Igaming Focus: Press wars and anti-gambling backlash

November 22, 2022 11:12 AM
  • Jake Pollard, CDC Gaming Reports
November 22, 2022 11:12 AM
  • Jake Pollard, CDC Gaming Reports

Recent articles by the New York Times on U.S. online sports betting were highly negative, but not surprising. The industry should expect more of the same and ensure it acts with utmost probity at all times.     

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The tone and pitch of a series of articles by the New York Times on how sports betting has become widely regulated in the U.S. in recent years has caused a strong backlash from industry executives. 

The articles were published over the past weekend and David Briggs, CEO of the geo-compliance firm GeoComply, wrote a Linkedin post criticizing the Times’s “dogged determination to write the story that fits the headline”. 

Referencing the same NYT article, Michael Pollock, managing director of the consultancy Spectrum Gaming Group, expressed his anger at how the newspaper had “inaccurately and unfairly quoted” the company’s executive vice-president, Joe Weinert. 

The American Gaming Association also expressed its disappointment at the “mischaracterizations in the Times’ recent reporting on the legal sports betting industry”. 

The Times ran articles on how the industry has struck a number of partnerships with universities to advertise its products to students and how state authorities have been unprepared in how to respond to cases of gambling addiction.

The newspaper also did not hold back in its description of Barstool Sports founder Dave Portnoy. Describing how Penn Entertainment was desperate to acquire the up-and-coming sports betting/media platform in 2019 to broaden its appeal to a young sports audience, the Times described Portnoy as “misogynistic” and a “degenerate gambler”

Back to backlash 

The articles were part of a special investigation on the industry the newspaper had been putting together for the past few weeks. But as a number of observers commented on social media, the main surprise was how long it has taken for the anti-gambling backlash to come through on mainstream U.S. outlets. 

The reports contained many issues that could have been argued over. Briggs, for example, picked out how the $410m operators had so far paid in “BRAND NEW TAX INCOME” (his capitals) was described as “$150 million below the $560 million” they promised when they were lobbying state legislators. 

Other aspects of the reporting this observer found troubling was the way lobbying was made to sound shady, rather than the day-to-day grind that it is most of the time. Statements about how “hundreds of thousands of people developed gambling addictions” in the UK without referencing official data sources were also problematic, because in the same article the Times then criticizes the industry for managing “to scare state lawmakers” about “a sprawling underworld of illegal gambling” worth $400bn, a figure that it describes as “unreliable”.  

Contagion fears 

However, for all the hand-wringing from the industry, it is true that the tax takes are not as high as lobbyists promised, and while it can bemoan the fact that commercial viability will only be available to a very small group of highly-capitalized large scale operators, that is what it signed up to, thanks in large part to its lobbying efforts.

With regard to taxes, however, one aspect that must concern operators is whether the $545m in tax revenues New York recorded with its 51% tax rate, the highest of all regulated states, will influence others into increasing their own low levels of taxation. 

Beyond such speculation, it is clear the U.S. industry will have to deal with more attacks and special reports such as those published by the New York Times. Operators and the AGA know this; in the meantime, stakeholders must ensure they don’t repeat the mistakes made by their UK counterparts over the past 20 years. 

FanDuel: beyond scale 

Scale is often mentioned as such an important component of online sports betting in the U.S. that it is easy to forget other factors such as timelines and deep seated experience. 

The capital markets day Flutter Entertainment’s FanDuel held in New York last week was testament to this as senior executives extolled the benefits of the group’s size. They also emphasized how all the years’ worth of knowledge and bookmaking experience were playing decisive roles in enabling it to lead the market.

CEO Amy Howe said the group’s ability to produce 90% of its own odds and markets in house played a key role in it being able to be the first book to roll out the high margin-generating same game parlays. In addition, its ability to recruit high level executives such as its head of trading Conor Farren in 2018 from Flutter’s Australian book Sportsbet meant the combination of experience and scale was “impossible to recreate” for any competitor trying to go toe-to-toe with FanDuel. 

For all the talk of scale and knowledge, one key statistic that also stood out from FanDuel’s presentation was when CFO David Jennings said the company’s cost of sales as a percentage of its net gaming revenues was in the range of  47.5%-52.5%. 

By comparison, its nearest rival DraftKings’ cost of revenue for the last 12 months stood at 67% of revenue, which was up from 61% in the prior year. In other words, it costs DraftKings 20% more to produce its revenues. 

More generally, FanDuel’s pursuants will all need to work out the cost/revenue equation if they want to reach group profitability in the next 12-18 months and maintain their challenges for the top spots in the market.