Between the Lines – American Gaming Report – October 2023

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.

Enter ESPN Bet

In November, we’ll likely have the second big sportsbook brand entering the market this year after Fanatics Sportsbook formally launched late in the summer. ESPN Bet will go live next month, according to Penn Entertainment, rebranding the sportsbook formerly known as Barstool.

A lot of eyeballs will be following the fortunes of ESPN Bet, as it’s one of the few sportsbooks that has a chance to disrupt the US market. Here’s Penn CEO Jay Snowden at the recently held Global Gaming Expo via Legal Sports Report:

Snowden continued to pitch a November launch as positive, suggesting bettors may be out of promotional dollars from the beginning of the season and therefore more likely to give ESPN Bet a try.

Snowden is likely making lemons into lemonade here. If the ESPN Bet rebrand had been ready earlier, they would not artificially hold it for November. After all, Penn continues to operate a “zombie” Barstool Sportsbook, without support from Barstool media personalities, which is far from ideal. There has even been some friction because of it. Some of this is reverse engineering a positive story out of the circumstances.

The narrative that people will be running out of promotional dollars two to three months after the start of the NFL season is also spin; November is not a key moment for customer acquisition in that regard.

In any event, here is the good and the bad for a November timeline:

The Good

• More money is wagered in the US in November than any month, at least in 2022. The total handle in October, November and December last year was pretty similar, all in excess of $9.5 billion and under $10 billion. The benefit of starting in November is three major sports (football, basketball and hockey) are in full swing. It’s a time when interest in sports (and betting on sports) is at a peak.
• Acquisition costs are lower than they are in September. The start of the college football and NFL seasons is the height of customer acquisition for sportsbooks. More users want to sign up at this time than any other time on the calendar, other than around the launch of legal betting in a given state. That means sportsbooks are paying more for new players because of all the competition, between promotional and other marketing spend. That’s a long way of saying that November could be a good time to deploy a good bonus offer and more marketing spend, because you should be up against less competition.
• Rushing the deployment of ESPN Bet could have been a disaster. You only have one shot at the rebrand. If it went poorly, ESPN Bet could have been over before it started. Of course, Penn brought the timing of all of this on itself based on when it decided to give up on Barstool, an acquisition it wrote off as a loss.

 

The Bad

• While November is a month with lots of betting activity, ESPN Bet will miss the start of all the major seasons. Of course, hockey is an also-ran in American betting, and people really start paying attention to the NBA around Christmas. And it’s tough to replicate the customer interest that comes in early September around football.
• The flipside of acquisition costs being lower is there are fewer customers to be acquired. It’s difficult to understate the critical mass of people looking to start betting or reactivate with sportsbook offers in early September. That interest will have dissipated by November. Will they be able to effectively sign up new bettors or convert existing bettors in that environment? Also, a large part of the value proposition of ESPN Bet is that the brand and its activation channels are supposed to be somewhat/largely accountable for acquisition. That channel would have been pretty valuable (and cheap, or at least already paid for as part of the Penn/ESPN deal) in September.
• Retention of the existing Barstool Sportsbook user base is an issue that hasn’t received a whole lot of analysis. Is Penn going to be able to effectively hold onto the customers it already has, or reactivate them after several months of operating in limbo under the Barstool brand? Some amount of customers were there just because of the Barstool name and personalities. You have to imagine some or even a lot of them will leave and customer reactivation might not be compelling unless a reactivation offer is very good. In any event, it’s highly doubtful the three months in between brands is a net positive for keeping users around.

The floor and ceiling for ESPN Bet are higher than they were for Barstool Sportsbook. And starting in November, we’ll start seeing how good that opportunity might be.

Florida sports betting on ice?

A relaunch of Florida sports betting was in limbo in September for a potential relaunch, and the waters seem considerably muddier a month later.

The most recent decision in an ongoing federal court case seemed to open a window that could have allowed the Seminole Tribe to offer online sports betting in the near future. But legal machinations likely have sports betting sidelined for the foreseeable future:

• The plaintiffs in the ongoing federal case has appealed the DC Circuit Court of Appeals decision to the US Supreme Court.
• Those same plaintiffs are also starting a new legal challenge based on the state constitution.

All of this creates enough uncertainty that it seems unlikely we’ll get a relaunch of sports betting in the near future, although it’s not impossible. The stop-and-start that took place in 2021 when Hard Rock Sportsbook was briefly live in the state likely leads to an abundance of caution before starting the engines again.

