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State of the Union: US Sports Betting Update – DraftKings and Caesars Deal Makes Great Sense for Both Parties

DraftKings has tied up a landmark deal with Caesars Entertainment as it bids to emerge as the market leader in the nascent US sports betting industry. The partnership will give DraftKings the opportunity to launch retail sportsbooks at a number of Caesars properties spread across the country. It will also be able to run online sports betting services on the licences of those casinos. In return, Caesars will receive an undisclosed equity stake in DraftKings and take a cut of its sports betting revenues in states where the partnership is in force.

The deal makes a great deal of sense for both parties. DraftKings became renowned as a daily fantasy sports operator when sports wagering was illegal in every US state apart from Nevada. When the Supreme Court struck down PASPA in May 2018 it quickly turned its attentions to sports betting and it became the first to market in New Jersey. Since then it has held onto the number one spot in revenues in the Garden State, but FanDuel is hot on its heels.

FanDuel was always DraftKings’ great rival in the DFS industry, and it is now owned by bookmaking giant Paddy Power Betfair. That gives FanDuel a great deal of commercial backing and expertise as it seeks to carve out a growing share of the US sports wagering market. By linking up with Caesars, DraftKings instantly becomes a lot less isolated in what is turning into a ferociously competitive sector.

Hail, Caesar!

Caesars is one of the world’s largest casino operators, with a portfolio that includes Bally’s, Harrah’s, Horseshoe and the eponymous Caesars brand, plus big Las Vegas icons such as Flamingo, Paris and Planet Hollywood. It is also one of the most geographically diverse. It has dozens of casinos spread across 14 states, four of which already permit sports betting: New Jersey, Nevada, Mississippi and Pennsylvania. DraftKings is already operating in New Jersey and Mississippi, but it will now have a clear route to market in states like Illinois, Arizona, North Carolina, Louisiana, Indiana, Iowa, Missouri and California if and when they permit sports betting.

Despite its commercial might and expertise in the gambling sector, Caesars has struggled to capture market share in the budding sports betting market. In New Jersey in January, the Harrah’s retail sportsbook in Atlantic City made revenue of just $20,615, while Caesars’ digital sportsbook took in revenue of around $100,000. Meanwhile, DraftKings made online revenue of more than $6 million during the month, showing the value of the brand recognition it built up during the glory days of DFS.

“Caesars’ agreement with DraftKings, their first multi-state partnership, brings together the established leaders in gaming, daily fantasy sports and sports betting to provide customers more options,” said Mark Frissora, president and chief executive at Caesars. “This alliance is the latest initiative by Caesars to capitalize on our database, generate a new revenue stream in a growth market and raise our profile in sports, in part by creating new sports-themed guest experiences at our resorts across the country.”

It gives Caesars a much firmer footing in the sports betting industry, and it will benefit from DraftKings promoting it as its official casino resort partner. However, Caesars plans to continue running its own branded sportsbooks across the US, and it could gain valuable insight from DraftKings as it bids to enjoy similar growth. Jason Robbins, the chief executive and co-founder of DraftKings, added that partnering with a “world class gaming organization” like Caesars will “expedite” its national expansion drive. He is also looking forward to reaping the benefits of partnering with an industry leader and collaborating on “the most innovative and engaging sports and entertainment products and events for our customers”.

Illinois Situation Heats Up

Caesars owns two Harrah’s casinos in Illinois and that is a fascinating state for the sports betting industry right now. Governor J.B. Pritzker is pushing for legal sportsbooks to be rolled out and he wants to follow the Pennsylvania method, which involves charging operators a $10 million up-front licensing fee and a hefty revenue tax. He has earmarked an ambitious $217 million in the 2020 budget from sports wagering. The progressive governor is also keen on legalising cannabis, which is one of the fastest-growing industries in the US as several states have permitted it for medicinal or recreation use, or both.

Yet the ratings agencies on Wall Street have lambasted his budget, claiming that it is overly reliant on gambling and marijuana, which are not guaranteed to be legalised. S&P and Fitch both warned that the state would face a debt downgrade if it accepted Pritzker’s budget. However, that should make him even keener to push sports betting legislation through, while Mike Zalewski, chairman of the House Committee on Finance and Revenue, is also on board. He told Sports Handle his peers will have failed if Illinois cannot join the nascent sports betting industry by the summer.

“If we don’t get this done by June, it will be a failure of the legislature, because we have the momentum,” he said. “Hope to have it up and running by the end of the year, but there are a lot of challenges.” There will be wrangling over how high the revenue tax should be – Pritzker is hoping for 20% – while the dreaded “integrity fee” will be another issue up for debate. Zalewski said that March and April will be used for hearings, “and then come May, it will be time go, to start passing things”.

Legal sports betting is taking off across the country and Tennesse could be among the next states to give it the green light. HB1, which seeks to permit retail and mobile sports wagering and introduce a 10% tax rate, passed through a subcommittee this week. It has several more hurdles to overcome before local referendums on whether sports betting should be allowed, but it is a step in the right direction. Lawmakers in neighbouring Kentucky are trying to push through similar legislation, but they face opposition from religious groups. Yet the state’s residents can already go north into West Virginia to bet at legal sportsbooks and if Tennessee to the south legalises it too then the impetus would be on Kentucky to follow suit to avoid being at an economic disadvantage. Thus sports betting is expected to spread like wildfire across the US.

Author: Kristian

Kristian heads up the content and SEO team at Digital Fuel having worked in digital marketing for ten years. He’s as passionate about creative content as he is about Brighton & Hove Albion FC and when he’s not following football he’s writing about Brighton’s bustling pub scene.

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