The month in US sports betting: State revenues to recover by July?

After the US sports betting market in April generated just $8.5mm in revenue, we expect May to look, well, a little better. Using May 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 revenue in May will come in around $25mm.

After May’s incremental recovery, which was largely driven by the resumption of UFC and NASCAR, we look for a fuller recovery in revenue in the July-August period, when a bevy of Tier 1 sports, including the NBA and the NFL, are set to resume.

DraftKings, FanDuel still in driver’s seat

DraftKings and FanDuel remain atop the market share standings in the ultra-competitive New Jersey online sports betting vertical. In the 12 months to April 2020, the two brands had about 74% share on a GGR basis, according to our proprietary estimates.

We note that there are a lot of brands with a lot of assets that are still not firing on all – or really any – cylinders in the New Jersey market, so there’s a strong argument to be made that DraftKings and FanDuel are at a ceiling in terms of share.

Looking to Score?

Rumor has it that theScore – whose share price had shot up in recent weeks – is shopping itself to potential acquirers. Buyers would get a brand, a media property and database, licensure in the New Jersey and Colorado online sports betting markets, and market access to a further 11 states through Penn National Gaming (although theScore has first-skin access in only two of those 11 states).

TheScore, like PointsBet, seems a built-to-be-acquired company. It does not have the capital on hand to go toe-to-toe with DraftKings and FanDuel, or even with a second tier of brands – William Hill, BetMGM, and Penn-Barstool – all come to mind that are all angling for high single-digit/low double-digit share of state online sports betting markets.

Private equity may be interested in the asset base and market access footprint. And we could also see DraftKings kicking the tires given its apparent interest in acquiring a media property (namely, The Bleacher Report), although we view that as low-probability given the high level of asset overlap between it and theScore.

Illinois leaves door ajar for co-branding

Non-endemic online-only sports betting brands recently received what looks like a major gift courtesy of the Illinois Gaming Board (IGB). Indeed, according to a two-page emergency rule from the IGB, non-endemics would appear to be able to deploy their own brands for online sports betting, so long as those brands are displayed alongside the brands of their Illinois casino or racetrack partners.

The IGB specified in its emergency rule that if a non-endemic brand and an Illinois casino or track brand appear together, the casino or track brand must be “prominently” displayed. And to determine whether a casino or track brand is prominently displayed, the IGB will use a few criteria, including “the absolute and relative size of any branding” and “the location and spatial relationship of any displayed branding.”

Pennsylvania regulators took a fairly flexible approach to co-branding. And if the IGB takes a similarly flexible approach, we expect that to leave a sour taste in the mouth of Rush Street’s Rivers, which was hoping that the Illinois sports betting law, which was apparently intended to prohibit co-branding, would have been more of a roadblock for non-endemics.

Some Ohio, with a side of Massachusetts

With most state legislatures having adjourned for the year, sports betting bills with lean-positive prospects are in very short supply.

Chatter around Ohio remains bullish, where the House recently passed HB 194. Still, we hear that the Senate strongly disagrees with the House over who should regulate and operate sports betting, and so is unlikely to take up HB 194 until later this year (we’re hearing sometime in the fall).

Massachusetts – about which we were hearing positive chatter a month or so ago – is looking less and less likely. The Bay State has just six weeks left in its 2020 session, and H 4559 has not seen action since the COVID-19 outbreak began.

We have heard a few rumors about the Massachusetts sports betting bill maybe being rolled into a larger economic development bill and getting done that way, but no one we’ve spoken to is holding their breath.

New York may be in for a wait

New York Governor Andrew Cuomo has long insisted that online sports betting cannot happen without a constitutional referendum. Thus far, though, even referendum legislation is looking unlikely to get done this session. There has been the odd rumbling of legislative momentum, but so far we’ve seen little to indicate that a sports betting referendum is anywhere near top priority in Albany.

Of note, New York law requires that constitutional amendments be approved by two separate legislatures (each legislature meets for a two-year session), and the next one begins in 2021. That means that if a constitutional amendment does not pass this session – whose adjournment date is TBD – the soonest that sports betting could appear on New Yorkers’ ballots would be November 2023.

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 www.ekgamingllc.com.