Making sense of the post-PASPA landscape21st May 2018 7:58 am GMT
A lot of people have had a lot to say about sports betting in the US this week. Gaming Intelligence tries to find a voice of reason amidst the hysteria. Ready, steady, go! The US Supreme Court has delivered a resounding starting shot for a whole bunch of new sports betting markets. New Jersey’s Monmouth Park racetrack says it will be up and running in two weeks with its William Hill sportsbook. Paddy Power Betfair admits to talks with daily fantasy sports operator FanDuel. Churchill Downs announces a deal with SBTech to launch sportsbooks (and iGaming) in New Jersey, Pennsylvania and Mississippi. Kambi cuts a deal with Rush Street Interactive. The National Collegiate Athletics Association (NCAA) - of all people! - announces a partnership with Genius Sports, albeit not one directly related to sports betting (yet). Share prices are rocketing. “Game on!” cries SG Digital chief Matt Davey on his LinkedIn page. Quite a few other people were at it too. It was just left to the sports leagues to reprise their natural role as habitual naysayers. The leagues want federal regulations and an integrity fee. Still. The legislative landscape There has been a hell of a lot of noise to digest over the course of the last week. “Everybody is talking about the opportunity. Nobody is talking about the process,” says SportAd chief executive officer Joe Brennan, who was one of the architects of the New Jersey case way back in 2008 in his former role as a lobbyist. As Brennan points out, this process is still likely to be quite slow - even in New Jersey, where Monmouth Park chief Dennis Drazin has claimed he will launch a sports book in two weeks using “a privately regulated model”. “Poppycock,” says Brennan (or slightly more American-sounding words to that effect). New Jersey Senate President Steven Sweeney said a new bill will be introduced as soon as possible and he does not want anyone taking bets before then. Sure enough, a few days later Drazin met Sweeney and backed down. He will wait until a new sports betting bill is passed. Drazin has been down this path before. He tried to launch a sports book in 2015 after New Jersey passed a bill decriminalising sports betting back in 2014. The courts stopped him, saying the 2014 legislation "provides the authorization for conduct that is otherwise clearly and completely legally prohibited… States may not use clever drafting or mandatory construction provisions to escape the supremacy of federal law." This time round, Sweeney will probably convene a Special Session to get the legislation through. After that, the Division of Gaming Enforcement will have to publish the regulations governing sports betting. This might not take that long. It took six months to get up and running with iGaming in 2013 but DGE Director David Rebuck and his colleagues have been preparing for this moment for the past year and have the experience of launching iGaming to draw upon. Brennan reckons they should be up and running in time for the start of the new NFL season at the beginning of September. Elsewhere, Pennsylvania has a law in place but the Gaming Control Board is absolutely overwhelmed with the massive gaming expansion that was already in motion before the Supreme Court handed down its verdict. The Board has been told to deal with DFS regulations, the launch of iGaming, iLottery, video gaming terminals at truck stops and 10 new mini-casinos, without any additional resources. Mid-Atlantic Strategic Solutions president Bill Thomas, who worked in the Pennsylvania House of Representatives on the legislation, hopes the Board can get it up and running in time for the new NFL season but fears it will not be until January. “The Bill gives the Board a lot of power with regards to timetable and shaping regulations. They could look at sports betting in conjunction with iGaming,” says Thomas. “But they don’t have to make all the decisions now. They could do the basics and then add more in later. They do that with table games all the time.” Brennan is cautious about a piecemeal approach. Director Rebuck was hugely mindful of having all bases covered with iGaming and is taking exactly the same approach to sports betting. If anything goes wrong then critics (such as the sports leagues or sceptical politicians) will be screaming to close it down or increase demands for an integrity fee. West Virginia might well be taking bets before Pennsylvania. Governor Jim Justice reprised the integrity fee issue this week on behalf of his buddies at the sports leagues but with the bill already passed, that ship has probably sailed. The West Virginia Lottery regulates and governs the state’s four racetrack casinos and the Greenbrier Resort, which will have exclusive rights to the licences. With an adult population of just 1.4m, West Virginia is a relatively small state. In a report for the American Gaming Association, Oxford Economics estimated total sales from sports betting of between $60m and $216m depending on tax rates and availability. Other lottery states that will be ready to go soon are Delaware, which is one of the few states allowed to accept parlay bets under Paspa and will look at expanding that to single event bets. Existing iGaming and lottery supplier Scientific Games will probably control that market. Another small lottery state, Rhode Island, launched an RFP for a sportsbook supplier a month before the Supreme Court verdict, but suppliers are not very impressed with the process and expect it to turn to IGT, which is headquartered in the state. Of far more interest to the wider industry is Mississippi. In March 2017, the South’s premier gaming state amended its Gaming Control Act to allow DFS contests and while it did so, it removed the prohibition on sports betting. Since then, the Mississippi Gaming Commission has been working on regulations. With 12 casinos, 16 riverboat casinos, three tracks and annual gross gaming revenue in excess of $2 billion, this is a major