The month in US sports betting: Which sports media assets will be snapped up next?

After the US sports betting market nearly touched an all-time high in September, we expect October’s result will shatter previous records. Using October 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 GGR in October will come in around $245m (+56% month on month, +56% year on year). October GGR growth will be driven by a combination of factors, including stabilization in hold (September hold percentages were abnormally low in some jurisdictions); robust online growth in Indiana, Pennsylvania, and New Jersey (which is partially a function of elevated promotional spending); and even some incremental contributions from the newly opened Illinois market (which we estimate will account for about 5% of October’s national GGR total). Game on in Tennessee

Online sports betting in Tennessee kicked off on November 1, with FanDuel, DraftKings, BetMGM, and Action 24/7 first to market. We think that Colorado—where FanDuel, DraftKings, and BetMGM were also among the first to market—provides a useful lens through which to appreciate how GGR share will be distributed during Tennessee’s initial months. Reading across from our Colorado estimates, we expect that BetMGM will likely claim ~12% share of Tennessee early on; that DraftKings and FanDuel will capture a combined ~87%; and that Action 24/7 will take the remaining ~1%. On election night, US sports betting scores a hat trick On November 3, voters in three states—Louisiana, Maryland, and South Dakota—legalized sports betting. Our initial takeaways:

• US sports betting continues to expand space. The activity is now legal in 26 states accounting for about 45% of the US adult population. Of note, 18 of those states have legalized sports betting since PASPA was overturned in May 2018.
• The voting wasn’t close. The ballot questions in Louisiana (55 of 64 counties representing 97% of the state’s adult population approved sports betting), Maryland (66% of voters approved), and South Dakota (59% of voters approved) passed with room to spare.
• Simplicity was key. We think the ballot questions fared well in all three states because those questions were phrased simply and concisely. For context, those questions meaningfully outperformed a very awkwardly phrased sports betting ballot question in Colorado that passed last year by a narrow 51-49 margin.
• Enabling legislation needed. Voter approval was merely the first step toward sports betting implementation. All three states must still enact enabling legislation, in which key sports betting policy issues (e.g, who operates, tax rate, delivery channels) will be addressed.
• Positive read-through for key battleground states. Some of the largest states left on the map—including California, Texas, and Georgia—will have to approve sports betting through a public vote, per our research. On face, this week’s results, together with historical results in New Jersey, Arkansas, and Colorado, bode well for sports betting’s voter-approval prospects in those states.

PointsBet jumps in New Jersey It was a big September for PointsBet in the online sports betting hotspot of New Jersey, where the upstart brand posted monthly online sports betting GGR of $5m and 12% GGR share, per our proprietary estimates—both all-time bests. We note that this result comes both on the back of PointsBet’s integration with NBC Sports (which launched in September), and on the back of an increase in promotional spending (as a percentage of GGR). In its F1Q21 earnings (July–September 2020), PointsBet disclosed that its promo-to-GGR ratio in New Jersey was about 40% (versus 26% in the Covid-impacted F4Q20 period). Reading across from Pennsylvania data during the July–September period, PointsBet was likely among the more aggressive promotional spenders in the Pennsylvania-New Jersey region in that period. For context, the statewide promo-to-GGR ratio in Pennsylvania in July–September was 53%, with DraftKings (79%) and Unibet (96%) coming in above that average, and FanDuel (43%) and Fox Bet (45%) coming in slightly below it. Sports-first brands are winning the app performance battle We recently traveled to New Jersey to test the performance of that state’s sports betting apps. One of the most salient findings: sports-first brands for whom the US online sports betting opportunity is a top strategic priority tended to score highest in our testing. At the same time, brands for whom US online sports betting has been less of a strategic priority—namely, casino-first brands like Caesars and Resorts—tended to score the lowest. If casino-first brands have designs on acquiring and retaining a critical mass of sports-first customers, our testing suggests that their apps will likely require some major improvements—if not a ground-up overhaul. Media assets on the block? We’re hearing rumors that both Action Network and VSIN are being evaluated by potential acquirers, and that some betting operators are in the mix as potential suitors. Those rumors could be a result of reflexive tire-kicking (everyone is evaluating everything at this stage of the market). But they could also be indicative of an accelerated trend toward consolidation in the US online betting market, a consolidation that is increasingly looking like it will manifest both vertically and horizontally. While the wisdom of betting operators owning betting media outlets is debatable, the existential need for customers will no doubt drive some operators to seriously consider buying assets that sit at the top of the acquisition funnel, especially as other acquisition channels get blocked by exclusive deals or become cost-prohibitive. 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.