Between the Lines – American Gaming Report – August 2023

Catena Media is starting to offer 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.

Kentucky sports betting is close to launch

The only major market that appears as if it will launch a new form of online gambling for the remainder of 2023 is Kentucky. There’s also the possibility of Maine sports betting. More on that later.

Each state’s sports betting industry is unique, especially at launch. But past data from other state launches gives us a way to estimate what a new state might look like. Gaming Today projects that Kentucky will generate more than USD 2 billion in wagers in year one, producing around USD 200 million in gross gaming revenue and USD 30 million in state taxes.

Notably, Kentucky is on track to be one of the fastest states to go from an enabling law to launch. The bill was signed at the end of March, with retail sportsbooks set to go live early in September and online betting to kick off on Sept. 28, if everything goes according to plan. Speed to implement regulation is not necessarily a best practice in any gaming segment, but it has been done in other markets to positive effect.

We expect to see all of the major operators in Kentucky either on day one or soon thereafter. MGM Resorts recently announced its presence in the market. Traditional sportsbooks like market leader FanDuel (just under 50% of nationwide market share), DraftKings and Caesars will also join the fray. We’re also likely to see the newly launched Fanatics Sportsbook, as well as the newly minted ESPN Bet (more below).

That speed to market seems motivated by making up for lost time – sports betting expansion started back in 2018 – and capturing most of the crucial NFL season, which is the biggest customer acquisition period in the American calendar. In fact, the start of the NFL season is the absolutely best time for sportsbooks to find new bettors, but that launch timeline would have been even more aggressive.

The other notable markets to go live this year were Ohio and Massachusetts, which featured both online and retail sportsbooks.

Maine sports betting this year?

The only other expansion of online betting we are likely to see this year is a sportsbook in Maine. This summer, regulators said November would be the target for issuing temporary licenses.

A potential launch late this year would come more than a year after a law was passed in September 2022.

While there could be a variety in retail sportsbook options at the state’s off-track betting facilities, it’s not clear that will be the case for online sports betting. Up to four sports betting apps are permissible via agreements with the state’s four tribes, but right now Caesars has agreements with three of them. At last check, heavyweights DraftKings, FanDuel, BetMGM and Fanatics said they would not be applying for licenses. So it’s feasible that Maine ends up with a monopoly.

Online sports betting expansion slows – eyes turn to online casino

The potential for expansion of online sports betting is slowing for one major reason: efforts to legalize it over the past five years have been wildly successful.

Only a handful of realistic opportunities for legalization exist in 2024,and not all of them are likely to reach the finish line. California and Texas sports betting are both off the table for at least a couple of years, if not longer. Florida could potentially relaunch as early as this month with a single sportsbook, but legal clarity here is still fleeting.

Hence, the gambling industry will look to online casino as its next growth area, as there far fewer states have legalized that activity yet. New Jersey, Pennsylvania, Michigan and West Virginia have relatively open markets, while Connecticut and Delaware have more limited markets.

Rhode Island legalized online casino this year, but it came without much fanfare because it will operate as a monopoly that doesn’t excite much of the industry. The 2024 launch will at least mean progress, even if incremental.

Already, there is buzz about at least a couple of states. A Colorado official recently intimated there has already been discussion about online casino expansion. Maryland is doing a study on online casino in advance of potential legislation in 2024. Indiana will likely try again after a failed attempt earlier this year, despite facing strong headwinds, and Iowa could see some traction next year as well.

Chatter has been heard about a potential gambling expansion in North Carolina that might include online casino. And the possibility of New York online casino, which faces a tough climb politically, remains ever-present.

Expansion in online casino has been frustratingly slow for some segments of the industry, especially with the groundswell of support for sports betting. But that expansion came because in many ways sports betting was a new product (even though it existed offshore and in Nevada) and was not as controversial as other forms of expansion.

Meanwhile, pushback is often seen against sports betting both in states that have retail casinos and those that don’t. The latter seem unlikely to adopt online casinos without retail. In the former, land-based casino interests are not always sufficiently aligned to make expansion a good idea.

But even with the relative lack of progress, online casino seems inevitable over a long enough horizon. One or more states may legalize next year, or the number may be zero. But as casinos look to engage with younger audiences and to expand their business, some day there will be a critical mass of support. You can already see some of that manifest with major retail casino companies that now have large online businesses, like MGM, Caesars and PENN.

PENN and ESPN

The biggest news of the summer was unquestionably PENN Entertainment’s announcement that it had signed a deal with ESPN to launch ESPN Bet later this year. You can get a rundown of the news here. Topline takeaways:

• PENN pays USD 1.5 billion over 10 years for use of the ESPN brand while also getting activation and integration via ESPN platforms.
• PENN is shuttering the Barstool Sportsbook brand. It sold the company back to founder Dave Portnoy for USD 1, writing off more than USD 800 million in losses.
• PENN plans to relaunch as ESPN Bet in November
  

This is the biggest sports media brand in the US partnering with a casino company that wants a larger piece of the online gambling pie. Right now, FanDuel and DraftKings hold roughly 75% of the market in terms of revenue.

PENN, with the Barstool brand, was accounting for less than five percent of gross gaming revenue in the sports betting segment. The move to ESPN away from Barstool stemmed probably from the idea that Barstool might have reached its ceiling, and that a deal with ESPN would use the gains to date as a new floor.

The big question is how much this impacts the US sports betting landscape in the United States.PENN has targeted a 20% US market share, which looks optimistic though not impossible. ESPN Bet would have to be exceedingly good at creating new bettors and also moving share of wallet away from FanDuel, DraftKings and other incumbents. We will see.

We’re also likely to get more integration of betting content into sports content than we’ve ever seen. What will that look like, and how good will ESPN be at converting those bettors? Again, time will tell.?

Daily fantasy or sports betting?

What constitutes sports betting and what is daily fantasy sports (DFS) has been a hot topic of late, bringing back memories of 2015-2016. That’s when DraftKings and FanDuel faced a variety of legal and regulatory challenges that could have ended the daily fantasy sports industry. Instead, the companies survived to become the early leaders in regulated sports betting.

Fast forward to August 2023, we now have DFS 2.0. That industry includes the likes of PrizePicks, Underdog Fantasy and Betr among others, whose chief business is offering “fantasy versus the house” parlays involving athlete statistics. (An example of a DFS “entry” here would be picking two players to hit a home run in a given game, which is functionally the same as placing a parlay at any sportsbook.) The Wall Street Journal recently reported on PrizePicks and the industry in general.

A handful of state regulators are now weighing in on the legality of DFS 2.0. The question is whether these are indeed paid-entry fantasy sports or just sports betting using a mesh of federal and state laws as justification. DraftKings and FanDuel went to great expense in the late 2010s to widely legalize paid-entry fantasy sports. This was then used by companies like PrizePicks to offer a form of fantasy sports that looks like gambling to many observers.

To be fair, some states have indeed said fantasy parlays are legal in their states. But this activity is also going on in California, Texas and Florida – the three largest states by population – with no specific laws or regulations covering paid-entry fantasy sports. None of those three states have legal sports betting, either.

In any event, the existence and growth of “DFS 2.0” has set up conflict with the regulated gambling industry. DraftKings and FanDuel are reportedly leading the charge to have these companies’ games classified as gambling. The recent actions by state regulators could just be the tip of the iceberg, or things could calm down. But as long as the 90 million people in the three largest states don’t have access to regulated sports betting, expect this to be a source of friction in the industry.

 

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.