Before lights went out for the Easter holiday, legislators barely slept as they burned the midnight oil at the state government’s Albany offices past 3 am, as politicians argued over whether or not they should reopen doors to online sports betting. This was a proposition that was unthinkable last year. However, following the pandemic effects, the revenue shortfalls call for an immediate solution to help cushion the state’s annual $212 billion budget.
Lawmakers Pushed to Legalize Sports Betting
Influenced by the revenue shortfalls resulting from the pandemic, lawmakers find themselves in a tricky situation as they are pushed to legalize online sports betting. Some experts estimate that this move will help in raising about $300 million annually in state taxes. There will also be a massive challenge in regulating the budding industry. Andrew Cuomo, New York’s governor, had different thoughts about this decision arguing that the decision will push them to change the state’s constitution. He asserted in January 2020 that it was not the best time to introduce creative, although irresponsible, sources of revenue.
Cuomo Is Reconsidering Sports Betting in New York
With the $15 billion budget back hole resulting from the pandemic effects and other personal scandals, Cuomo is now reconsidering the decision to reopen doors for online sports betting. On Wednesday, the legislature voted yes to allow online gambling to resume operations. This decision made New York the 16th US state to allow online gambling to run operations after the legislature approved a budget that was voted in so quickly that even the gambling industry is still not sure about it.
Only a small number of operators will, however, be allowed to offer online bets. Bettors will also have to bear a heavy tax burden of up to 50% for each wager placed. But there is a predicted increase in the competition for licenses in the most profitable US states offering online betting.
A Legislative Drama in Albany
Albany’s legislative drama was a clear indication of how fast conventional American attitudes toward sports betting have transformed over the past few years. The rush comes just after the 2018 Supreme Court ruling brought down a major ban on sports betting and online gaming that prevented these activities from happening outside Nevada. It is a ruling that had stood for 26 years. New Jersey was the first to legalize the wagering activity. Nevertheless, since the onset of the pandemic, there has been a chain of similar activities as state departments rush to find other external revenue sources.
A gaming industry analyst Chad Beynon argued that revenues are the most crucial thing that governors are out looking for to meet their state budgets. According to Beynon, there is nothing else that any governor can legalize to get $300 million annually in tax revenue.
A Push from Operators to Invest
Operators who were initially interested in investing in the US market are more than delighted. Estimates in 2018 indicating that the total market size of sports betting would be roughly $8 billion by 2024 simply look conservative. It has totally changed. In March, Flutter, Fox Bet, and FanDuel owner asserted that he expected the market share for its betting brands to surpass $20 billion in revenues by 2025 – twice the amount of forecast made around the same time last year.
The change of law has also spurred a wave of takeovers from companies outside the US. The lucrative nature of the US market has influenced most sportsbooks to venture into the industry. Companies within the US are also being purchased as local companies seek technical assistance to match the high competition.
Sports Betting Revenues Up for January and February
The US vice-president at Vixio Gambling Compliance, James Kilsby, said that the US market is not just seeing a rise in terms of revenue, but the market expansion is also changing rapidly. He continued to add that there is a considerable chance that New Jersey, Pennsylvania, and Michigan states could take up the third, fourth, and fifth positions as the most prominent online betting markets globally by the end of this year, a few strides behind UK and Italy.
According to the American Gaming Association (AGA), the months of January and February 2021 saw a total revenue of US sports betting up to $576 million on total bets of $7.8 billion. Compared to the first quarter of 2020, the amount of revenue collected was only $262 million on total bets of $4.1 billion.
March Madness Bringing Traction for Betting
These figures are not inclusive of the March Madness sports betting event. This is the most significant individual betting event throughout the US sports calendar. It is the yearly men’s college basketball championship, commonly known as March Madness. The two-week tournament ended with Baylor University winning over Gonzaga on Monday last week. Back two years ago in 2019, AGA estimated that approximately $8.5 billion would be wagered on March Madness.
