Brazil finally nods through OSB legislation

Brazilian legislation, DFS upstarts, ESPN Bet assessment, Durango plaudits +More

Dec 22, 2023

Brazilian lower chamber overturns the Senate and includes iCasino.
Assessing the way ahead for the DFS upstarts.
It’s too early to tell on ESPN Bet success, say analysts.
BettingJobs’ Jobsboard includes gaming trader, head of marketing and product manager positions.

Champagne, desert shore, celebrate, memorize.

Brazilian legislation

The sector gets its way as the Brazilian lower house passes the sports-betting bill with reinstated iCasino provisions.

Batteries are included: The online sector received an early Christmas present overnight as the Brazilian lower house gave its approval to the sports-betting bill while also overturning provisions added in the Senate against iCasino. The Chamber of Deputies also approved the amended tax rate of 12% and a licensing fee of BRL30m ($6m) for up to three brands..

The historic vote finally brings to an end one of online gambling’s longest-running legislative sagas. The bill was first drafted back in 2018.
The vote by 292 to 114 means the bill will now head to President Luiz Inácio Lula da Silva’s desk for him to sign into law.

Get real: Introducing the bill, deputy Adolfo Viana said that excluding iCasino would be ignoring reality. “We are not here debating whether or not we want online gaming in our country; that’s already the reality and we can’t sweep it under the carpet,” he told the assembled deputies.

He added that including iCasino meant “all of these sites that offer bets in the country will be subject to a law that we have constructed ourselves”.

The Brazilian market is one of the biggest markets globally with VIXIO GamblingCompliance estimating it could be worth up to $3.8bn within the next five years. The government stated previously it expects to raise ~$335m in taxes from the sector in 2024.

Many leading global players already have a sizable gray market presence.

Venture capital firm Yolo Investments manages in excess of €500m in capital across 100 exciting fintech, gaming and blockchain companies. The Yolo Investments' Gaming fund, regulated by the Guernsey Financial Services Commission, has taken positions in fast-growth suppliers and operators, including Dabble and Enteractive. Yolo Investments (yolo.io) wants to hear from readers of this newsletter. Get in touch with your pitch, or for a chat about innovative products which can plug into our investment ecosystem.

+More

Fanatics is set to launch its online sportsbook and casino in Pennsylvania early next year, according to Play Pennsylvania.

Meanwhile, the sportsbook operator will partner with NHL team Carolina Hurricanes to launch its mobile sports-betting platform in North Carolina.

Churchill Downs has negotiated the repurchase of 1 million shares, at the cost of $123.75 per share, from an affiliate of The Duchossois Group. The company is using existing cash and borrowing to fund the deal, which is expected to close on Jan 2.l.

Rush Street has gone live with EveryMatrix casino content at its BetRivers property in Michigan, the supplier’s first games launch in the state.

Lottery.com has announced an $18m investment from Prosperity Investment Management, which it said will “accelerate” its strategic acquisition plans and “fund market development initiatives”. The share price rose nearly 200% on the news.

GiG has completed the acquisition of affiliate provider KaFe Rocks for an initial €15m in cash, rising to €35m from payments in the next two years.

Yolo Investments is launching Yolo Fund II, with a plan to raise €100m to be invested in globally distributed gaming, fintech and blockchain-related assets. Yolo’s first fund was launched in 2019 and has invested in over 100 assets with an aggregate value above €600m. That portfolio includes stakes in Dabble, Kero Gaming and Caleta Gaming.

By the numbers

Pennsylvania: ESPN Bet grabbed 9% handle share in the half-month since launch in mid-November vs. the 5% share achieved previously by the Barstool-branded sportsbook but at the cost of substantial promo spend, which hit 19% of handle. (See below analysis for ESPN Bet).

In aggregate GGR terms across OSB and iCasino FanDuel led with 29% share, followed by DraftKings (26%), BetMGM (11%) and Penn/ESPN Bet on 5%.

Michigan: ESPN Bet also grabbed handle of 9% in Michigan in November, again with a high promo spend at ~$16m or 240% of GGR of $6.7m, which represented 18% market share.

Across the market by handle, FanDuel was on 38%, up from 33%, DraftKings was down 1 ppt to 26%, BetMGM was also down 1 ppt to 14%, while Rush Street dropped by 5 ppts to 3%.

DFS upstarts

The new-style DFS operators have built strong positions – but what do they do next?

Little league: In the new school vs. old school battle over pick’em fantasy sports games, the “scrappy upstarts” of Underdog Fantasy, PrizePicks and Sleeper have done an “impressive job, building their brands as well as delivering innovative products and user experience”, according to analysts at global advisory firm Houlihan Lokey.

