U.K. Sportsbooks Agree to “Whistle to Whistle” Ban on T.V. Betting Advertisements

RGA

The Remote Gambling Association announced its members have agreed (under political pressure) to abide by a “whistle to whistle” ban on television betting advertisements during live sporting events (save horse racing), that begin prior to the 9p watershed hour. The 35-member collective made the difficult, but necessary, decision in a pre-emptive attempt to stave off industry crippling government legislation (see: Italy). British authorities (along with the public) have become concerned with the onslaught of betting adverts during sporting events, as the number of problem gambling cases continues to rise (to 430,000) within the United Kingdom. The ban is expected to go into effect prior to the start of the ’19-’20 football season.

Howie Long-Short: Expect all of this (advertising crisis, problem gambling, public outrage, restrictions on gambling adverts) to play out in the U.S. too, as the availability of sports betting expands. There’s far too much money at stake and far too little corporate restraint to otherwise prevent it.

Many suspect the ban will result in an earnings decline for Europe’s largest gaming companies, which is why Ladbrokes (GMVHF), Paddy Power (PDYPY) and William Hill (WIMHY) are down -10.5%, -8% and -7% since the news was reported on 12.6, but I believe the market is overreacting; gaming companies spend 5x the amount on online advertising as they do on television ads and will simply re-allocate their resources accordingly. Until the ban includes shirt sponsorships, stadium naming rights agreements and digital advertisements visible on television, fan behaviors seem unlikely to change.

95% of the English soccer matches during the 2017 season had advertisements for gaming companies, so many assume a whistle to whistle ban means “tens of millions in lost revenue” for broadcasters like Sky and BT Sport; but this is English soccer, both companies will find there are no shortage of advertisers interested in the valuable spots (and Sky had already announced plans to limit in-game sports betting ads anyway). If there’s a real concern for broadcasters, it’s the possibility that the ban could cause the value of future television contracts to “fall dramatically”.

Chris Lencheski is an experienced global sports, media, and private equity executive with c-suite stops at Comcast-Spectacor, TPG Specialty Lending, IRG Sports and Entertainment, SKI & Company and currently an adjunct professor at Columbia University. I asked Chris, if a decline in media rights values is on the horizon or if the broadcasters are simply posturing as the measure still requires ratification from Industry Group for Responsible Gambling?

Chris: I don’t think that the media rights are going to go down any time soon – and we’re talking Premier League here – by the RGA self-administering a ban on adverts on television. If you’re suggesting the broadcasters are posturing, I would say they’re closer to doing that than they are truly panicked because nearly 80 percent of the current ad-mix budget for these gaming organizations across Europe is sitting on social and digital; and it’s not just in football, but in Formula One, Rugby and Handball too. Putting it in perspective, it (the ban) only amounts to about 15% of the tv adverts and there’s plenty of available opportunity to bring in new partners or to extend with current ones in both real-time television coverage and in virtual television coverage.

Fan Marino: While on the international soccer kick (pun intended), Barcelona announced it won’t be traveling to Miami (as planned) for La Liga’s first game on U.S. soil. The match against Girona, scheduled to be played Jan. 27, 2019 in Miami, is off (at least temporarily) as the clubs failed to gain the support of the Spanish Football Association, FIFA or UEFA; Reuters has since reported that the game could be played in North America late next year. Back in August, La Liga announced plans to play at least one game/year in the United States, after agreeing to a 15-year agreement with Relevant Sports to promote the league in country.

I should mention that horse racing is exempt from the RGA ban due to the sports’ reliance on the participation of sports bettors.

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U.K. Sportsbooks Exploring Self-Regulation to Stave Off Crippling Government Legislation

RGA

The board of the Remote Gambling Association (European trade organization) will meet later today to discuss self-regulation, a pre-emptive attempt to stave off industry crippling Government legislation within the U.K. The proliferation of mobile/digital gambling has spurred an onslaught of sports betting advertisements during sporting events, with bookmakers aggressively competing for market share. Bans on pre-watershed (see: prior to 9p) advertising and in-play ads, and a hard limit on the number of gambling ads permitted within a single commercial break (1) are amongst the most solutions that will be explored. The meeting is not expected to produce a consensus on recommended changes to the industry’s voluntary advertising code.

