The month in US sports betting - A rise in league data costs?

The regulated US sports betting market generated handle of $1.77bn for the month of December, which was down 4% on December’s total of $1.85bn. The incremental month-on-month decrease was mainly attributable to the lighter football calendar and tracked with historical trends observed in Nevada. The massive year-over-year increase, meanwhile, was driven principally by the growth of online sports betting in New Jersey, Pennsylvania, and Indiana.

In January, as previously, Nevada and New Jersey accounted for the clear majority– or about 58% – of total regulated US sports betting handle. Of note, Indiana – which is only in its fifth full month of operations – accounted for approximately 10% of total regulated handle in January, making it the largest market behind Nevada, New Jersey, and Pennsylvania.

We expect the volumes across the US market as a whole to decline in February but to spike in March, driven by the annual deluge of betting on the NCAA March Madness basketball tournament.

A delicate balance

We’ve heard vague rumblings lately about increases in official league data costs – and about the potential for those costs to spiral. We estimate that in a rational world, league data would account for between $0.01 and $0.02 of every dollar of online sports betting revenue.

Push that cost to between $0.02 and $0.03 (or higher) and you’ve got a situation – particularly in high-tax markets like Pennsylvania – where any corresponding cuts to advertising, promotions, and retention are keenly felt.

Online sports betting economics, especially in the ongoing absence of online casino, are such that leagues and their data partners can only push the envelope so far before the regulated online sports betting product – already at a material disadvantage relative to the illegal market product – becomes critically disadvantaged relative to its offshore counterpart.

Super Bowl LIV: By the numbers

According to data we’ve collected from 10 states, Super Bowl LIV generated handle of $268.6m and revenue of $11.9m. The lion’s share of handle – or about 58% – was generated by Nevada, reflecting that state’s status as the country’s premier sports betting tourism destination.

New Jersey (20%) and Pennsylvania (11%), due largely to their fast-growing online sports betting verticals, also captured a meaningful share of overall Super Bowl betting volumes. Of note, we estimate that around 53% of Super Bowl handle was derived from the online channel.

The Super Bowl is not only the country’s single-largest sports betting event (for context, Super Bowl LIV handle accounted for 2% of total US sports betting handle in 2019), but also a core acquisition opportunity for sportsbooks.

In the New Jersey and Pennsylvania online sports betting markets, our analysis of Big Game Google Trends results suggests that market leaders DraftKings and Fan- Duel likely won the Acquisition Bowl – and by some distance.

Halfway there

Per recent chatter, populous Washington State is odds-on to pass legislation this year that would authorize gaming tribes there to offer retail and on-premise mobile sports betting on their tribal lands. Assuming the bill becomes law – it’s already cleared the House – Washington would become the third state behind New Mexico and North Carolina where sports betting is limited to tribal gaming establishments.

Passage of a tribal-only bill in Washington should offer precedential cheer to tribal governments elsewhere. It should also serve as a timely reminder that in states like Oklahoma, Minnesota, and Wisconsin, the road to sports betting expansion runs through politically powerful tribal gaming interests that are likely to take a cautious, incremental approach to such expansion.

Skins scarcity klaxon

Maryland remains a high-ish confidence pick to pass a sports betting bill this year, per sources. At this stage, the Annapolis rumor mill suggests that operator licenses (retail and online) would go to the state’s six casinos and two tracks, and that each of those would get a single skin.

A model like that, however, would mean skins demand would far exceed supply, setting the stage for a Michigan-style market access war. And the flow of recent market access deals (FanDuel-Cordish, William Hill-Golden) suggests that cars may soon outnumber parking spots.

Third time’s the charm?

For the third consecutive year, Connecticut will contemplate legalizing sports betting. As in previous years, there is legislation proposing sports betting alongside a suite of new and expanded gaming options. Also in play are bills that would limit sports betting to tribal casinos, exclusively, or to a combination of tribal casinos, local OTBs, and the Connecticut Lottery.

This year – like previous years – the debate will largely hinge on the following issue: whether Connecticut’s two gaming tribes have exclusivity over sports betting. The politically powerful Mashantucket Pequot and Mohegan tribes have argued – so far, successfully – that authorizing a broader expansion of sports betting would violate their exclusivity and so cause them to stop sharing a percentage of their slot revenue (worth about $270m annually) with the state.

Although it is still early in Connecticut’s 2020 legislative session, we’re not hearing that there is a critical mass of Hartford pols clamoring to trade a broader authorization of sports betting for the potential loss of $270m. And with tensions already ratcheting up around the exclusivity issue, we’re seeing the makings of (yet another) impasse.

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.