Igaming Focus: Sale(s) of the century, but who’s buying?

Hello and welcome to this week’s Igaming Focus newsletter.

On the slate this week:

• Penn Entertainment and Rush Street Interactive are said to be up for sale, but only one seems likely.
• Odds and prices are a balancing act for bookmakers, but it’s difficult to see how the chasing pack with catch up with the top two sports betting brands.
• The illegal market is often dismissed as a ‘bogeyman’ by regulators and anti-gambling opponents, but there is no doubt of its impact.
• News shorts: Dutch regulator opens iGB Live Amsterdam, NJ revenues, impact of Labour’s landslide victory on UK gambling.

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Sale(s) of the century, but who’s buying? 

Rush Street Interactive and Penn Entertainment are said to be looking to sell up, but any exits would still require lots of work, especially for Penn.

Talking shop: Rush Street Interactive and Penn Entertainment are said to be gearing for imminent sales, although the exact shapes of the deals pertaining to each group remain uncertain. Corporate developments relating to RSI are not surprising. The company has developed a strong online casino-focused business and in its home state of Illinois has succeeded in becoming a top three sports betting operator.

• RSI on the rise: Still, reports that RSI could sell up have been present since 2021 and re-emerged in March. This week media reports said it could be sold by the start of the new NFL season.
• The likes of BetMGM and Caesars could be interested in acquiring RSI to boost their icasino market shares and for the latter to reach its $500m EDITDA target.
• Long trail: Penn Entertainment-related news has been fully trailed by business and trade media over the past month, but recent discussions with investment sources raised more questions as to its likelihood.
• Quick recap: The reason for Penn for being talked about as an acquisition target related to its poorly performing online activities in the U.S., which have led activist investors to lobby for a sale of the group, with Boyd Gaming emerging as a potential acquirer, having reportedly bid $9bn for the group in June.
• The pressure on Penn has been compounded by this week’s news that it is reducing its headcount, including at ESPN Bet.
• That offer was rejected by Penn and news then emerged that Flutter Entertainment might put forward a joint bid for Penn, with the FanDuel parent company acquiring Penn’s ESPN Bet while Boyd took over its regional casino properties.
• Great theory: On a theoretical level, Boyd bidding for Penn’s regional properties and Flutter acquiring the digital outlets made sense, but that initial thesis quickly fell apart when looking at ESPN Bet’s numbers, which, for all theScore Bet’s prowess in Canada, don’t look strong enough to move the dial for Flutter.
• As Eilers & Krejcik Gaming commented, on top of having average market share of just 6%, ESPN Bet’s “ARPMUP (is) just ~$27 in 1Q24, less than a quarter of FanDuel’s $120” (see visual below). An acquisition by Flutter would also be made even more complicated by issues like changing tech stacks or the (major) marketing commitments Penn has undertaken with ESPN. Eilers & Krejcik added that an acquisition of ESPN Bet would not be worth it for Flutter “given FanDuel’s market-leading positioning in U.S. online gambling”.
• All the Penn-related news had the required effect when it came to creating noise, which is what the activist investors would have been looking for. But when it comes to actionable bids, those seem unlikely in the near term.

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Balancing act

Getting the balance right is probably the hardest thing to achieve for online sports betting operators when they pitch their offers to potential customers.

One way or another: Proposing highly attractive odds to punters will drive signups, but also come with low margins and big liabilities, while low/tight prices will drive customers to competing brands and lead to highly aggressive marketing tactics to monetize signups.

• In a recent note, the analysts at Truist Securities delved into bookmakers’ pricing and odds, and evaluating how market leaders FanDuel and DraftKings’ odds might address Illinois’ recent tax hike, said those operators “could potentially offer worse odds/prices (higher vig) to customers to offset higher taxes, opening the door for rival sportsbooks to take share by offering better odds”.
• But looking at the respective gross win market shares of the top six sportsbooks in the past 12 months, it is hard to tell where the brands outside the top two can really compete.

• From the bottom up: Truist said DraftKings’ less generous odds have helped its drive to profitability and the chasing brands have also moved closer to the top two, but the reality is that this has barely moved the dial for them in terms of market share and BetMGM and Caesars Sportsbook have been losing share to newer entrants such as Bet365 and Fanatics.
• While most observers expected the U.S. market to be highly competitive, the reality is that the top two brands enjoy 75% GGR share and the top four account for 85% of the market. At this rate it is difficult to see what might alter that landscape.

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Specter of illegal market continues to loom for regulated operators 

Moanin’ n’ a-groanin’: A recent statement by France’s online gambling trade body AFJEL bemoaned the fact that the just-completed UEFA Euro 2024 soccer tournament had massively under-performed for dot fr licensed operators and blamed illegal operators targeting France, and – by implication – the authorities for not doing more to prevent those unregulated operators from accessing the market.

• AFJEL’s statement mirrors that of many other trade groups, including the American Gaming Association, which often raise the issue of illegal operators as a major threat to their businesses, but it does have a point.
• France has not regulated online casino, and this has given rise to an illegal market worth nearly €2bn, and while illegal online sports betting is not understood to be as substantial, it is still sizable and profitable enough for unregulated sportsbooks to target France.
• Dismissal setting: Regulators and other stakeholders often dismiss mention of the threat of the illegal market as mere lobbying by the industry, but the reality is that restrictive regulations have a major impact on the legal market. For example, Germany has highly restrictive product and deposit limits and the channelisation rate for licensed operators there is said to be as low as 49%.
• Talk it up: How much of that is 100% accurate is hard to ascertain, but speaking to some of the biggest unlicensed operators and suppliers that work in those countries at this week’s iGB Live in Amsterdam, they are not shy in talking up their activities in many of the largest regulated European markets.
• French exception: Meanwhile, AFJEL’s data was confirmed by affiliates working in the country. They told CDC Gaming that their other regulated markets performed strongly during the Euros, apart from France.
• Politics weighing heavy: The illegal market might be one explanation for French operators’ poor performance, but with the country having gone through traumatic elections, one industry contact said, “the atmosphere was so tense and unpleasant that French people spent more time being angry and literally forgot about sports betting”.

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News shorts 

Pirates: Illegal markets were a key theme at this week’s iGB Live event, as Michel Groothuizen, the new chairman of the Netherlands’ gambling authority Kansspelautoriteit, opened the event. He called illegal operators “pirates of the industry” who don’t “shy away from anything” and said KSA requires greater advocacy and powers to tackle black market operators.

New Jersey’s sports betting handle rose 26.6% YoY to $748.4m in June. Post-PASPA the state continues to lead all other states in commercial wagering at $52.4bn, but June revenue was down 9.5% YoY at $60m.

How will the UK Labour party’s landslide election victory impact the country’s gambling industry?

See you in two weeks!