As the larger U.S. sportsbooks envisage reaching profitability in the near term, the sector is about to enter another stage of its evolution.
Midpoint is a term that is much used by betting and gaming operators when issuing revenue guidance to investors, and, in some ways, it could also be used as an analogy for where the U.S. online sports betting sector finds itself at the end of the first quarter of 2023.
Although, from a regulatory perspective, it’s also fair to say that the industry is already past the midpoint stage. Online and retail sports betting is legal and regulated in some 33 states, and Massachusetts, the 15th most populated state in the country, just launched in the past week; while Ohio, at 11.5 million inhabitants the seventh most populated state in the U.S., regulated sports betting in January.
North of the border, Ontario, Canada’s largest and most prosperous province, regulated in April last year and there is a strong likelihood that Québec and British Columbia will follow in the near future. So in March 2023, U.S. sports fans can bet in all of the most populous North American jurisdictions, bar of course in the ‘big three’ jurisdictions; Texas, Florida and California.
Beyond the regulatory status of those three states and the broader industry, there is also broad acceptance of the industry among the media and general public. As mentioned a number of times in these columns over the past three years, this is in large part due to the broad and, on the whole, positive (or at least neutral) exposure the sector has received from mainstream sports and business networks. Notwithstanding the recent New York Times exposé.
Within that context, stakeholder calls to increase player protection levels and responsible gambling messaging have rightly been more prominent in recent months. The fact that they have happened so quickly after regulation should also be seen as a positive.
Indeed, likely influenced by what has happened in Europe and the UK in particular, stateside operators and the American Gaming Association will have wanted to avoid the confrontational atmosphere that dominates the debates around gambling reforms on these shores. Getting ahead of the story and addressing player safety issues is one of the best ways of doing this. Of course, all the talk must also be backed by effective action plans to protect players and address problem gambling.
Corporate betting boards
If acceptance levels of the gambling industry are seemingly high in the U.S., at a corporate level the leaderboard seems set for at least the next few years.
The full year results of the leading firms in the space illustrated that state of play as FanDuel, DraftKings and BetMGM made up the leading trio and Caesars, Barstool Sportsbook and BetRivers completed the top six.
With FanDuel, the group’s scale and reach of its revenues were clear. Its parent company Flutter increased 2022 revenues by 27% to £7.69bn, with the U.S. making up £2.6bn of the total and EBITDA losses coming in at £250m. CEO Peter Jackson said FanDuel will be profitable this year and will push on in 2024 and 2025. With market share across the U.S. at close to 50%, it is difficult to see how any of its rivals can catch up with it.
Its nearest rival DraftKings recorded full year 2022 revenues of $2.2bn and EBITDA losses of $722m, but while DraftKings forecast losses of $400m for 2023 and profitability has been scheduled for 2024, FanDuel has said it will be moving into EBITDA profitability from the second half of this year.
That lead time, in every sense of the term, gives Flutter and its U.S. brand ample time to continue building on its lead, which will likely be further consolidated if FanDuel opts for a stateside listing towards the end of the year. Of course Bet Fanatics and bet365 will be two of the newer and more serious contenders to compete in the space, but even the combination of their resources and expertise will be hard pressed to make a serious dent in FanDuel’s dominance.
Give’em what they want
On the product side, sports betting operators will look to continue fueling their growth by generating strong margins on same game parlays, where FanDuel is by some distance the market leader.
Reviewing sports betting during the month of January, the analysts at Wells Fargo once again pointed to the product’s importance as betting handle declined 6% year-on-year and gross gaming revenues increased 7% during the month, “which we believe reflects improved hold/more parlays”, they said.
“In New Jersey, parlay handle mix increased to 25% in January 2023 vs. 20% in January 2022. Looking back to 2022, we believe a portion of the total $93bn in sportsbook handle was inflated by promotions. As promotions have moderated, same-state industry handle growth has also slowed. GGR growth, however, looks to be far surpassing handle growth, reflecting a combination of higher hold and further aided parlays.”
Wells Fargo added that on a same-state basis online sportsbook handle had essentially been flat year over year during the current NFL season as operators pulled back promotional spend, but a greater mix of parlay contributions had created “improved/favorable hold and better/targeted promotions have actually led to significantly higher GGR on a year-on-year basis”.
In some ways the U.S. sports betting industry could be described as being at the midpoint of its young life as operators continue to refine their products, strategies and models; although with such a diverse industry it might be more accurate to say that we are still in an early development stage. Regardless, once the biggest operators have reached profitability in the next 18-24 months, it will be interesting to see how the rest of the field adapts to that stage of industry life. Just don’t ask anyone to find a name for it.