Hello and welcome to this week’s Igaming Focus newsletter.
On the slate this week:
- Sweepstakes were the talk of the town at G2E – as debate raged, the only certainty was that future discussions will be heated.
- NFL Week 6: Results hurt margins, but things are looking up for sportsbooks lower down the order.
- ESPN Bet improving, but product enhancements needed.
- FDJ’s €2.5bn acquisition of Kindred Group, EU markets looking at tax rises.
- News shorts: DraftKings, Kambi-Hard Rock Bet, Brazil blocks 2000 websites.
Sweeper system called into question
Sweepstakes gaming was the talk of G2E as debate and lobbying rage on.
Talk of the town: As the dust settles over G2E 2024 in Las Vegas, analyst takeaways were broadly positive on U.S. online gambling groups’ prospects, but one topic dominated – ‘swept the board’ might be more appropriate (sorry) – discussions and chit-chat during the expo. Indeed, sweepstakes gaming was the talk of Vegas last week.
- Under pressure: Opposition to the format has come from different, but numerous stakeholders. Legal pressure is also rising on sweepstakes operators, with class action lawsuits being launched against Virtual Gaming World, the largest operator in the space.
- Tribe calling the quest: Tribal gaming executives have stressed their dislike for sweepstakes and hosted a webinar yesterday that made it clear that they will go after sweepstakes and fantasy betting companies alike.
- The American Gaming Association also put its weight behind opponents of the vertical and said the model is exploiting ambiguities or loopholes in state gambling laws.
- Pushback: U.S. sweepstakes companies are pushing back against these views and have created the Social and Promotional Gaming Association (SPGA) to promote and educate regulators, operators and industry executives at large.
- Shut out the noise: As part of an SPGA YouTube session hosted by igaming investor and Eilers & Krejcik partner Chris Grove and ex-Penn Interactive director Jon Kaplowitz, who is now chief executive and co-founder of Clubs Poker, Grove reminded viewers that when looking at questions of “what is or isn’t gambling for the purposes of law in the U.S., we are focused on, not how something looks necessarily, but how it actually works.”
- That’s entertainment: When asked, “what are these games if they are not gambling,” Kaplowitz said: “I think they’re entertainment, they’re a way to play with friends online for free… This is really the reason why the social poker market has exploded over the last 15 years, it’s a $7bn industry… and [the products are so popular because] the overwhelming majority of these players will always play for free.”
- Returning to VGW, it decided not to join the SPGA, and presumably assumes it has the scale and funds (it recorded revenues of $1.6bn in 2022) to wage its own lobbying.
- Greener grass: Speaking of VGW’s revenues, one sweepstakes company wondered aloud to CDC Gaming “whether it’s also a case of casino groups looking over the garden fence and feeling frustrated that sweepstake companies have developed a legal and profitable business model that, on the face of it, bears similarities to their own.”
- Filling the void: Despite being opposed so strongly by some stakeholders, sweepstakes may in fact act as an argument for broader icasino regulation in the U.S.
- Jefferies commented post-G2E that “operators and investors wondered whether the rise of sweepstakes could act as a catalyst to kickstart U.S. online casino legalization,” although the Truist team said it did not foresee “much movement around igaming legislation” currently.
(Plenty of) Further reading:
- It’s war: Tribal leaders to go after sweepstakes and DFS operators.
- Chris Grove expressed his views on the topic a month ago.
- Sweepstakes debates reminiscent of the recent DFS 2.0 arguments.
- Could going after payments lead to UIGEA repeat?
- Stakeholder divisions driving lack of online casino regulation.
NFL results hurt margins in Week 6…
… but things are looking up for sportsbooks lower down the order.
No upsets and no surprises: “Nothing goes right for books in Week 6 NFL,” noted the Macquarie team as it calculated NFL hold of just 4% from October 7-13. Results produced no “moneyline upsets or high-scoring games” and “10 out of 15 public favorites covering the spread” hurt bookmakers’ hold levels. With “64% of NFL games going over on the (points) total,” Macquarie said this would be “negative for SGP/prop bet hold rates this week.”
- Rising tiers: Still, the analysts said further to meeting with tier 2/3 sportsbooks at G2E, those operators were “now exceeding expectations” and were “seeing the fruits of improved tech (SGP/prop bet offerings) in higher hold rates.”
- I don’t give a fluc: Companies involved were Caesars Sportsbook, ESPN Bet and BetMGM. Truist noted that Caesars’ buyout of ZeroFlucs was improving its digital product.
