On Wednesday, Deutsche Bank analyst Carlo Santarelli reported that during the first quarter of the year, “We continued to hear that promotions are being extracted and promos as a % of [gross gaming revenue] or handle are down.” He didn’t, though, entirely buy the contention.
“This is factually correct, given that the cadence of new state launches, where promotions are most abundant, has slowed,” Santarelli qualified. “For some individual operators, the notion of reducing promotions from an organic/same-store perspective is also correct. However, when looking at data from states that are not freshly launched, we see no evidence of a slowing cadence of promotions overall,” the analyst found.
Of states that launched online gambling prior to 2021, four of the five actually experienced an acceleration in promotional spending. Even with higher holds, three of the five first-mover states saw more of the augmented number being expended to capture play.
Only Kansas and Maryland, out of seven online sports-betting-enabled states sampled, have actually curtailed promotional activity. In Connecticut, OSB and igaming promotional activity represented 29 percent of GGR. In other early-launch states, it was observed to be higher still.
“While we don’t think the igaming promotional landscape, which we believe has also intensified, is much better than that of the OSB landscape in terms of promotions relative to GGR, and given that the GGR mix is heavily skewed toward OSB, we see a long path to achieving these targets,” wrote Santarelli of promotional rationality. He said that would come with the realization that the present-day market is driven by “unnatural demand.”
On the plus side, igaming dynamics were described as “strong,” with GGR growing 25 percent from 2023. Santarelli called the amount of play “almost uncanny,” with Pennsylvania and Michigan broadly accelerating and New Jersey notably so.
Santarelli reported that online operators are now measuring performance against their expectations of igaming and OSB hold. Again, he didn’t seem entirely convinced, writing, “We understand the rationale and the logic, though we don’t see the investment community warming up to a place where every miss is chalked up to hold that was below a theoretical number provided post the period.”
He added that hold percentages were indeed to blame for first-quarter shortfalls, “even though most operators experienced Y/Y hold expansion, while industry hold across the 26 states we track was flat Y/Y at 9.0%”
The analyst also minimized the impact of March Madness and the Masters golf tournament, even though both had been very favorable for bettors. Santarelli noted that subsequent weeks were favorable to sportsbooks and the impact on second numbers would be “modest if any.”
