The month in US sports betting: Is betting in NJ softening slightly?

The regulated US sports betting market generated handle of $1.34bn for the month of September, which was up 78.19% on August’s total of $753.03m.

The significant month-on-month increase was mainly attributable to the return of NFL football (the regular season began on September 5) and NCAA football (the regular season started in late August).

New Jersey and Pennsylvania – driven by their online sports betting verticals – also achieved strong month-on-month growth and posted record wagering volumes.

In September, as in previous months, Nevada and New Jersey accounted for the lion’s share – or about 73% – of total regulated US sports betting handle.

Notably, New Jersey, where online sports betting accounted for 84% of total state-wide handle in September, generated approximately 33% of total regulated US sports betting handle in September.

We expect the US market as a whole to grow meaningfully in October and again in November, driven chiefly by football betting, the return of NHL hockey and NBA basketball, and growth in online sports betting volumes in Indiana, Iowa and Rhode Island.

Source: Eilers & Krejcik Gaming

The canary is coughing in New Jersey

There are subtle signs of softness in the New Jersey online sports betting market. Multiple sources we spoke with voiced mild but material concerns about the pace of new customer acquisition around the start of the NFL season.

There are reasonable explanations, including a heavily fragmented market and somewhat mild marketing pushes by many of the major operators. But given that New Jersey is still far below the revenue levels most expect when the market hits baseline maturity, it’s a trend worth watching.

Change afoot in offshoreland?

Word from industry sources is that some offshore operators are pulling back from – or even out of – newly regulated US sports betting markets in an effort to steer clear of potential enforcement action and maintain some version of their operational status quo.

Although that sounds like a boon for the regulated market, we think that it is better understood as an incremental gain. After all, offshore operators with higher risk tolerance will merely step in to fill the void and continue offering options – including larger maximum bet sizes, better odds/pricing, credit betting, and anonymity – that the regulated market cannot or will not offer.

Is there an enforcement solution to the offshore market? Hard to say, but what we have observed is that past federal enforcement actions – from Beton- Sports to Bodog to Blue Monday – have dinged but certainly not destroyed that market.

FanFox

We’re hearing from inside the Flutter- Stars Group deal that the FanDuel and Fox Bet brands will be equally prioritized in the US, and that the scale achievable by the two brands is expected to result in the combined company more deeply penetrating/taking larger share of state-regulated markets.

Scale – as in Europe, where regulated sports betting is far more mature – will be of utmost importance in the US, particularly as the market expands.

And the scaling up that’s happening at Flutter Stars has us wondering where else we might see it. In fact, we wonder whether a US commercial casino chain, as a hedge against a future in which more (and more) gambling demand migrates online, will take a run at acquiring DraftKings.

Flip the switch in Arkansas

Did you know that online sports betting is merely a rule change away from reality in Arkansas? That appears to be the case under the state’s recently adopted regulations for casino gaming and sports betting (just to be sure, we sense checked our interpretation of those regulations with the Arkansas Racing Commission; the Commission was of the same view).

Still, just because the Commission can flip the switch on online sports betting does not mean that it will. The Commission’s members are appointed by Arkansas Governor Asa Hutchinson, a gambling opponent who voted against last year’s ballot measure that legalized casino gaming and sports betting.

While we doubt that Hutchinson will greenlight online sports betting before his term ends in 2023, we do think that his position could change.

After all, Governor Bill Lee in bordering Tennessee – who, like Hutchinson, opposes gambling – recently held his nose and allowed an online sports betting bill to become law without his signature. If online sports betting is a regulatory and fiscal success in conservative Tennessee, perhaps Hutchinson will feel he has the requisite political cover to allow it in Arkansas. But we won’t be holding our breath.

Downturn-driven decisions

In Michigan, online sports betting legislation from Representative Brandt Iden is an unequivocal coup for the industry. Low taxes (8.75% to 10% of revenue), low operator license fees ($100k initial fee, $50k annual fee), and the ability to deduct federal excise tax payments from taxable revenue have surely gone over well with the state’s commercial casinos and gaming tribes.

If adopted (unlikely in our view, as Governor Gretchen Whitmer is angling for more mullah), those provisions would effectively make Michigan a Special Economic Zone among tier-one states, which are increasingly taking a big-fee, high-tax approach to sports betting expansion (see Illinois and Pennsylvania).