The speed and enthusiasm with which operators have ventured into the US market have led to comparisons with how Facebook performed incredibly well during its first few years. Betting companies are investing what they can into the highly competitive industry, struggling to win their market share early enough.
National Council for Problem Gambling’s executive director, Keith Whyte, said that operators risk meeting with severer regulations just like the UK, where the rush to invest in sports betting in 2005 was met with increasing fears that gambling addiction might rise and legal action would be taken on the industry. The million-dollar question that the US sports betting market faces is whether it will go through the same path the UK market went through, he said.
The Winner Takes it All
Research from Statista shows that approximately 154 million people, almost half the US population, watch sports on their TV sets at least once monthly. This means that the odds were in favor of the sports betting industry when online betting was legalized.
However, the rapid increase in new sports betting legislation could lead to a boom in the broadcast media searching for better ratings. This year’s Super Bowl viewers fell to their lowest number in more than half a century. Only 92 million tuned in to watch the Super Bowl, according to data obtained from SportsMediaWatch. Despite this, there was a 70% increase ($500 million) in the total amount wagered on the Kansas City Chiefs vs. Tampa Bay Buccaneers game compared to the previous year 2020.
US Media Companies Looking at In-Game Wagering
The US media companies are particularly interested in in-game wagers as this helps to drive engagement. These are the bets placed during the game/match. As of January, in-bets accounted for just 10% of the US market, while the UK market rolled with 75%, according to Macquarie. Nevertheless, the rates are up on the rise as data-rich sports broadcasters are working diligently to tailor their programming.
The interest in leveraging the booming nature of in-game betting business means that there are only a few weeks that have elapsed without deals between gambling companies, media businesses, and leagues being made. Usually, these come in the form of sponsorship or partnerships.
Collegiate Sports Betting
Before the Supreme Court ruling was made, the national collegiate sports governing body and the major professional leagues were vehement opponents of gambling. They even took the matter to the New Jersey state court in 2012. The change in attitude is actual evidence of how things have changed considerably.
Major Leagues Now Turning Around
Yet, the very opponents are now scrambling to grab a share of the highly profitable business. The National Basketball Association (NBA) has gone to the extent of introducing alternative league streams to help meet betting audiences’ needs. It also has sports-betting-related contracts with 30 firms to license its data and provide for gaming platforms. 11 teams in the National Football League in the US have signed similar sports betting deals.
Many US Deals Going On
Legacy casino companies out to buy European operators and sports betting technology have been the most active dealmakers as investors are desperate to enter the US market.
Moelis & Company’s managing director Ramy Ibrahim asserted that he had completed over 12 mergers and media partnerships in the sports gambling arena since the Supreme Court ruling was made. He also says that there is a strong pipeline of other deals to be made in the near future.
The increased interest in the US sports betting market is a result of the opening of the wagering market, which has contributed to the increased volume of people tuning in to watch different games. This has also seen increased revenues among sports leagues that depend on broadcast revenues, said Ibrahim. According to him, allowing people to bet on a game using mobile devices helps create a win-win situation.
- Between January and February 2021, $576 million was generated in revenue on total bets of $7.8 billion.
- The American Gaming Association estimates that $150 billion was bey yearly in the offshore and black market before 2018.
- There are 1.4 million gambling addicts in the UK. However, experts claim that accurate numbers are difficult to estimate.
A Deal-Making Bonanza
Some of the best deals that have caught the market’s attention include the Caesars’ £2.9 billion takeover of William Hill, a prominent UK Bookmarker. The move is yet to be finalized this month. Another major deal that is set to be completed is one for Bally’s. The Rhode Island-based casino had indicated that it had come to an agreement of £2 billion to purchase Gamesys, a British online gambling company.
There was also a tussle between Ladbrokes owner, Entain, and Bwin.party over a takeover from MGM casino group. It happened in January, but the issue was that the £8 billion placed on the table was not considered as it was seen as an undervalue to the business.
