stages, the results so far point to a world in which FanDuel is likely to outperform DraftKings in terms of GGR share – even when DraftKings has a bit of a head start.

Two cents on what’s next for 5Dimes

If we are offshore sports betting operator 5Dimes, an acquirer of 5Dimes, or some kind of JV partner with 5Dimes, our playbook of next steps – post settling with the US DOJ – would look like what follows:

• First, try to get through compliance in New Jersey, where the Division of Gaming Enforcement’s 2015 decision to allow Amaya-PokerStars – and PokerStars’ brand and player database – into New Jersey provides a potential path to market for 5Dimes.
• Second, and assuming a successful result in New Jersey, use that result as the basis for pressing for licensure in other states (Colorado, Indiana).
• Third, and assuming a successful result in New Jersey (or in New Jersey and other states), leverage that regulatory imprimatur in pre-legal states where influential incumbents (casinos, gaming tribes) are likely to strongly oppose 5Dimes’ efforts to secure market entry.

As we’ve noted in recent reports, we continue to believe the PokerStars precedent in New Jersey leaves the door to the legal US market ajar for 5Dimes and, potentially, for other offshore operators.

When it comes to skins, Ohio governor’s got hungry eyes

In Ohio, we’re hearing strong, positive chatter that sports betting legislation is odds on to pass before the session ends on December 31. The House and Senate have apparently come to consensus over operational details, and the consensus bill calls for a $100,000 initial license fee, 8% GGR tax rate, and three skins per licensee – all of which must be used.

The ‘must’ language, per the rumor mill, comes from Governor Mike DeWine, who, seeking to maximize revenue for the state, wants all skins operational. In pursuit of the same goal, we anticipate that DeWine may push to increase the license fee and tax rate above their current bargain-basement levels. We are hearing that the new bill is likely to be substituted in for HB 194 in committee in the coming weeks, though votes are not likely to occur until after the November 3 election.

In-person registration set for southern resuscitation?

As Mississippi prepares to take up mobile sports betting legislation in 2021, the rumor mill suggests some casino operators there are lobbying for a bill requiring in-person registration (IPR) for online sports betting.

One purpose of IPR, we hear, is to drive tourist foot traffic to Mississippi casinos, for whom tourist visitation, in the year to date, is down a staggering 53% year on year, per statistics from the Mississippi Gaming Commission. Mississippi’s economy generally and casino model specifically is heavily reliant on tourism – 4.2% of the state’s GDP is derived from tourism (11th highest in the nation, according to S&P), and 62% of its casino visitation is attributable to out-of-state patrons.

So, we wonder whether the pro-IPR casinos in Mississippi will find traction with the argument that 1) casinos are a major tourism and economic engine for Mississippi and 2) IPR is vital to ensure they remain so in a post-Covid 19 world.

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 http://www.ekgamingllc.com.