US betting market trends: Is Atlantic City already finding a ceiling?

The regulated US sports betting market generated handle of $1.09bn for the month of March, which was up 22.53% on February’s haul of $890.89m.

The increase in handle was mainly attributable to the favorable calendar (March had three more days than February) and to seasonal factors. The NCAA March Madness college basketball tournament– which featured 64 games between March 19 and March 31– was a major driver of wagering volumes, as was regular-season NBA basketball betting.

In March, as in previous months, Nevada and New Jersey accounted for the lion’s share – or about 88% –of total regulated US sports betting handle. Notably, New Jersey, where online (PC and mobile) sports betting accounted for 80% of total statewide handle in March, generated approximately 34% of total regulated US sports betting handle in March.

We expect the US market as a whole will decline in April – in line with historical trends observed in Nevada – and for wagering volumes to meaningfully slow during the summer months of May-August, when the sports calendar is far less busy.

DraftKings, FanDuel remain atop New Jersey’s online sports betting market

In the bellwether market of New Jersey, the daily fantasy sports tandem of DraftKings and FanDuel have been – and, in March, continued to be – the top performers in terms of online sports betting revenue.

Indeed, the two brands boasted an 80% share of the New Jersey online sports betting market in March, according to our proprietary estimates. For perspective, the two have had market share of about 82% since launch (in August 2018).

Their success, we believe, has been driven in no small part by cross-sell. In March, Paddy Power Betfair noted in its CY18 results that approximately 50% of its New Jersey sports betting customers were acquired via the company’s FanDuel DFS channel.

Is Atlantic City already finding a ceiling?

While online sports betting continues to enjoy a healthy trajectory in New Jersey, the state’s retail sports betting market–especially Atlantic City–appears to be stuck in a relatively narrow band.

The performance of Atlantic City’s retail books during the Super Bowl and March Madness suggests limited “destination” potential for Atlantic City around marquee events. And summer–the city’s natural high season–is a notoriously fallow period for sports betting.

Improved retail offerings, such as the overhaul underway at the Borgata–owned by MGM Resorts–will have an impact. And it’s simply too early in the market to draw a firm conclusion about retail’s ultimate potential. But the early read is not especially encouraging.

Pennsylvania playing catch-up

After months of delays and numerous false starts, Pennsylvania’s online sports betting market appears poised for launch in May. We expect a staggered rollout that will extend well into the NFL season, and believe that Rivers Casino–owned by Rush Street Gaming–will be first to market.

In terms of the major DFS brands, we have FanDuel-Valley Forge Casino penciled in for a late summer launch. DraftKings, on the other hand, is still officially TBD when it comes to a sports betting partner in the state but we believe the operator will forge a path into Pennsylvania despite mixed reporting on the topic.

POLICY TRENDS

Michigan looking wobbly after a fast start

In Michigan, momentum for online casino and online sports betting expansion may be slowing.

We hear that Gretchen Whitmer, the state’s newly-installed Democratic governor, wants big bucks from online gambling. She needs the money “to fix the damn roads” (a core campaign promise) and as insurance in the event that the state’s tribal gaming operators, in response to an expansion of online gambling, decide to halt their revenue-sharing payments.

Under an online gambling bill sponsored by Rep. Brandt Iden (R)–whose low-tax, low-fee approach is supported by a critical mass of Michigan gambling industry stakeholders–Whitmer’s not going to get the money she wants. But a high-tax, high-fee bill–with eight-figure license fees and 30%+ tax rate for online slots–is likely to cause those stakeholders to balk.

Although Iden recently said he would be “shocked” if his bill did not make it to Whitmer’s desk before the end of the year, we, admittedly, would not be.

We’re seeing the makings of an impasse.

Revenue suspicion in the press: A canary-in-the-coalmine moment for the industry?

Veteran industry political operatives likely cringed last month after they read a report in the Associated Press titled Most States’ Sports Betting Revenue Misses Estimates.

For us, the story was an early warning sign that sports betting may be being oversold–by legislators, by governors, and even by the press–as a fiscal panacea. The story also reminded us of the early-to-mid 2010s, when the political salability of online casino gambling was badly dented by similar overselling.

If the fiscal narrative around sports betting remains overheated, we see the potential for state sports betting industries to disappoint (relative to projections that are themselves questionable), and for that disappointment to not only chill legislative momentum, but to also create an opening for opposition groups–like Sheldon Adelson’s Coalition To Stop Internet Gambling–to more forcefully make the case against regulated sports betting expansion.

Door increasingly ajar for non-endemic brands

If you’re a non-endemic brand–a media company, a fantasy sports operator, or a European sports betting specialist–your B2C US market-entry prospects appear to be getting better. Quite a bit better, actually.

According to our proprietary tracking, at least 13 states are considering, or have this year considered, legislation that would allow non-endemics to operate online sports betting–either as a B2C license holder or as a skin. Those states, notably, account for approximately 40% of the US adult population.

In some states, though, the path for non-endemics would be more wide-open than in others. Tennessee, for instance, will likely soon implement an all-comers regulatory model, with no cap on the number of available licenses. Connecticut, by contrast, is considering a model under which non-endemics would bid for one of three available licenses.