The month is US sports betting: Can FanDuel’s financial firepower outgun rivals on marketing spend?

After the US sports betting market in July began to bounce back, we are seeing an even more pronounced rebound in August. Using August results from the states that have reported so far – including the key markets of Indiana, Pennsylvania, and New Jersey – we estimate that total US revenue in August will come in around $118m (+65% month over month).

After August’s month over month recovery, which was driven by a full month’s worth of NBA, MLB, and NHL games, we look for a potentially massive spike in revenue in September, during which all major US sports – including the NFL and even some college football – will be operational.

Of note, this year’s aberrant sports calendar will in September create several so-called ‘sports equinoxes,’ or days on which all major sports play on the same day.

Source: EKG

Ohio on the cusp

Per channel checks, populous Ohio is looking odds-on to legalize online sports betting later this year. Some quick thoughts on Ohio:

• Lots of skins: Chatter suggests that Ohio is likely to allow multiple skins – as many as three per casino, or up to 33 in total. We estimate that 14 of those skins have already been claimed.
• Low tax: Ohio is contemplating an 8% tax on revenue. That rate, which is lower than any other operational state of its size, should result in one of the country’s most aggressive advertising and promotional environments.
• Rabid sports culture: Using Google Trends and proprietary analysis, we estimate that Ohio is the sixth-ranked US state in terms of sports fandom, and the seventh-ranked state in terms of college football fandom.
• All of which yields a potentially hypercompetitive online sports betting market that we estimate will generate GGR of $607m once mature.

FanDuel to sustainably outspend rivals?

The US continues to be a market for the scaled. And nobody is better placed to take advantage than Flutter. The operator expects to spend $185m on marketing in H2 2020 – the highest in the industry by our estimates.

And speaking on its Q2 2020 earnings, management suggested that US customer acquisition economics were so favorable it would keep the pedal to the metal for the foreseeable future.

What’s concerning for rivals is that Flutter can back that up year after year, thanks to a global business that will generate around $1.5bn in EBITDA in 2020. It’s the kind of sustained investment

that standalone rivals might struggle to match without turning to capital markets or issuing new equity.

BetMGM may be FanDuel’s biggest long-term rival thanks to its cash-generative parent companies, rather than a standalone firm like DraftKings. Already, we’re seeing Flutter putting the pedal to the metal, with Pennsylvania’s July data showing a big month over month increase in promotional spending at FanDuel.

Source: EKG

Shore leave

Offshore sports betting operator 5Dimes recently and cryptically announced it will “temporarily suspend our service to the US market so that we can launch our new operations with a fresh start.” In a separate email to customers, first reported by Legal Sports Report, the company went on to say:

“With the evolving legal landscape in the United States, we want to take advantage of the opportunity to offer an improved online sports betting experience to our many US customers.”

On face, this development suggests to us that 5Dimes is eyeing up the potential deployment of “rehabilitated” sports betting assets (e.g., brands, tech, customer databases, and perhaps even some key employees) in the legal US sports betting market, and that some sort of settlement with the US Department of Justice (DOJ) is likely forthcoming.

PokerStars’ 2012 settlement with the DOJ, Amaya’s subsequent purchase of PokerStars in 2014, and PokerStars’ subsequent (re)launch in New Jersey in 2016 further suggests to us there will likely be a path to the legal US market – albeit a lengthy and turbulent one – for such rehabilitated assets.

Colorado: And the winner so far is…

…DraftKings, which we estimate took 43% of the Colorado online sports betting market (in GGR terms) between May and July. Close behind was rival FanDuel, which captured about 40% of the market during that same three-month period, per our proprietary tracking.

As DraftKings and FanDuel have done in other markets – Indiana and New Jersey – the duo in Colorado have used a combination of first mover and advance-marketing advantages to take a big early lead.

A new dawn for BetAmerica?

Churchill Downs recently ended an eventful relationship with SBTech, announcing a move onto a GAN PAM platform and a Kambi sportsbook module. The move was well flagged and perhaps even well needed, with the BetAmerica brand generating just $1.3m in revenue in Q2, per company results.

For Churchill, the focus going forward will be on cross-selling customers from the TwinSpires online horseracing product, which itself generated Q2 2020 revenue of $120m and EBITDA of $39m.

The racing cross-sell model has been proven by Kambi with ATG in Sweden and by FanDuel Group in the US with TVG. Perhaps the biggest question is just how big Churchill is thinking. Management said several times on the recent Q2 2020 call that the focus was on profitability rather than out-and-out growth.

Given how online sports betting and online casino rivals will be spending in H2 2020, that approach could significantly limit BetAmerica’s upside.

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.