market. Churchill Downs has already said it will launch there in its two casinos, and casino giants such as MGM and Caesars are also present. New York is the only other state with a law in place but it needs to pass legislation to hold a referendum on sports betting. Its legislative session closes in June. It could be two years before it can hold the vote. Other states need to grapple with issues of tribal gaming rights. As anyone who has followed the legislative trail of online poker in California will tell you, those can take years to sort out. So everyone: breathe out. The runners and riders The slow pace of legislation and regulation will not stop suppliers from jostling for position. Just don’t expect a goldmine in the first year or two. While the leagues continue to argue for a federal model, which has some attractions in theory, this can be ruled out as politically and practically impossible. States have proved themselves perfectly adequate at regulating the gambling industry and will not give that up. In all likelihood, the US sports betting market will not be a goldmine for any one operator or supplier. The beauty of the state-by-state model is that it gives everyone a chance. “The intriguing opportunity with the state-by-state model is that it allows many regional players to compete,” says David Sargeant, a UK-based sports betting consultant working in the US for a number of tracks, tribes and casinos. The tracks, tribes, and local casinos find themselves with access to specific markets that the large international companies do not possess. With a federal model, the big brands - be it Stars Group or Bet365, Caesars or MGM - come in and sweep up. The state-by-state licensing model protects local businesses by reserving licences for existing licensees. “This landscape will make it difficult to navigate to a national strategy both from a licensing and customer engagement perspective – especially when media assets do not necessarily line up on a state-by-state basis,” continues Sargeant. This could lead to more M&A or more partnering, in states where local businesses are allowed a number of non-native brands to piggyback their licence. However, not all states are allowing a number of skins like New Jersey has done with iGaming. “This will also bring a more diverse set of suppliers to the table as there will be many smaller deals available with varying local requirements,” says Sargeant. We have seen that already. The US business of William Hill has done exceedingly well out of the locals market in Nevada, where it supplies a sportsbook to 108 out of the 190 casinos. However, William Hill US accounts for only 3 per cent of the UK bookmaker’s net revenue. The major casinos on the Las Vegas strip tend to manage their own sportsbooks, often with a platform supplied by Stadium Technology, which is 79 per cent owned by GVC Holdings (originally bought by William Hill's great rival Ladbrokes). It accounts for less than £30m in net revenue. Hills probably will be the first supplier to benefit from the Supreme Court’s decision. It built a William Hill-branded sports bar in Monmouth Park in 2012 and while it might not be able to open a sportsbook in two weeks, it will do so as soon as Governor Murphy signs off the latest legislation and the DGE writes the regulations. One suspects Drazin will be heartbroken if Monmouth Park is not first out of the blocks. William Hill’s model is perfect for the smaller local casinos and racetracks, which do not have the resources to go it alone and are happy to allow other brands on to their property. It would be of no use to an MGM or a Caesars, which will have much grander ambitions. The state-by-state model means suppliers and operators need to adapt. Sargeant comments: “Some companies are focusing on a retail-led strategy that will allow them to build a national brand on a deal by deal basis, while others seem to be building portfolios across all gaming products allowing them to build real money relationships with consumers on mobile wherever they can.” William Hill and GVC are examples of the former. Sources at GVC say it will more likely turn to Stadium Technology rather than the bwin platform to lead its US strategy. Paddy Power Betfair’s proposed acquisition of FanDuel suggests it is going down the latter route. PPB will be paying a fair amount for a large database of fantasy sports players who might like to place sports bets. The strategy relies on states passing online legislation, while many of the 30-plus bills in play favour land-based sportsbooks only. Sports betting accounts for less than 3 per cent of Nevada’s gross gaming revenue. For land-based casinos, sports betting is a means of getting punters in the door, before selling them food, drink, rooms, other gambling games or entertainment. Of course, PPB already has a presence in 46 states through its TVG horse racing television and betting business, which covers over 80 tracks. It is anyone’s guess how many of the relationships it can convert to sports betting but it has not managed it yet with Monmouth Park, Penn National or Parx, to name just three track operators who have dabbled in online gaming or sports betting thus far. PPB are no fools. They will get a share of the market but while it waits for legislation that will enable it to exploit the FanDuel database, is FanDuel a business worth owning in its own right? Financials revealed during its 2016 merger negotiations with DraftKings recorded a $59m EBITDA loss on Jan-Oct revenue of $91m. Such are the vagaries around the legislative content and timetable that speculation about who will be the “winners” is largely futile. Each supplier’s US sports strategy needs to complement its core business. The amount to be won by a William Hill or a Ladbrokes is unlikely to offset the revenue lost after the UK government slashed the maximum stake on fixed odds betting terminals. Instead, there will be a little bit for everyone. Who would have thought that US capitalism could be so equitable?