Howie Long-Short: The implementation of (or change to) any bylaw(s) restricting Remote Gambling Association member advertising would have widespread impact on the industry. Their membership base includes some of Europe’s largest gaming companies including; Bet365, Ladbrokes (GMVHF), Paddy Power (PDYPY) and William Hill (WIMHY).

While the focus of the annual meeting (i.e. this was not called as an emergency summit) indicates that European bookmakers understand what’s at stake (see: Italian ban on all gambling advertising), with membership divided on corporate social responsibility it’s likely that only Government regulation (or broadcaster intervention) can curb the volume and frequency of sports betting ads. That’s because unanimous participation (35 member companies) is unlikely and no one is willing to operate at a competitive disadvantage (i.e. if one continues as is, they all will). Expect this exact scenario to playout in the U.S. as the availability of sports betting expands, there’s far too much money at stake and far too little corporate restraint.

If the gaming companies won’t self-govern, perhaps the media companies selling the spots will follow Sky’s (SKYAY) lead and do it for them. SKYAY announced that beginning with the ’19-’20 season it will limit gambling ads per commercial break (1 spot/per) and as of June 2020, the company will offer technology that enables viewers to avoid gambling advertising all together. While it’s been estimated that the company earns +/- $262 million in advertising money from licensed sportsbooks and some suspect a “self-imposed limitation will cost it tens of millions in lost revenue”, I think the loss will be negligible; SKYAY will find another advertiser to take the valuable slot (remember: this is English soccer, no shortage of demand) and increase the price of their now more limited gambling inventory.

Fan Marino: Howie referenced the U.S. gambling market, so it would seem like an opportune time to mention that New Jersey issued its October sports betting report. The state’s gamblers bet 41% ($260 million) more last month than they did in September, but only took in half the revenue ($11.7 million). Why? The public side came in “at a heavier than average clip” (on NFL games) and both MLB and World Series futures were paid out during the month. DraftKings (+ Betstars NJ) once again took in more revenue ($5 million+) than any other licensee in the state, as online/mobile platforms outperformed retail sportsbooks; +/- 2/3 ($175 million) of the state’s October handle originated from a computer or handheld device.

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NJ Sports Betting Licensees Report “Stunning” September Handle, Revenue

New Jersey

The New Jersey Division of Gaming Enforcement reported that the state’s 8 licensed sportsbooks took in a “stunning” (depending on who you ask) $183.9 million in bets during the month of September, nearly double (+92%) the amount wagered in August; the start of the NFL season ($90 million wagered on league games) and the launch of several new mobile sportsbooks (see: Caesers/Bally’s, Paddy Power/FanDuel, SugarHouse/Golden Nugget) are responsible for driving the growth. Online/mobile wagering has already surpassed the state’s retail business, as 56.5% ($104 million) of all sports bets placed were made through those channels. The $23.9 million (+166% MoM) held by the state’s bookmakers, after bets were paid out (except for futures), represented just shy of 8% of the total handle. The state was entitled to keep $2.6 million in tax revenue from sports betting operations.

Howie Long-Short: DraftKings and FanDuel sportsbooks are taking in 2/3 of all New Jersey sports betting revenue and nearly 90% of all the revenue generated from online/mobile applications. Resorts Digital (DraftKings’ license holder, privately held) reported 35% ($8.5 million) of the state’s Sept. revenue, while competitor Paddy Power (FanDuel’s license holder, PDYPY) posted 30% ($7.2 million); no other licensee did more than 10.5%. It’s worth noting that while most DraftKings revenue comes from its online/mobile applications, just 39% ($2.8 million) of FanDuel’s comes from those channels; the majority of their revenue ($4.4 million) comes from their Meadowlands retail location.

As for the state’s other retail locations, The Borgata (a MGM Resorts International property) reported the most sports betting revenue ($2.39 million) amongst all land based casinos; while the William Hill (WIMHY) sportsbook at Monmouth Park racetrack kept $2.2 million, up from $900K in August (+144%).

