And They're Off: New Legalized Sports Betting Faces Dim Odds
Early data from states that legalized sports betting indicate there're serious challenges to the scale, competition and geography of sports wagering.
William Hill, DraftKings, FanDuel, and the other online bookies know how to annoy. The trio are bringing marketing “shock and awe” to general consumers. There are heavy rotation ads on bets, props and parlays. And the heavy messaging is raising questions: If the sports betting action is so good, why work so hard to get it?
Does the tireless call to bet on football, baseball, or any sort of ball at all, hide a desperation in the sector?
Looking at states that must manage the complexities of sports wagering carries sports betting into heavily competitive tech sectors. Savvy operators like Wynn (WYNN), Boyd (BYD), and Caesars (CZR) are here. There are also online game peddlers, like Activision Blizzard (ATVI). Betting is coming to eSports. That puts sports betting in competition with the likes of Electronic Arts (EA) and probably Microsoft (MSFT) and Sony (SNY).
We dug into the early box scores on sports wagering. And sure enough, the data was not winning. While sports gaming is in its early minutes of play, legalized sports wagering could easily mis-evolve into a cluttered no-growth sector, similar to other forms of state-sanctioned gambling, like lotteries and thoroughbred horse racing.
Sports Betting’s Bad Box Score.
Hype aside, sports wagering is an absolute afterthought for American gaming. Recent data from the Pennsylvania Gaming Control Board estimates that the state’s 12 casinos had combined 2018-19 revenues of $3.2 billion. Slots accounted for $2.38 billion of those sales. Table games raked in about $886 million. Total tax revenue that flowed back to the state, after costs, was a neat $1.4 billion. Good betting, indeed.
What role does newly legalized sports gambling play in Pennsylvania’s gambling game? Not much of one. Sports wagering, both in casinos and online, took in just $22 million ... with an “m.” And that $22 million was 10 percent less than the $24 million taken in from long-legalized fantasy sports bets.
The results actually look worse in tabular form: Compared to the larger gaming sector, sports gambling is a statistical sampling error in Pennsylvania.
What this table does not show, is that gambling actually contracted in 2018, in some areas. According to Pennsylvania’s figures, table game revenue, fell year-over-year from $895 million in 2017, to the $885 million in 2018. There’s logic to that contraction: Everybody who gambles already does so. Why assume sports betting would bring new action? Gambling is a mature sector.
Also, there are the questions of how betting is affected as wagering is hosted on mobile devices. Gambling is legal statewide and smartphones have equal penetration across Pennsylvania. Yet, sports wagering turns out to be heavily location-dependent. Pennsylvania’s gambling data shows both onsite and online sports betting is limited to its top 4 casinos. And there's a dramatic range of results across those properties. The Valley Forge Casino does nearly 4 times the handle and net profits of the Parx Casino, even though both physically exist in densely-populated suburban Philadelphia.
Location seems to matter when it comes to gambling by a smartphone. Why?
Not Everyone Is a Nevada
Then, finally, there is the hidden story that any casino operator will whisper: Not all states make great gambling operators. Some are simply awful at it. The National Conference of State Legislatures, back in 2010, presented data for total revenues and tax dollars generated from lotteries held in 43 states. We made a table of the data below.
Amazingly, the vast majority of states under-perform the national average. How exactly do Oregon, Vermont and Massachusetts earn 11% less net profit than the national mean of 33%? And what on earth are the ridiculous policies that enable these laggards to earn 22% less than truly efficient operators, like California and Oklahoma? Keep in mind, lotteries are kids math compared to running real- and virtual-world casinos.
Simple business efficiency won’t be the only bet that must be hedged. Gambling now tells an ever more dangerous story: Bans on sports wagering are on tap at the University of Ohio and at Purdue. Some executive will get sent to the woodshed for suddenly inappropriate actions in gambling. Capital will be hurt. But whose?
Sports betting might sound intriguing. But there will be losers. The trick will be knowing enough to match the right operator, technology and experience with the most progressive and efficient states.
Investing in sports wagering is going to need to be a thoughtful bet indeed.
