The month in US sports betting - Indiana becomes third largest betting state

The regulated US sports betting market generated handle of $1.86bn for the month of November, which was up 20.5% on October’s total of $1.54bn. The significant month-on-month increase was attributable to the popularity of NFL and NCAA football, the first full month of NBA basketball and NHL hockey, and the start of NCAA basketball.

At the same time, growth in Indiana, New Jersey, and Pennsylvania – which was driven chiefly by their online sports betting verticals – meaningfully boosted total regulated handle on a month-on-month basis.

In November, as in previous months, Nevada and New Jersey accounted for the clear majority – or about 63% – of total regulated US sports betting handle.

Of note, Indiana – which is only in its third full month of operations – accounted for approximately 8% of total regulated handle in November, making it the largest market behind Nevada, New Jersey, and Pennsylvania.

We expect the US market as a whole to grow again in December, driven chiefly by increases in online sports betting volumes in Indiana, Iowa, Pennsylvania, and Rhode Island.

Hot hand(le)

Indiana is off to a fast start. In the state’s first month of online sports betting operations, DraftKings (launched on Oct. 3), BetRivers (Oct. 3), and FanDuel (Oct. 23) collectively generated healthy handle per adult of $9.32.

Our research shows that on a handle per adult basis, Indiana outperformed Pennsylvania, Rhode Island, and Iowa during each of those states’ first full month of online sports betting operations. (Of note, Iowa and Rhode Island each require in-person registration for online sports betting, but Pennsylvania does not.)

Hard to take much away from Indiana’s early overperformance, of course, but it does suggest that operators are likely capturing demand from Illinois and Kentucky, which each have large population centers located near the Indiana border.

We expect that Indiana may enjoy a year – or perhaps two – of meaningful out-of-state inflation. Illinois’ in-person registration requirement for online will surely push some Chicago-area demand toward Indiana, and Kentucky and Ohio are likely 12-24 months away from launching legal wagering.

Stay or overpay?

On its Q3 2019 earnings call, Churchill Downs, operator of the BetAmerica brand, flatly said this about New Jersey’s hypercompetitive online sports betting market – a market where some operators are rumoured to have paid CPAs of as high as $800+: “It is not a market where we are making any money.”

The company went on to say that New Jersey has been a useful proving ground for its systems and strategies, but that it had reduced its spending there amid an “extremely aggressive” promotional environment.

It added: “If we don’t see a way to acquire customers at an amount consistently below their lifetime value, we will not do it.”

Almost 17 months into the New Jersey online sports betting experiment, we wonder whether other brands will make – or perhaps have already made – the same determination as Churchill: that the market is inherently unsustainable because too many operators are willing to grossly overpay for customers.

If that dynamic persists in New Jersey – and we expect that it will – the natural outcome will be a thinning of the herd as some of the market’s smaller players with multi-state ambitions pull back or run out of money, are gobbled up by their larger rivals, or both.

In that way, New Jersey is merely a preview of what’s to come in the regulated US sports betting market.

Source: Eilers & Krejcik Gaming

Make it 21

In Michigan, legislation that would authorize online sports betting was signed into law by Governor Gretchen Whitmer in late December. The populous state is the 21^st US jurisdiction (including Washington DC) to legalize sports betting. The enactment of the bill has generated multiple salient storylines.

The leagues got their pound of flesh in the form of an official league data mandate. The commercial casinos got a tax-and-fee structure that could best be described as a major win. And the state’s 12 gaming tribes could be the first in the nation to operate commercial online sports betting and tribal online sports betting concurrently.

There was some initial confusion regarding whether the measure (and a related bill that amends the state’s gaming act) expressly authorized retail sports betting, but the Michigan Gaming Control Board has since clarified that it is permitted.

Meanwhile, there will surely be some grousing about skins; as we read the bill, only 15 will be made available in a market that could likely support more. Competition and product quality may take a hit.

Finally, there are some reasons to think that online sports betting implementation may not go smoothly or quickly. For starters, the commencement of sports betting hinges on Whitmer agreeing to compact amendments with some of the state’s tribes.

We’re also hearing that the Michigan Gaming Control Board – in the absence of emergency rulemaking authority will likely take 9-12 months to promulgate regulations. At this early stage, therefore, we’re penciling in a Q4 2020-Q1 2021 launch window for Michigan.

Here comes the criticism

The Tennessee Lottery recently released draft online sports betting regulations; public comments were being accepted until Jan. 6, 2020 (after which the comments will be published and final regulations will be adopted).

After perusing the draft regulations ourselves, we expect that they will be comprehensively critiqued by commentators. Problematic issues we spotted included – but were not limited to – the absence of a process for determining a “commercially reasonable” price for official league data; a proposed ban on credit card transactions (though debit card transactions would be allowed); and a proposed requirement that operators achieve an annual aggregate hold percentage of 15%.

At this point, the Tennessee Lottery is leaning toward regulatory requirements that would make it quite difficult for operators to compete with illegal, offshore sites.

Will the Lottery dig in its heels? Or is a course change on the cards?