- It “allows the platform a much wider range of player prop and parlay options,” which has led to “higher bet frequency/leg count continuing to grind Caesars’ hold rate higher.”
- “Management did not foresee this when it introduced its 2025 $500m+ EBITDA target, and noted there could now be upside to that figure with higher hold.” In addition, with Caesars’ hold at just over 6% in 2023, “every +100bps of hold would translate to $120m of very high flow-through revenue,” added Truist.
- Story got legs: JMP said parlays “generated 4.66 legs on average through the first several weeks of the season, compared to a January to August average of 4.42,” with the increase suggesting that “margins will be a positive data point during upcoming earnings calls.”
- With Q3 earnings season near, “online gaming should act as a tailwind on the back of solid handle/customer acquisition and margins in the quarter.”
- Listen to the beat: JMP said it expects revenue beats for DraftKings (+2%), Rush Street Interactive (+5%) and Caesars (+8%), but not Penn Entertainment (-4%) or Flutter Entertainment (-5%), largely due to the launch delay in New York for Penn and lost market share during the quarter for FanDuel.
- Betting app downloads were up 16% year-on-year in the U.S. and Canada to 744,000 during Week 6 of the NFL season and market share for downloads has been stable in recent weeks, “suggesting that promotional activity has been rational,” added JMP.
ESPN Bet’s good momentum, but product improvements needed
ESPN’s ecogains: The Jefferies team conducted a survey of ESPN Bet’s app and said the key takeaway was that the brand “continues to gain momentum as it successfully converts non-bettors from the ESPN ecosystem” but this will not cause a “significant impact to the current market leaders.”
- Brand driver: The ESPN brand name was a key factor in driving player acquisitions. For “32% of the respondents that use ESPN Bet, 92% placed their first sports wagers on ESPN Bet,” reported Jefferies, and “~50% of the new users joined the platform due to their familiarity with the overarching brand.”
- Volume levels were encouraging and supported continued momentum near-term, but “the breadth of bets and pricing offered by ESPN Bet is narrower and less attractive than DraftKings and FanDuel,” while UX, UI and latency during live betting were still problematic, the survey found.
- Priority #1: ESPN Bet “appears to be growing the overall sports betting market” but as 87% of its users also hold accounts with competitors, product enhancement remains the number one priority for the group, said Jefferies.
French lottery’s giant M&A as European markets face tax hikes
Giant deal: The French lottery giant Française des Jeux has completed its €2.5bn ($2.7bn) acquisition of pan-European online gambling operator Kindred Group. The deal places FDJ among the top European igaming groups and consolidates its third-place position in online sports betting in its French home market.
- Just low enough: FDJ-Kindred now holds 23%, up from around 11%, share of the OSB market in France, just below the level where France’s competition authorities might object to the merger on antitrust grounds.
- Icasino too: Just as important, Kindred, via Unibet but also with its 32Red and Maria Casino brands, runs well-oiled icasino operations in major markets such as the U.K., Belgium, the Netherlands, Spain and Italy.
- However, tax rises also loom in many of those markets and both FDJ and Kindred will not be immune to them.
- Low tax levels: In the U.K., the government is considering increasing taxes on its online gambling companies and as Regulus Partners noted, “the U.K. gambling industry is currently worth c£15bn [c$19.5bn] and pays c£3.4bn in taxes – a 23% blended rate. On a sweeping, cursory or lobby-driven basis it can be seen why this figure can be represented as ‘low’ and potentially even capable of being doubled.”
- However, Regulus added that a c40% tax on Britain’s online gambling sector would lead to a drop in channelisation rates and “profits would be largely or entirely wiped out: U.K.-related operating margins would need to be higher than 20% to stop the tax increase causing operating losses.”
- The news led to sharp drops in gambling companies’ share prices.
Further reading: Steve Webb, the ex-gambling executive lobbying for tax rises.
News shorts
DraftKings continued its betting tech acquisitions with the buyout of Mustard Golf, a B2B supplier of golf betting models and pricing, for an undisclosed amount. The group said the transaction enables it to bring its golf pricing capabilities in-house, giving it a differentiated golf product with expanded offerings and coverage.
Sportsbook provider Kambi will supply its new Odds Feed+ solution to Hard Rock Bet, the multi-state brand of the Hard Rock Digital group. Kambi will provide pre-match and live betting odds and include the risk management services provided by its AI trading division Tzeract.
Brazil has blocked more than 2,000 gambling websites targeting the market that it considers to be unregulated or illegal as part of the government’s preparations for the launch of the regulated market in January. The new regulations require licensed operators to pay a fee of $5.3m to operate legally in Latin America’s largest economy.