Hello and welcome to this week’s CDC newsletter.
On the slate this week:
- B&M-iCasino cannibalisation once again in the spotlight
- January sports betting data: ESPN Bet share of GGR drops again
- Not as bad as it seems? Illinois governor’s tax hike proposal
- Catena Media CEO steps down
- News shorts: DraftKings supplies odds to Apple Sports, UK online slot caps, Ceasars buys Wynn’s Michigan iGaming operation, Ontario’s new advertising guidelines.
Cannibalisation debate shows no sign of abating
The issue of online-offline casino cannibalisation is never far from the surface whenever talk of iCasino regulation crops up, which is regularly, and the recent publication of Eilers & Krecjik’s report on the impact legal online casino has had on land-based venues in the U.S. once again put the issue in the spotlight.
- It also led to a heated debate on Linkedin between industry executives and showed, once again, how sensitive it was as an issue. Amid all the sound and fury, the only point executives seemed to agree on was that illegal operators will continue to flourish as long as there are no legal options for consumers to play online casino games.
- The report, carried out by EKG on behalf of the online gambling trade body iDEA Growth, surveyed “how the legalization of online casino gambling affects land-based casinos” in the U.S.
- It compared data from “states where both online and land-based casinos are available” and those where only land-based casinos are allowed.
- Long and short of it: The EKG document included a ton of great data nuggets, but cutting to the chase, it found that “in all six states (where online casino is regulated), land-based casino revenue was positively impacted by the introduction of online casinos” and that the addition of regulated online casino “boosts land-based casino revenue”.
Beyond borders: As mentioned, the response and heated debate it led to on Linkedin was proof of the subject’s salience and looking beyond the U.S., some readers may know that I have covered the topic extensively with regard to France, which remains the only major western European country to not have regulated iCasino.
- It will no doubt resurface in the coming months as French land-based and online stakeholders continue to call for iCasino regulation, but returning stateside and for a very different take on the issue, the Deutsche Bank team in New York was clear in its most recent monthly industry update.
- Acrobat reader: In what can only be interpreted as a criticism of the EKG report, it said that while some industry observers “appear to (be) doing mathematical acrobatics to arrive at a certain conclusion, we believe the data speaks for itself”.
- Home truths: “While it may not be what some want to hear, in one paragraph and one chart, we have shown, for some time, and show here again, that iCasino is in fact having an impact on B&M casinos. Let us again be very clear on another point. The aggregate pie is growing, no one is, or has ever, disputed this. Thus, states are benefitting from the incremental aggregate tax dollars.”
- Three big states: Adding that relative to 2019 (pre-pandemic), the “underperformance” of land-based casinos in New Jersey, Philadelphia and Michigan, the three states “that actually matter” as they “generate >90% of 2023 iCasino GGR” the data “is so clear that we struggle to see how, but not necessarily why, one could reach a different conclusion”.
- Key numbers: Deutsche Bank added that in the past year and relative to 2019, the performance of B&M casinos in iCasino states is +0.6% compared with +11.7% for B&M-only states. “We would also note that Pennsylvania has added five new casinos since 2019, which, had we done the analysis on a same store basis, would have further exacerbated the comparison,” it noted.
Figures from State Gaming Commissions and Deutsche Bank
Margins drive January betting numbers
Deutsche Bank added that the states it has data on showed that online sports betting (OSB) gross revenue was up 61.2% YoY and handle rose 23%, while bookmakers saw hold levels jump 31% to 10.4% from 8% last year.
- Deutsche Bank noted that “the quick start” to Q1 should be get a boost from “another easy hold comparison in February, despite a somewhat muted 2024 Super Bowl result, as the hold comparison from February of 2023 was just 7.9%”.
- More limited promotional efforts should also help operators as Ohio and Massachusetts both launch on Q123.
- Jefferies said FanDuel continues to lead on market share, its GGR share was up 4ppts MoM (but -7ppts YoY) at 48%, while DraftKings’ share fell -2ppts MoM but was +8ppts YoY to 32%, while BetMGM’s share was flat MoM at 7% (-2ppts YoY).
- Jefferies noted that closely-watched ESPN Bet’s share of GGR was -4ppts MoM to just 1% and noted that ”across all reporting states, ESPN Bet has seen an 8%, 5% and 1% GGR market share trend across its first three months live”.
