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State of the Union: US Sports Betting Update – July 2018

Penn National Gaming expects to be running legal sportsbooks in Mississippi, West Virginia and possibly Pennsylvania before the NFL season begins on September 6. So far only Delaware and New Jersey have joined Nevada in offering legal sports betting after the US Supreme Court struck down a federal ban that had previously outlawed it. But Mississippi is expected to join the party any day now, and West Virginia should be the next state to give the green light to this lucrative industry. Penn National is poised to launch sportsbooks at its casinos in both states and it is confident they will be up and running before the Eagles take on the Falcons in the curtain raiser on 6th September.

“We anticipate accepting wagers on sporting events at our casinos in Mississippi, West Virginia, and potentially Pennsylvania prior to the start of the National Football League’s season opener in September.”

Penn National Gaming chief executive Tim Wilmott.

The firm is headquartered in Pennsylvania and it retains a clear strategic focus on its home state. In 2017, Pennsylvania passed a law permitting sports wagering in the event that the Supreme Court eliminated the federal ban. The Supreme Court did so earlier this year, paving the way for New Jersey and Delaware to roll out sports betting, and 13 potential operators in Pennsylvania are now eligible to apply for a sports wagering licence. However, none have come forward so far, as they are locked in a financial dispute with state legislators.

Pennsylvania

The state wants to charge operators a $10 million up-front fee for a sports wagering licence, and then an eye-watering 36% tax rate on gross revenue. The operators are trying to negotiate, as they feel it could make it impossible for them to turn a profit.

“The $10 million license fee and 36% tax rate established in the Gaming Expansion Legislation are the highest in the world and may make it impossible for a casino operator to make any return on its investment capita. Based on the tax rate and the fact that, on average, 95% of sports wagers are returned to winning bettors, PNG estimates it could lose approximately 40 cents on every $100 wagered on sporting events.”

Daniel Ihm, vice president at Penn National.

But the lawmakers have not blinked in this showdown, and they believe the size of the potential market in Pennsylvania will be too attractive for the 13 potential sports betting licensees to pass up.

Next in Line

The Pennsylvania legislature remains open until 30th November, but progress is expected to be slow. In the meantime, Penn National is turning its attention to other states, namely Mississippi and West Virginia. William Hill US, which operates three of the four New Jersey sportsbooks and oversees the Delaware industry, is also adopting that strategy.

“With a 36% tax and a $10 million license fee, there are other states that are more interesting to us. It’s just not something we’re looking at seriously right now.”

William Hill US vice president Dan Shapiro

Offshore Competition

Enormous fees and taxes are hurdles that operators must overcome. But a potentially bigger challenge is luring potential customers away from the offshore sites that have been serving sports fans well for many years. After all, these sites are not taxed, they can offer credit, they are experienced operators and many of them have built up many years of goodwill with their patrons.

Sally Melissa Gainsbury at the University of Sydney has just completed an intriguing study into factors influencing offshore betting and gaming habits in Australia. The country’s legal operators have faced similar competition from canny offshore sites, and Gainsbury speculates as to what made them successful.

“Understanding consumers’ use of offshore gambling sites is essential to derive policies to reduce use of these sites with the goal of consumer protection. Offshore gamblers were likely to be younger, more highly educated, and work full time, rather than be retired. This may indicate that those more familiar and comfortable with Internet technology are engaging in offshore gambling. Gamblers using offshore sites are more likely to be influenced by factors relevant to payouts and game experience, and are less concerned with the reputation of the operator, where the site is licensed, and available payment methods. However, offshore gamblers did seek sites that are intended for Australians and the ability to bet in local currency, suggesting that they want a customised experience, but are willing to obtain this from an offshore provider.”

Sally Melissa Gainsbury, University of Sydney

Her study argues that sports fans using offshore sites are generally unconcerned with regulatory status, and they choose a site for ease of use. She believes that legal operators can win the battle by “focusing on the benefits of domestic sites and ensuring that these can provide a good consumer experience”. The Australian experience will be different to the US, but the study offers useful insight that US operators can factor into their strategies.

The industry is in its formative stages, much manoeuvring is taking place behind the scenes and the level of mergers and acquisitions is ramping up. In the past week, Rhode Island casino group Twin River tied up a deal to buy Delaware’s largest casino and sportsbook operator, Dover Downs. Rhode Island should soon introduce sports betting, while Twin River also owns a casino in Mississippi and it is jostling for position across the US as it bids to carve out a piece of what will surely be a lucrative pie.

Into the Future

The industry is packed full of ambitious and innovative operators, and it is fascinating to watch the deals being done, meaning there is never a dull moment. The real winners will presumably be US sports fans, who can now increasingly move away from problematic offshore sites and choose between a wide range of talented legal operators that are battling with one another to offer as compelling a proposition as possible.

If you’re interested to learn more about the phenomenal potential of the US sports betting industry why not get in touch with Digital Fuel and we can discuss every aspect of operating within this newly regulated market.


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