Fan Marino: Expect October’s handle to exceed September’s strong result. In addition to a full slate of NFL and CFB games (as we had in September), the MLB postseason began on October 1st, the NHL season started on October 3rd and the NBA season will get started this evening.

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DraftKings, FanDuel Generate 2/3 of NJ’s August Sports Betting Revenue Total

draftkings-fanduel

The New Jersey Division of Gaming Enforcement reported that the state generated $9.2 million in gross revenue, on a total handle of $95.6 million, during the month of August. DraftKings Sportsbook ($2.97 million) and FanDuel Sportsbook ($3.06 million) each accounted for roughly a 1/3 of the state’s monthly gross revenue total. The FanDuel Sportsbook at the Meadowlands was the state’s most profitable retail location, generating more than 3x the revenue Monmouth Park ($898,000) reported. DraftKings accounted for +/- 95% of the state’s mobile sports betting revenue.

Howie Long-Short: If you consider that $95.6 million was wagered in a month with just one week of college football, no NFL action and just a single mobile app (there’s now 7) live for the month’s entirety (and it was a soft launch until 8.6), it’s reasonable to expect the state’s handle to push $250 million in September.

Extrapolate the $6 million+ DraftKings Sportsbook and FanDuel Sportsbook earned in August by 30 states and those 2 companies alone could do $180 million/month in sports betting revenue by 2021; or +/- half of all annual DFS revenues worldwide. Of course, state populations and regulations ensure they won’t all generate equal revenues.

New Jersey sports bettors are getting wiser (and the lines are getting more competitive). Sportsbooks within the state saw their win percentage decline from 15% in July to 9.6% in August.

Fan Marino: On Sunday afternoon, DraftKings x Thuzio held a “Kickoff Bash” to celebrate the start of the NFL season and the launch of the DraftKings Sportsbook in Hoboken, NJ. Nick Mangold, Tiki Barber, Brandon Jacobs and WFAN host Mike Francesa were on hand to watch the games, take pictures and sign autographs. JohnWallStreet had the chance to catch up with Ezra Kucharz (Chief Business Officer, DraftKings) to ask a few questions about the company’s relationship with Buffalo Wild Wings, the prospect of Super Bowl squares and why DraftKings shouldn’t be valued as a sportsbook.

JWS: CEO Jason Robins recently spoke about capturing the underground gambling business (think: March Madness brackets, Super Bowl squares). Can we expect to see the DraftKings Sportsbook selling squares for Super Bowl LIII?

Ezra: We’re going to be responding to what the fans want. If fans want brackets and squares, they’re going to see brackets and squares. Yes, we intend to sell squares for February’s Super Bowl; Jason (Robins) talked about that last week at TechCrunch.

JWS: Jason was also recently quoted saying it was his belief that the company would hold a $10 billion valuation if 30 states were to legalize sports betting. To do that, the company would have to generate $770 million in earnings (if you used a 13x multiple). Is that a reasonable target to hit within 3 years?

Ezra: As it relates to valuation metrics, we’re not a sportsbook. We’re a technology company that does sports and entertainment. We happen to do games and now have sportsbook as one of our components, so our valuation metrics are going to be different than a traditional sportsbook.

JWS: FanDuel has the Meadowlands (a high traffic destination). DraftKings recently signed a partnership with a casino in Waterloo, NY (a low traffic destination). Is it fair to say that DraftKings is focused on the mobile/online sportsbook business as opposed to the retail business?

Ezra: We’re going to be driven by what the consumer and fans want and what they’ve resoundingly said is they want an online mobile sportsbook. Right now in New Jersey, if you want to make a wager, you can drive to the Meadowlands or to Monmouth racetrack, right? Or you can sit on your couch, take out your phone, download an app and gamble from your couch. You’ll see us do some things in retail, but we’re taking our time to figure that out.

JWS: While on the topic of retail, Buffalo Wild Wings (BWW) had made headlines about wanting to get into the sports betting business. DraftKings has a DFS partnership with BWW. Has the company had any discussions with BWW about a partnership on the sports betting side?

Ezra: No, we’re focused on fantasy sports with them right now. I think it’s premature, you know, I think everybody wants to see where it’s going to roll out and how it rolls out.

