The president of Caesars Digital said two of the biggest risks for operators are states imposing higher tax rates on the sports betting industry and the growth of prediction markets, whose proliferation could lead to more legalization of igaming to capture lost tax revenue.
Eric Hession spoke last week before the Nevada Society of Certified Public Accountants in a discussion moderated by Brock Elliott, senior vice president and controller for Caesars Digital. He said the sports betting industry had seen hypergrowth in revenue “with a tailwind” up until the last couple of months. He went on to discuss the risks from taxes and prediction markets.
“When the government sees the tax-revenue opportunity, I fear they will keep raising the taxes and I’m not sure how to stop that,” Hession said. “The business is incredibly competitive. Our normal competitors are constantly innovating and investing. New competitors are coming in that make up products overnight, like sweepstakes casinos. Now you have prediction markets. The argument that an 18-leg parlay on rebounds in the NBA is somehow economically significant and needs price discovery seems a bit stretched.”
Sports betting prediction markets have spread across the country in the past year and analysts have talked about how they’re gaining customers in states like California, Texas, and others where sports betting isn’t legal.
“We started so far behind FanDuel and DraftKings and we’re not allowed to participate (in prediction markets). They’re getting a head start. But I’m not sure we’ll get wiped out by prediction markets.
“I look at the opportunity as well,” Hession said. “There will be clarity at some point and when there’s clarity, we’re able to compete very well. We’ll have to come from behind again, unfortunately, because we can’t be an early mover. There’s no question that every day, we’re falling further behind, because there’s no clarity. I hope the Supreme Court or whoever it is that needs to rule on this decides quickly and it’s very clear and that these are the rules and that we’re able to get going.”
While the expansion of igaming has stalled, Hession said there are opportunities for Caesars going forward. He mentioned the province of Alberta in Canada launching in July with sports and icasinos. Maine will launch igaming in July with Caesars and DraftKings as licensee holders. Last week, Washington, D.C., put igaming in its 2027 budget.
“As states start to see their revenue move to untaxed prediction markets, there will be pressure to legalize and tax it or allow casinos if they already have legalized sports betting.”
In talking about other opportunities, Hession said Caesars always gets calls about expanding internationally. There are companies to buy and markets to get into, like Brazil.
“Our view is where we can allocate our resources most effectively is here in the United States and Canada,” Hession said. “It would be a big distraction to go into another country. Language and time zones make that challenging. But that’s certainly an opportunity.”
Hession discussed possibly getting into DFS-Plus, a regulatory classification for a type of fantasy sports contest where payouts are based on fixed odds rather than competing against other players. He said that rule making is solid today in about 20 states and some even provide licenses. Since Caesars already offers parlays, the operator would need to display it in a way that’s compatible and that takes time.
“The challenge is our timeline is already booked for the rest of the year. We’re planning Q1 for next year now. To fit something else in would require a risk and expanding our team, which then drives up costs or requires de-prioritizing something else. There are a lot of good ideas, but we haven’t decided to pursue any of them, because (our current) opportunities are better.”
Hession mentioned all the negativity about Las Vegas, especially that it’s too expensive. He said the city always comes up with something that differentiates it as it has done with bringing in sports teams.
“It’s really creative and there’s a ton of capital here and a ton of excitement. The city is designed to do that. I don’t know what will be next, but something will come up. I don’t think sports is fully played out, but the city will reinvent itself so it keeps entertaining and attracting people when it needs to.”
