January 25th, 2024
Between the Lines – American Gaming Report – January 2024
Catena Media is offering North America gambling industry insights via Dustin Gouker, a former vice president of the company who has been at the forefront of coverage and discussions in the United States for much of the past decade. Catena will offer Dustin’s in-depth look at the US industry every month with trends and news in regulation, legalization and the companies involved in the space.
This month, we take a look at five trends to watch in 2024.
Will FanDuel and DraftKings maintain their duopoly?
The story of the first five years of expanded legal sports betting in the United States was written by FanDuel and DraftKings.
There were brief spurts where it appeared that MGM or Caesars might be able to ascend closer to the top tier, but those days are over, and it appears both sports betting apps have settled comfortably behind the market leaders.
Now, we arguably have three different sportsbooks that could bridge the gap from also-rans to making a dent into the top two’s dominance: ESPN Bet, Fanatics Sportsbook and Bet365.
For 2024, the smart money is on FanDuel and DraftKings remaining at one and two.
For Fanatics and Bet365, it seems pretty obvious that they will hope to grow organically from here:
- Fanatics bought PointsBet and launched its own brand earlier this summer. But so far Fanatics has not generated meaningful growth and does not seem like it’s in a rush to acquire marketshare.
- Bet365 has been in the US market for some time, but similar to Fanatics, it has not been in a rush to burn cash to compete in the short term. 365 is an international giant and doesn’t need US growth like other companies in the space. And while there continues to be evidence that the sportsbook is taking its desire to compete in the U.S. more seriously, that desire is tempered by doing it without going for broke.
If any of the three companies are going to compete meaningfully this year, it’s the new entry from ESPN Bet (formerly Barstool Sportsbook, operated by Penn Entertainment). But even then, the smart money is on ESPN Bet, perhaps taking over the third spot but not yet challenging DraftKings for No. 2.
We have started to see the data from the first full month of ESPN’s operation after it went live in mid-November following the rebrand from Barstool. The December data roughly shows a blended market share of around 7 percent by handle and revenue in the states where ESPN operates. It’s early, and we obviously want to be careful trying to prognosticate too much out of the first full month’s data.
But here are some factors that are playing into this:
- The floor was already set by Barstool of about 3-4% of the market from when Penn sold the brand back to founder Dave Portnoy. Penn still had some of these users and/or tried to reactivate them with early promotional spend.
ESPN Bet had a unique opportunity to relaunch into a large population of regulated states simultaneously without the type of competition that comes with the launch of a new state. ESPN was the most downloaded app in the App Store for some time after launch.
The increased marketshare came with a great deal of promotional spending that will certainly decline come the new year.
- Only the folks at Penn know what the expectation was for launch, but given the opportunity to serve a large new audience via ESPN’s channels, the aggressive promotional spend and the starting point with Barstool, my guess is the base case was somewhere around 8-10%. A double-digit marketshare likely was the threshold for a truly successful relaunch.
Here are some questions ESPN faces moving forward:
- What will happen with less promotional spend? Can ESPN Bet hold onto both the old Barstool users and the new users they just acquired at the end of 2023?
- Is organic growth coming from people who are new to sports betting, or is it taking marketshare from incumbents, some of both, or neither? The critical mass of downloads didn’t turn into what I’d consider a critical mass of new depositing customers.
- What levers for customer acquisition (and retention) will ESPN pull that it hasn’t yet? There certainly are more levers available, but it’s also not clear if they aren’t being pulled on purpose right now.
While app improvements are on the way, most people in the industry would say the UX trails both DraftKings and FanDuel right now. Will it come soon enough to make a difference in the near term?
Can ESPN start challenging DraftKings for No. 2 this year? It’s at least in the range of outcomes, but it seems unlikely as we sit here. The start of the next football season and 2025 will likely provide a better insight into that, with 2024 serving as a prologue of what’s to come. At the very least, ESPN will need to show some growth from this new starting point to be deemed successful.
What about all the other sportsbook?
We saw some contraction or exiting of the US sports betting market in 2023, and it seems like there could be more of that on the horizon; if not in 2024, then in the coming years.
It seems likely some of these sportsbooks are shuttered or exit the market, given:
- There are still a number of sportsbooks (and exchanges) that are competing for minuscule marketshare.
The market is only getting harder to find growth given how entrenched FanDuel and DraftKings seem and the increased competition from the three companies above (Penn/ESPN, Fanatics, Bet365)
- One of the highest-profile new sportsbooks that has not lived up to expectations is Betr. It’s a well-capitalized startup that has entered two states as a sportsbook and has made no in-roads in either. It seems content to try to serve and grow its daily fantasy sports offering, which comes with a much lower barrier to entry to offer a product akin to gambling.
Is online gambling expansion coming?
Heading into every year, the buzz in the industry focuses on where expansion is possible in both sports betting and online casino. And heading into this year, that buzz is muted for a variety of reasons:
- Sports betting will not happen in California and Texas in 2024.