California sports betting longshot

A ballot measure backed by sportsbooks that would have legalized online sports betting was beaten in humiliating fashion last November. The aftermath was so bad that most analysts believed that any future legalization efforts were set back by years or even longer.

The tribes that operate California casinos spent heavily to defeat the measure, believing the proposed law was not in their best interests.

But fast forward to October, and one tribe, the Pala Band of Mission Indians, apparently will file its own initiative for 2024. Pala Interactive has long been involved in the online gambling space.

It’s not clear what kind of a chance such an initiative might have, but it would take the support of other gaming tribes, particularly powerful ones like the Pechanga Band.

Tribal buy-in is almost mandatory in the current climate to legalize sports betting in California, and this effort at least is a first step in that direction. We’ll have to wait to see the actual ballot measure language and tribal reaction before we know how to handicap the initiative’s chances. But right now, sight unseen, it’s a heavy underdog to become law.

Regulatory pushback for daily fantasy sports pick'em games

It was a rough month on the regulatory front for some daily fantasy sports (DFS) companies that offer player proposition parlays or “pick’em” games to users:

• Florida gaming regulators issued cease-and-desist letters to PrizePicks, Underdog Fantasy and Betr for “offering or accepting bets or wagers from residents of this state.” None of those fantasy apps has pulled out of Florida as of publication.
• Michigan regulators have ruled that fantasy pick’em games must stop in October under revised rules.
• New York regulators adopted a new rule that makes it “explicit that [fantasy] contests shall not be based on proposition betting or contests that have the effect of mimicking proposition betting.”

What started as a trickle of regulatory interest in the newest iteration of the DFS industry quickly turned into a steady stream. The games offered by the fantasy companies are identical to player prop bet parlays you can bet at regulated sportsbooks. The only true difference is the justification of the legality for the former, using a mesh of federal and state laws that deal with fantasy sports and games of skill.

Much of the DFS industry, including the contests offered by DraftKings and FanDuel, draws on a “game of skill” legal rationale around the country. Some states also have laws covering DFS, ranging from light-touch regulation to less-intrusive measures that simply affirm the legality of paid-entry fantasy contests. The “pick’em” apps serve a population largely in the “game of skill” states. Most notably, they all serve California and Texas, the two largest states that also have no legal sports betting.

Florida was an interesting case in that it has no specific DFS law, but it also has the potential for legal sports betting via the Seminole compact. The latter would seem to be a possible impetus for a crackdown on pick’em games that mimic sports betting; why would Florida want to allow competition for legal sports betting with a similar, unregulated product? A negative attorney general opinion about paid-entry fantasy has existed in the state since 1991. DraftKings and FanDuel have operated there for a decade and have also tried and failed to pass legislation that would affirm the legality of paid-entry fantasy sports.

NCAA taking betting more seriously

Five years into the expansion of legal sports betting, the NCAA has been taking a lot more action. That comes in the wake of a few scandals, most notably the involvement of Iowa and Iowa State athletes placing bets.

The latest is the creation of an e-learning module to educate current and prospective college athletes about sports betting and the potential pitfalls they might encounter. Education efforts on this front were likely not enough and not uniform across the country, and this effort attempts to address that. It should have existed as soon as sports betting started to expand, or even before then, because offshore sportsbooks and local bookies have existed for decades.

But the NCAA is now trying to be better, which is worthy of applause.

The NCAA also announced its intention to lobby state legislatures for new policies, including ways to protect athletes from harassment related to gambling.

The NCAA was a plaintiff in the court case about the federal sports betting prohibition that fell in 2018. Its lobbying efforts in the ensuing wave of legalization were ill-prepared and sometimes still called for prohibition instead of regulation. The organization is now looking at sports betting from a more practical standpoint, trying to deal with the realities its member universities and athletes face as well as where policy stands five years later.

Things to watch

• Kentucky online sports betting launched, but it’s still pretty early to know how it’s doing. With four days of data, we know $68 million was wagered online at the end of September. We’ll have to wait to see how the first full month goes with October numbers and how the state performs on a per capita basis vs. other state launches. But it does track with a projection of $1 billion in handle through the end of the year.
• It appears Maine sports betting is on track for a November launch.
• A potential January launch of North Carolina sports betting now seems in doubt, although an H1 launch is still the target.

 

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.