Point of contention: The disputes between the two camps – represented by the Coalition for Fantasy Sports and the Sports Betting Alliance – are now being played out in various jurisdictions, including most recently Virginia and California.

But while the analysts don’t see the established players offering “clones” of pick’em-style offerings, they do see them as likely to develop products that mimic them.
They point to DraftKings’ announcement at its recent investor day of the ‘Progressive Parlay’ product.

To pivot or not to pivot: The question for the fantasy upstarts is which path to choose from here. “Some may choose to go full throttle and ignore the potential risk, opting for as much growth as possible,” suggested the team at Houlihan Lokey. This was the route chosen by previous DFS leaders DraftKings and FanDuel pre-PASPA.

Others, though, may choose to themselves move into OSB – a move certainly rumored for Underdog Fantasy – or adjacent gaming products.
“Crossing over from DFS to OSB is easier said than done for a number of reasons,” the team added.
There is the additional regulatory entanglements plus the issue of including developing a workable betting platform and PAM or renting each from a B2B provider.
This is before they would have to “go head-to-head” in a hugely competitive OSB space.

Still, HL does say that, given their audiences, the leading new-style DFS players “could transition with some level of success”. Having built substantial brands, they are better capitalized or would be able to raise the cash to fund a charge into new verticals.

“It wouldn’t surprise us to see DFS companies ultimately enter social gaming,
online lottery or iGaming,” the analysts suggested.
“We wouldn’t be surprised to see some DFS players shift into sweepstakes with similar products to Fliff, which has become a phenomenon in that category,” they added.
However, they noted sweepstakes “could ultimately see incremental regulator pressure over time, making it perhaps a shorter-term safe haven”.

The HL team also argued M&A activity in the DFS space will accelerate given their collective “meaningful” positive cash flows and no debt, giving them the ability to potentially acquire their way into adjacent verticals.

They noted their collective strong positions in California, Florida, Georgia and Texas mean that should they “flip” on OSB, “there is considerable value in what they have built”.
Meanwhile, the tech and talent within these firms “means that many of the platforms could be plug-and-play to broader organizations”.
“Bottom line, there will be consolidation as OSB players scoop up DFS, and DFS potentially scoops up subscale OSB teams and tech.”

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ESPN Bet debate

Debating class: The patchiness of the data so far on ESPN Bet’s launch – only half a month, high levels of promo spend, variance between states – has meant that those on each side of the debate over its chances of succeeding on its own terms have something to chew on, suggested the team at Wells Fargo.

On the plus side, the team pointed to 7% handle share in the November data seen to date, while adjusted for the half-month that rises to 11%.
GGR share was higher at 12.5% but, as the analysts said, this is likely elevated by the accounting of promo spend.

The negative spin, however, is that the actual ‘cash’ handle share ex-promos was only 6%, while adjusted for the half-month it was 9%.

Moreover, only DraftKings and FanDuel have managed to actually build off initial market share levels.
Further, Penn’s attempt with Barstool in Illinois, Michigan and Pennsylvania achieved a similar peak of 10%-13% and faded over the subsequent six to 12 months.

Wait until December: The Wells Fargo team said the app download data suggested ESPN Bet’s handle share “could have peaked” in the first NFL weekend post-launch with promos used in first bets. But they warned combining partial month GGR data with launch-level promos and unfavorable hold “makes it too tough to call”.

Durango opening analyst takes

You must come again: Like a host that successfully navigated its own party, the management team at Red Rock will doubtless be pleased with the first–night reviews from the analyst community for the recently opened $780m Durango property in Las Vegas.

You look younger every year: The team at Deutsche Bank noted that at first blush the preponderance of the 25-35 demographic was a “pleasant surprise” to management.
Truist said it was clear Durango was “off to a very promising start”, with incremental business generated from the existing Red Rock player base.
They noted that management said it was already looking at expanding the property which could include a second hotel tower and an expanded casino floor.

Analyst takes

Genius Sports: The sports data provider is at the “tech epicenter” of a rising tide of media interest in the NFL, said the team at Macquarie. They noted the NFL will be generating $12.4bn annually from its latest media and TV deals, including tie-ups with Amazon and YouTube. “We think this bodes very well for Genius,” said the team.

Raketech: Also in receipt of an initiation note is the affiliate provider, which the team at Redeye said is well positioned for further expansion with a strong balance sheet and “untapped growth opportunities”. The team said Raketech has maintained strong growth from flagship assets, noting revenue has grown with a CAGR of 26% between 2022 and forecasted 2025.

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