- Expansion beyond the Hard Rock sportsbook monopoly in Florida seems unlikely.
- The number of states where there is a legitimate chance of sports betting legalization is relatively small because of the high rate of adoption over the past five years. While there are a handful of states with a legitimate chance to legalize this year, there’s a real chance that no new states pass a law this year.
- What seemed like it would be a good year for momentum in online casino legalization has already taken a hit, with the number of promising candidates perhaps at one.
- Prospects for New York online casinos took a hit when Gov. Kathy Hochul did not include revenue from them in her budget plan. But a key lawmaker remains optimistic despite headwinds.
- Maryland is likely the most likely state to pass a law as things stand now.
It’s not all doom and gloom; North Carolina already legalized online sports betting and a launch is probably coming at some point this year.
This year appears to be another opportunity for stage setting. With less opportunity to legalize sports betting, lobbying and narratives from the industry are shifting to online casino as the next frontier, with revenue and growth in the sector in New Jersey, Pennsylvania and Michigan telling a compelling story.
Online casino is never going to have the easy path to legalization that sports betting did, despite the handful of states that have already legalized it. The hard yards toward more widespread adoption seem to be starting in earnest now.
What's next for daily fantasy sports?
Before 2023, the new sector of the daily fantasy sports industry was in the fast lane, and it still might be moving forward. But for the first time, the industry started encountering speed bumps.
The industry within an industry is built upon the idea that you can let users play against the house via parlays based on players’ statistical performances under game of skill and fantasy sports laws around the country. Operators in this space have enjoyed meteoric growth alongside sports betting, particularly because many of the new DFS companies serve the states without sports betting. That includes the country’s three largest states: California, Texas (no legal sports betting) and Florida (the Hard Rock monopoly just relaunched late last year).
But now state regulators and law enforcement have been looking at the nascent industry given its recent rise; for example, data shows PrizePicks likely leads DraftKings and FanDuel in the DFS space because of their more aggressive fantasy offering (neither of the sports betting giants offers DFS parlays vs. the house).
That regulatory scrutiny includes Florida (where cease and desist letters were issued, but no one pulled out) and California (where the attorney general’s office has been asked to look at the industry). Florida legislators are also set to consider legislation that would formally address the industry, including potentially codifying that parlays vs. the house are sports betting.
How this all plays out could determine the future viability of the industry. If there are negative outcomes where operators have to pull out of both California and/or Florida, it’s hard to see how all but the very biggest companies survive. Continued negative momentum could also bring into question whether processing payments for the industry starts becoming a friction point.
Meanwhile, with the prospect of open sports betting markets facing an uncertain future in California, Texas and Florida, DraftKings (and FanDuel) are unwilling just to cede these markets to PrizePicks and others. DraftKings recently launched its “Pick 6” product as a peer-to-peer pick’em product that they hope threads the needle of legality and a compelling product for users.
What happens around responsible and problem gambling?
Last year saw a lot of negative press around gambling as sports betting has continued to expand and become more ubiquitous. We saw a lot of hand-wringing about more calls to gambling hotlines and a lot of ideas about how the sports betting industry can improve on helping people before and after they have an issue with sports gambling. We saw some gambling regulators attempt to rein in marketing tactics that often proved effective, while other efforts seemed more ham-handed.
What we didn’t get was a coherent strategy that stakeholders across the spectrum agreed upon. We have gotten a lot of ad hoc answers trying to address problems and concerns as they arose.
As we enter 2024, we’re still left with no clear vision on what’s next. There’s not an obvious game plan that can be turned into actions agreed upon by operators, responsible gambling advocates, policymakers and regulators, along with other parts of the sports betting ecosystem.
A possible first step is a Congressional bill that would look to funnel hundreds of millions of dollars from federal excise tax collections to state resources that deal with problem gambling directly while also funding national research related to sports betting. States largely haven’t earmarked nearly enough money for dealing with the social costs of expanded gambling (that goes for forms of gambling other than sports betting, too).
The American Gaming Association is against the bill because it wants to repeal the excise tax entirely, as it was an artifact of federal regulation that ended up impacting expanded sports betting. The fate of a federal bill is also unknown and likely faces an uphill battle, especially in an election year and with little getting done in the nation’s capitol from a policy perspective on any topic.
In any event, we should expect movement toward better answers around the issues of responsible and problem gambling this year and moving forward. I do believe that all parties want to find viable solutions before the problems become worse.
About the author
Dustin Gouker is the former Vice President of Content for North America at Catena Media, and currently serves as a consultant and analyst for the company.
Gouker started writing and editing at LSR in 2015, reporting on the meteoric rise of DraftKings and FanDuel in daily fantasy sports. He also led coverage of the push for legalization of sports gambling in the US, including being on hand to cover oral arguments in the US Supreme Court as the federal ban was lifted. He’s considered one of the leading experts about the US sports betting space and has spoken at a variety of conferences and with various media outlets about the industry’s development.