No such thing as free money: With six states publishing promotional data, Jefferies reported that state-wide promotional deductions increased 40% YoY and +9% MoM, but were -2ppts (+3ppts MoM) as a share of GGR, with ESPN Bet cutting back significantly (-87% in January) to just $3m.
- Lean in: “This represents a sharp decline from the $50m (30% of handle) and $26m (13% of handle) seen across its first two months,” the analysts noted, and contrasted the figures with FanDuel, which (once again) “appears to have leaned in to promotional activity in January, with its promotional deductions up +5ppts YoY (+16ppts MoM) to 33% of GGR”.
- FanDuel’s “step-up is in stark contrast to peers DraftKings and BetMGM that have cut -12ppts and -16ppts YoY” and Jefferies noted that FanDuel’s promotional spend as a share of GGR remains the lowest among major operators.
- Promo efficient: “Put differently, while FanDuel spent the most in absolute dollar terms (indeed, double that of DraftKings), it was also the most promotionally efficient,” added Jefferies.
Illinois Governor sets out potential sports betting tax hike
Double bubble: Illinois Governor JB Pritzker has called for the state to more than double the tax rate it applies to sportsbooks in the state to 35% as part of his 2025 fiscal budget he presented to the public last week.
- Sports Handle reported that although Pritzker did not reference sports betting during his speech to state legislators, his budget showed “a projected tax revenue increase of $200m at the 35% rate compared to the current 15%”.
- Should the tax rate reach 35%, it would make the Keystone State the third most highly taxed jurisdiction in the country behind New York at 51% and Pennsylvania at 36%.
- If the tax rate change happens, the JMP team said it would be “impacting everyone”, but estimated that “Caesars and DraftKings will be the least impacted, while ESPN Bet will see the largest impact compared to 2025 consensus EBITDA expectations”.
- The analysts added that operators will adjust their models to the changing tax environment and pointed to FanDuel’s and DraftKings’ “structural advantage through product, scale, and willingness to spend” in New York as a good example of operators adapting to the 51% tax rate in the Empire State.
- And as smaller companies are reluctant to invest, the “tax rate increasing in Illinois will hurt smaller operators and allow larger companies like DraftKings, FanDuel, and BetMGM to gain market share and help offset the tax losses”.
- JMP said “a bad outcome might not be as bad as we believe” and suggested the size of the Illinois market could reach $1.75bn with the state collecting an incremental $200m in tax revenues.
Catena CEO steps down with immediate effect
The U.S.-focused affiliate Catena Media has announced that its CEO Michael Daly has stepped down from his role “following careful consideration and consultation with the board”.
- The resignation is effective immediately and Pierre Cadena, VP Corporate Strategy, will assume the role of interim CEO as the company starts the search for a replacement.
- Daly joined Catena Media in 2018 and became CEO in 2021. The group is in the middle of a restructuring process that has seen it sell its European assets to focus all its attention on the U.S. market.
- Its latest quarterly results were disappointing as it experienced a 21% drop in U.S. revenues and new depositing customers were down 19%.
News shorts
DraftKings will supply its odds to Apple as the phone and computer giant launches Apple Sports, its new app delivering sports news, scores and stats on the leading U.S. and European sports leagues.
- Apple said additional leagues will become available over time, including the MLB and NFL for their upcoming seasons.
- The app is live in the U.S., UK and Canada, and Eddy Cue, Apple’s senior vice president of Services, commented: “We created Apple Sports to give sports fans what they want — an app that delivers incredibly fast access to scores and stats.”
Wynn has continued to exit the digital space with the sale of its Michigan iGaming database to Caesars. The transaction amount was not disclosed, but the operation is understood to generate around $3m GGR per month.
The Alcohol and Gaming Commission of Ontario has published its new rules on gambling operators using athletes, celebrities and influencers to advertise their wares in marketing campaigns. Industry observers believe the rollout will be smooth and without hiccups.
UK newspaper The Guardian reported that online slots are set to be capped at £5 for over 25 year-olds and to £2 for those under that age. The move has long been trailed and major British operators have implemented it for some time already. Regulus Partners commented that as the product’s popularity has increased substantially in recent years, players numbers have grown from 2.1 million “actives” in 2019 to 4.3 million in March 2023.
