The month in US sports betting: College football cancelations could crimp state betting markets

After the US sports betting market in May generated just $21.4m in revenue, we expect June to look… well slightly better. Using June 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 June will come in around $29m.

After June’s incremental recovery – which was largely driven by the resumption of PGA and domestic and international soccer, as well as ongoing UFC and NASCAR events – we look for a fuller recovery in revenue in the July-August period, when a bevy of tier-one sports, including the NBA and the MLB, are set to resume.

DraftKings, FanDuel still in driver’s seat

DraftKings and FanDuel remain atop the market share standings in the ultra-competitive New Jersey online sports betting vertical. In the 12 months to May 2020, the two brands had about 73% share on a GGR basis, according to our proprietary estimates.

We note that there are a lot of brands with a lot of assets that are still not firing on all – or really any – cylinders in the New Jersey market, so there’s a strong argument to be made that Draft- Kings and FanDuel are at a ceiling in terms of share.

You have to spend money to make money

GVC-MGM’s decision this month to pour an additional $250m into their Roar joint venture, Flutter’s recent $1bn raise (most of which will go toward FanDuel’s US expansion), and DraftKings’ easy access to capital and uber-aggressive marketing/ promotional posture all suggest that the next round of US online sports betting will be largely decided by the purse.

In the near term, and in tier-one online states like New Jersey and Michigan, we continue to see the makings of a very top-heavy market share distribution in which four to five big-spending brands control 85%-90% of GGR share, followed by a long tail of brands with incremental share.

We expect the marketing wars will result in some consolidation within the long tail and perhaps even force the hand of a few larger operators – Churchill Downs and bet365 come to mind – that have so far been reluctant to open the marketing valve.

Collegiate football cancelations could crimp state sports betting markets

The 2020 college football season is looking iffy at best, with the Ivy League the first conference to cancel competition.

Using historical Nevada data and input from industry sources, we estimate that the loss of college football would result in a 13% decrease in handle in most US sports betting markets.

The impact though may be far more severe, as those markets would not only lose college football bets, but also some college football bettors who might wager on other events. The impact also won’t be felt uniformly across states.

We expect Mississippi and Iowa, which are heavily reliant on collegiate football, would be worst hit by college football cancelations.

El Caesarado merger muddying market access waters for DraftKings

One salient storyline from the ongoing completion of the Caesars-Eldorado merger: What becomes of DraftKings’ market access through Caesars once William Hill begins operating sports betting on behalf of the combined entity

In a worst-case scenario, DraftKings could lose access via Caesars to Kentucky (where Caesars has a racetrack), Louisiana (where Caesars has a casino), and Maryland (where Caesars has a casino there too), which together account for 5% of the US adult population.

Maryland – a populous, relatively wealthy state where market-access slots will very likely be tightly limited – would be the most significant loss here.

Nearly half of US adults live in legal betting states

By the end of 2020, we estimate that about 42% of the US adult population will have access to legal sports betting. We note that no other US gambling vertical, in terms of population penetration, has expanded as quickly as sports betting has. In the macro, what’s driving sports betting expansion?

A combination of factors, including:

• Lawmakers tend not to regard sports betting legalization as some sort of gambling expansion

• Sports betting is a relatively easy political sell on the merits

• Sports betting enjoys broad public and industry support

• Neighboring state competition is acting as a tailwind

• Sports betting regulation is working well.

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.