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West Virginia Set to Become 5th State to Offer Legalized Sports Betting

WV

West Virginia will become the 5th state (NV, DE, NJ, MS) to offer legalized sports betting when the sportsbook at Hollywood Casino at Charles Town Races open on September 1st. It appears as if Hollywood Casino at Charles Town Races will be the only sportsbook in operation for the start of college football season (Sept. 1); The Greenbrier, Mardi Gras Casino and Wheeling Island Casino have yet to announce when their sportsbooks will open. Interestingly, the WV sports betting bill became law without the Governor’s signature; Jim Justice insisted the law include an integrity fee for the leagues, 2 of which hold training camps at his family’s The Greenbrier property.

Howie Long-Short: Hollywood Casino is owned and operated by Penn National (PENN), William Hill (WIMHY) will set to run the sportsbook there. As noted, The Greenbrier is family owned; FanDuel (PDYPY) will run their sportsbook operations. Those 2 venues expect to do well with fans from “Virginia, Maryland and Washington D.C.” all likely to make the short drive without legalized sports betting closer to home.

Mardi Gras Casino (Charleston) and Wheeling Island Casino (Wheeling) are under the control of privately-held Delaware North. Wheeling’s location puts it in position to pull out of state clientele from Pennsylvania and Ohio.

Fan Marino: The Action Network CEO Noah Szubski made headlines late last week for proclaiming his company was sitting on a billion-dollar business model, saying, “if I have 8 million qualified users spread around the country and each one can legally bet through a book and there’s an affiliate fee and a percentage of lifetime money, that’s the billion-dollar business.” Sure, except The Action Network’s value proposition is providing content that, in theory, makes bettors more likely to cash in. Why would a casino pay an affiliate fee to acquire a +$ bettor? Szubski may also want to “see the international online gambling market for a clearer sense of how operators define [lifetime] when it comes to affiliate revenue share (spoiler: it’s not lifetime).” – Chris Grove –  gambling industry analyst, Eilers & Krejcik Gaming.

There’s another issue with Szubski’s theory. Sportsbooks in Europe have been refusing to take bets from intelligent bettors and are placing betting limits on others. Once a gambler starts winning, the sportsbook shuts them down; that practice won’t help The Action Network subscriber retention rates and if U.S. sportsbooks are going to use betting limits on heavily restrict sharp money, The Action Network is going to be taking its percentage from a much smaller pie.

Wondering which book has the worst reputation among sports bettors for refusing to take bets? William Hill. One pro sports bettor interviewed by ESPN (among 20 U.S. gamblers banned by the company) said, “they’re by far the worst”. That would be music to my ears, if I’m a William Hill shareholder. It’s worth mentioning that most states do not have laws preventing a casino from turning away a skilled bettor.

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FanDuel Wins July Leg of NJ Sports Betting Race, Mobile App on Deck

FanDuel

New Jersey’s 5 licensed sports-betting operators shared $3.8 million in total revenue during the month of July, the slowest month on the sporting calendar. The FanDuel branded sportsbook at the Meadowlands generated more revenue ($1.3 million, 34%) than any other NJ sportsbook, despite having only been open for 17 days; Ocean Resort Casino was the only other sportsbook in the state to clear $1 million for the month. It should be noted that Monmouth Park, which generated the most revenue during the month of June, experienced a -60% MoM decline in sports betting revenue as the competition has stiffened (see: Meadowlands, DraftKings). 

Howie Long-Short: FanDuel took in more revenue than anyone else in July, but that’s unlikely to be the case in August now that the competition is armed with a mobile app. FanDuel hopes to have their mobile sportsbook (website & mobile app) operational in time for the start of football season. Last month it was announced that FanDuel’s sports betting software will be powered by GAN, a B2B gaming software supplier; IGT technology will continue to power the FanDuel sportsbook at the Meadowlands.

It’s curious that DraftKings is the only sportsbook to have released (on Aug. 1) a mobile sports betting application (outside NV) to date. That will change this fall when MGM Resorts International (playMGM), Caesars Entertainment (Caesers Casino & Sports app) and Resorts Atlantic City introduce their mobile sportsbooks within the state.

