Analysis: US sports betting market trends

The regulated US sports betting market generated handle of $987.19m for the month of December, which was down slightly on November’s haul of $986.16m. The dip in handle was largely attributable to seasonal factors. There were far fewer NFL and NCAA football games in December than there were in the busier months of September, October and November.

In December, as in previous months, Nevada and New Jersey accounted for the lion’s share – or about 90% – of total regulated US sports betting handle. Notably, New Jersey, where online (PC and mobile) sports betting accounted for more than three quarters of total statewide handle in December, generated approximately 33% of total US regulated sports betting handle in December.

We anticipate that handle will meaningfully increase in January, a month during which wagering on the Super Bowl tends to drive up betting volumes.

Daily fantasy sports brands, driven by cross-sell, remain dominant

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

In the state’s fast-growing online sports betting vertical, DraftKings and FanDuel had 83% market share in December, according to our estimates. For perspective, the two have had market share of about 85% since launch (in August 2018).

New Jersey online sports betting market shares by brand (Dec 2018)

Their success, we believe, has been driven in no small part by cross-sell. Indeed, in October 2018, DraftKings CEO Jason Robins, in an interview with Gambling Compliance, noted that 80% of daily fantasy sports players were betting on sports with illegal, offshore sports betting sites prior to the US Supreme Court ruling that struck down PASPA.

We also understand that DraftKings and FanDuel, which operate online casino offerings in New Jersey (under the DraftKings and Betfair brands, respectively), are benefiting from reverse cross-sell – that is, from online casino to online sports betting – and that online casino spend per player has been relatively unimpacted.

It may be tough for that dynamic to fully persist. Regardless, online sports and casino appear poised to combine for a textbook “whole exceeding the sum of the parts” effect in New Jersey – an important insight for policymakers and stakeholders in other states who might be on the fence about authorizing online casino.

Regional competition could push Delaware toward online sports betting

In the regulated US sports betting market’s early days, out-of-state play – in which players from one state cross to a neighboring state to bet on sports – is likely inflating the value of nearly every operational market.

But in Delaware, the cross-border tailwinds may soon begin to slacken. Delaware Park Casino, which has driven about 70% of total statewide handle since launch (in June 2018), is located a mere 35-minute drive away from the Philadelphia metro area, where three retail sportsbooks have opened in the last 60 days.

If Delaware Park starts to wobble, so will the Delaware market. Will the Delaware Lottery, the state’s sports betting regulator, counter by permitting online sports betting? Per the lottery, online sports betting could be implemented under existing state law and regulation.

Watch this space.

Policy trends: National legislative outlook

Nearly 40 states in play. In 2019, we estimate that as many as 37 states representing 86% of the US adult population will consider sports betting legislation. Those states range from California to New York, from Washington to South Carolina.

According to our research, Michigan, Oregon, New York, Indiana, Kansas and Louisiana – which together account for 15% of the US adult population – have a strong chance of passing legislation that would enable sports betting or expand existing sports betting authorization.

Michigan, where an online sports betting bill was recently vetoed by former Governor Rick Snyder (R), is likely to authorize online sports betting this year, in our view. Other candidates for online sports betting expansion include Delaware, where such betting could launch under existing state law and regulations, as just mentioned.

Commercial casino states favorites for legislative passage. The majority of states where we think there is a strong – or some – chance of legislative passage are commercial casino states. Our favorable weighting of commercial casino states stems from an analysis of 2018 trends.

Last year, all eight states that legalized and/or launched sports betting were commercial casino markets, and in seven of those, commercial casinos operate, or will soon operate, sports betting.

Biggest markets will have to wait. We think that several Tier 1 markets – including California, Texas and Virginia – are likely to consider sports betting expansion but ultimately legislate the issue in 2020 or beyond.

In California, industry stakeholder alignment, which proved to be elusive during the state’s decade-long online poker debate, will be key. And in Texas and Virginia – states in which gambling options are limited, recent attempts at major gambling expansion have failed, and legislatures are conservative – we believe there will be a study-first-legislate-later approach.

Land-based incumbents will be winners. Without exception, land-based incumbents – such as casinos and racetracks – are being given exclusivity over sports betting operations, making them the newly-regulated industry’s de facto gatekeepers. In 2019, we think this trend will hold, although a few states will likely consider whether to implement an all-comers operator licensing model for sports betting.

Leagues will face major lobbying challenges. To date, no states have imposed league-sought royalty fees on betting operators or required such operators to purchase “official league data.” New York, where the leagues (eg. NFL, NBA) are headquartered, is the state most likely to adopt a royalty fee/data monopoly policy, in our view. More broadly, however, we believe the leagues will struggle for policy wins.

Tax rates will vary from state to state. Currently, sports betting tax rates range from as low as 6.75% GGR (Nevada) to as high as 51% GGR (Rhode Island). This absence of consensus is likely to persist in 2019. Each state is unique. Some will attempt to impose high taxes on sports betting to fill budget gaps. Others, after careful study, will implement tax regimes that are proportional to on-ground market realities.

Federal legislative prospects remain poor. We see few reasons for optimism here. Still, uncertainty stemming from the US Department of Justice’s new Wire Act opinion may create an opening for Congress to legislate.

Authors

Chris Grove – Managing director, sports betting and emerging verticals

Chris Grove (cgrove@ekgamingllc.com) is managing director of sports betting and emerging verticals at Eilers & Krejcik Gaming. Grove’s focus areas include sports betting, online gambling, daily fantasy sports, and esports, and his research is regularly cited by policymakers, mainstream media outlets, and public companies.

Chris Krafcik – Managing director, political and regulatory markets

Chris Krafcik (ckrafcik@ekgamingllc.com) is managing director of political and regulatory markets for Eilers & Krejcik Gaming and co-lead of the firm’s sports betting and emerging verticals practice. Krafcik’s focus areas include sports betting, online gambling and daily fantasy sports, and the research he co-authors is regularly cited by policymakers, mainstream media outlets, and public companies.