Penn National has seen the benefits of such major acquisitions. The casino company saw its share price increase approximately 240% after buying Barstool, a sports and pop culture website. Flutter also saw its rival company DraftKings increased its share market value to about $23 billion since it was listed in mid-2020. This has influenced Flutter to consider spinning off and listing under FanDuel.
The CEO of 888, Itai Pazner, is also thinking of making a move, but he is concerned about the high costs of entering into business. He argues that everything is quite costly, and he is unwilling to use company 888’s £190 million value.
The rush to venture into the US market after online betting was opened has influenced the rising costs and impacted the land grab for market share. There are tons of adverts enticing bettors to take advantage of free bets and bonus offers. These ads have swarmed the conventional broadcast media, billboards, and radio. In one of the investor presentations, DraftKings said that in 2019, the cost of winning over a new customer was $471 for each gambler. However, Jason Robins, the chief executive, says the price has dropped.
To sum up the madness, every operator is out to devise a US sports betting strategy. Due to the aggressive nature of the environment, only 3 out of 4 operators are going to make money, said Robins.
Lessons Learnt From the UK Sports Betting Market
Most of the operators in the market are UK-based companies. The US is a sharp contrast to the UK market, where it is suffocated by tighter sports betting restrictions.
After the UK betting laws were loosened in 2005, this saw a growth in the sports betting market. This led to major concerns over gambling addiction and reports that gambling companies took advantage of vulnerable individuals. There was an increase in the gambling problem, according to some surveys. One of such surveys indicated that there were about 1.4 million gambling addicts in the UK. Nonetheless, experts urged caution as accurate numbers were difficult to estimate.
Betting ads in the UK now feature warnings about gambling addiction. Most adverts encourage people to “gamble responsibly.” It doesn’t stop there. Betting using credit cards is banned, and that TV advertising has been encouraged to suspend their betting adverts before 9 pm. The country’s gambling laws are also underway, and proponents call for a reduction in the online slot games stake and ban on football shirts, gaming rules, and checks on what gamers can afford to lose.
London-based Charles Russell Speechlys’ sports lawyer, Darren Bailey, found it strange that while the UK is on the move to streamline its gambling laws, the US is opening the doors. He mentions that there are great lessons worth learning from the UK market when deciding how to tackle the gambling puzzle at DraftKings.
DraftKings is working hand in hand with different states to introduce stringent procedures that deter gamblers from moving from one platform to the other after getting flagged by other operators. Bailey says that people who are gambling addicts are not good long-term customers. He continues to point out that these people can easily stain the entire industry.
Peter Jackson, Flutter’s chief executive, thinks otherwise as he says that strict regulations will only prevent operators from offering competitive odds. In turn, this will drive customers to wager on unregulated black market websites. The American Gaming Association estimated that there was about $150 billion wagered on the black market before 2018.
However, Whyte says that the rush to entice betting companies into the US market had influenced some legislators to overlook the important sports betting lessons from the UK and other stricter European markets. Whyte says that the state government is ignorant, and they don’t want to know. They are only desperate for money, and the gambling problem is just another inconvenient truth as they quest for more taxes.
He continues to indicate that since New Jersey allowed sports betting in 2018, one of the major concerns was the increase in the gambling problem thrice the national average.
Pazner of 888 argues that a crackdown in the US betting market is inevitable. He asserts that the backlash is a common thing that happens in almost every market. But MGM’s chief executive, Bill Hornbuckle, says that betting companies have a lot at stake to make mistakes. He adds that one key strategy to regulate is by limiting the issuance of licenses.
Other challenges that should be addressed include issues related to the rapid growth of the US betting market. For instance, the speed at which legislators push gambling legislation is important. It’s also worth noting that most operators’ eyes will focus primarily on states with the largest populations, like Florida and California.