West Virginia is getting closer to introducing legalized sports betting and when they do, FanDuel will be a part of it; the company (along with Penn National) was awarded one of the state’s first 2 sports betting permits. FanDuel intends on offering retail, online and mobile sports betting at The Greenbrier.

As for Paddy Power Betfair (PDYPY), the company recently reported a +5% rise in H1 revenue as both its online gaming and sports verticals experienced double-digit growth in Q2 (on albeit soft comps). It wasn’t enough to please investors, shares are down -14% from the close on August 7th (earnings were released on 8th).

Fan Marino: 4 FanDuel’s founders (including former CEO Nigel Eccles) have filed a $120 million lawsuit against the company for “unfair prejudicial conduct” after failing to profit on its $465 million merger with Paddy Power Betfair; a deal that delivered no value to ordinary shareholders (held by most employees), but +/- $30 million to 6 current C-Level executives. Sounds fair.

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Mississippi Becomes 4th State to Offer Legalized Sports Betting, William Hill Partners with 11 MS Casinos

Seal of Mississippi

Mississippi became the 4th state (NV, NJ, DE) to offer legalized sports betting on Wednesday August 1st, with the opening of sportsbooks at the Beau Rivage Casino in Biloxi and Gold Strike Casino in Tunica; properties owned by MGM Resorts International. The newly passed legislation allows for sports fans in the state to place bets on individual sporting events at land or water-based “legal gambling establishments” (i.e. casinos). MS sports bettors who wish to place in-game bets will be forced to visit their local casino as mobile betting will be restricted to those on the casino’s physical premises.

Howie Long-Short: Mississippi Rep. Richard Bennett believes legalized gambling will be a boon to the state’s tourism business declaring, “Mississippi welcomes you. We hope you’ll come, wager on sports betting and see what we have to offer in the Hospitality State”; and he just might be on to something. No other state in the deep South offers legalized sports betting and neighboring Alabama is responsible for more illegal college football bets per capita than any state. Wondering how long will this advantage last? According to Dustin Gouker of LegalSportsReport.com, Mississippi’s advantage (see: no competition) is likely to last “at least a year and feasibly longer”; with Louisiana, Tennessee and Kentucky the states most likely to join the party first.

In addition to MGM, Boyd Gaming (BYD) and Caesars Entertainment (CZR) both own gaming properties in MS. Speaking of BYD, just 2 days after the company announced a market access agreement with MGM Resorts International (MGM), BYD revealed it had aligned with FanDuel Group (PDYPY) to run online and mobile sportsbook operations in the U.S. FanDuel technology will power Boyd Gaming branded online and mobile sportsbook operations, while FanDuel Group will leverage BYD’s 15 state licenses (36% of population) to operate FanDuel branded online and mobile sports betting services in those states; the deal extends to MGM properties in states where mobile sports betting is authorized.

Fan MarinoMGM got out of the gate first in MS, but William Hill has made the greatest inroads, announcing partnership agreements with 11 MS casinos (and another West Virginia). WIMHY, which now operates in all 4 states that offer legalized sports betting, has no intentions of slowing down either; in fact, they recently stated their intentions to add gaming partners in 14 more states, Rhode Island being one of them. The company will offer “operational expertise, risk management and trading data” to support IGT, should their bid be selected in the Ocean State; IGT was the only company to submit a bid to provide sports betting within RI.

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NJ Sportsbooks Post $1.2 Million in June Profits, Meadowlands Sportsbook Opens Tomorrow

FanDuel

The Division of Gaming Enforcement reported that New Jersey sportsbooks took in more than $16.4 million in bets between June 14th-30th, realizing +/- $1.2 million in “clean revenue” (+/-$3.5 million total) over the 17-day span; an impressive figure considering the limited rollout (see Howie below), no mobile/online wagering (due to start July 11th) and just over 2 weeks of operations. The remainder of the +/-$3.5 million revenue total ($2.25 million) accounts for futures bets that have yet to be paid out and winning tickets unclaimed as of June 30th. For comparison purposes, NJ took in over 2x as much money in bets as Delaware ($7 million) did in June – in 3 fewer days.

Howie Long-Short: +/-$1.2 million in “clean revenue” equates to a 7.8% hold, higher than the 5.5% Nevada has averaged dating back to ’92, but significantly below the 14% Delaware reported in June. As Dustin Gouker, Managing Editor of Legal Sports Report, told us earlier in the week, “it’s too early to read too much into the hold. It’s a small sample size and it may simply be lots of bettors that are not terribly savvy, trying to figure out wagering.”

Monmouth Park, operated by William Hill (WIMHY), was responsible for 65% ($2.279 million) of the revenue generated at N.J. sports books in June. The Borgata in Atlantic City brought in just shy of $1 million in profits (28.5%), while Ocean City Resort ($192,000) earned the balance in just 3 days.

The State of New Jersey took in less than $300,000 in taxes, with a land-based casino tax rate of 8.5%; prorated that’s $7.2 million/year. While that figure sounds low (some lawmakers have estimated the state would generate $100 million/annually), consider that just 3 of the state’s 12 potential licensees (9 casinos, 3 horse tracks) are currently operating. Furthermore, licensed operators will soon be able to offer mobile/online betting. It’s expected that “as the market matures”, most of the revenue will come those channels; the state is entitled to a 14.25% tax on those profits.

Fan Marino: The FanDuel Sportsbook at Victory Sports Bar & Club, located at the Meadowlands Racetrack, is holding a soft launch tomorrow morning (July 14th, at 11a). The property should quickly become the state’s most profitable sportsbook, with 15 million people living within 20 miles of the venue and no real competition expected before the end of March Madness ‘19. Remember, Irish bookmaker Paddy Power Betfair (PDYPYacquired majority ownership (61%, grows to 100% in 5 years) in FanDuel back in May; the deal closed earlier this week.

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NJ Becomes 3rd State to Legalize Sports Betting, Betfair U.S. Partners with Meadowlands Racetrack

Paddy-Betfair 200X200

Governor Phil Murphy signed legislation that will allow New Jersey’s 9 casinos and 3 racetracks to take wagers on individual sporting events beginning this Thursday. Gamblers 21 and over will be able to place wagers on a variety of professional and college sporting events, though betting on games involving local college teams (think: Seton Hall, Rutgers) and college games played within the state is prohibited. Initially, wagers will have to be placed in person; though, mobile betting is covered by the bill and will commence in the future (requires licensees to wait 30 days). The William Hill (WIMHY) sportsbook at Monmouth Park Racetrack will begin taking bets at 10:30a on Thursday, just in time for the start of the World Cup later that afternoon. New Jersey becomes just the third state to offer legalized sports betting, following Nevada and Delaware.

Howie Long-Short: Another one of New Jersey’s racetracks, the Meadowlands Racetrack, has found a sports betting partner in Betfair U.S. (subsidiary of Paddy Power Betfair, PDYPY). PDYPY revealed it has signed “long-term agreements for retail and online/mobile sports betting” with the North Jersey track (and Tioga Downs in New York); they plan to begin taking bets later this summer. The news comes just two weeks after the company announced it would be acquiring FanDuel, with the intention of converting their 1.3 million DFS players into true sports bettors. It’s expected that Betfair will brand their U.S. sportsbooks as FanDuel sportsbooks. PDYPY shares are up 11% (to $58.35) since word of the deal first broke on May 15th.

Fan Marino: Monmouth Park officials aren’t satisfied with SCOTUS’ decision to overturn PASPA, they’re now pursuing remuneration for damages caused by the pro sports leagues and the NCAA. The New Jersey Thoroughbred Horsemen’s Association (leases Monmouth Park) claims “the leagues acted in bad faith” fighting them in court, while simultaneously profiting from DFS and authorizing the relocation of several franchises to Las Vegas (nullifying the integrity argument). They’re pursuing +/- $150 million in “revenues we would have had” (from sports betting), between the period of October 2014 – June 2018, had the leagues not opposed their efforts. It must be noted that neither Delaware nor New Jersey included an integrity fee for the leagues in their sports betting legislation.

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