Divide and rule
Illinois’ tax hike hurts FanDuel and DraftKings the most, Las Vegas room supply, startup focus – Fluid +more
Illinois’ progressive tax rates ‘targets’ the market leaders.
In +More: BetMGM’s AP deal, CIRSA seeks IPO.
Tightening supply of rooms on Las Vegas Strip to benefit MGM, Caesars.
The startup focus is payments provider Fluid.
You come on with it, come on, you don't fight fair.
Top two targeted
Hit ’em where it hurts: The new graduated sports-betting tax proposals passed over the weekend by the Illinois Senate featuring a 40% top rate will hurt FanDuel and DraftKings the most while leaving the rest of the market relatively unscathed.
The new tax rates would progress from 25% at $30m, through 30% over $50m, 35% over $100m and up to 40% for those generating more than $200m in annual GGR.
Read across: See today’s Compliance+More for details.
Call that fair? Analysts at Deutsche Bank have estimated the top two would pay an extra $146m between them based on the GGR from the LTM. In comparison, the rest of the market would end up paying less than $25m in extra tax between them.
The team projected the new tax system would bring in a total of ~$171m in incremental taxes for a total tax take of ~$336m vs. the take of $165m over the LTM period.
FanDuel and DraftKings would “absorb the vast majority of the incremental burden,” the team said, while the rest of the market would suffer “negligible” impact.
🤮 Sweating the rich: FanDuel and DraftKings pay the price in Illinois
What are you going to do about it? Deutsche Bank suggested the talk post-legislation would be about what mitigation would be sought, with promotions being the area most likely to be focused on.
The team pointed to their own research published last week, which shows New York promotional spend levels remain well below that of neighboring states due to the high rate of tax, according to data seen by the analysts.
Point proven: New York has the nation’s highest rate of tax on sports-betting operators at 51% of GGR and, after requesting promo data from the state, the DB team argued that a key plank of the argument against higher tax rates – namely that consumers receive lower proportional offers – appears to be true in the Empire State.
Promo levels are less than half that of Michigan and at ~60% of the level in Pennsylvania.
The team noted that Michigan offers the lowest tax rate at 8% and an effective tax rate of just 5%, while Pennsylvania has a tax rate of 36% of GGR and an effective tax rate of 25%.
The promotional reinvestment levels “directly correspond” to the statutory tax rates, the team added.
👀 Promo levels as a % of handle in MI, PA and NY
Now you’ll see, just you wait: Suggesting that much of the current GGR growth in mature markets is generated by promos, the team at DB argued that any significant reduction in promotional activity “could provide a peek into organic demand in Illinois.”
Shift: But, they added, the rate of tax at the higher levels is “considerably more punitive” than the lower applicable rates.
Therefore, there could be some market share shifts “along with potentially a slowdown in market growth.”
Empty threat: The team also poured cold water on the argument from the lobbyists that increased tax rates would lead to worse odds for consumers, suggesting it is “nothing more than a threat by operators to politicians.”
For evidence, the team cited hold percentages across states with a wide range of tax rates.
“There is truly no discernible difference in hold percentages, relative to the tax rate,” the team added.
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+More
BetMGM has replaced FanDuel as the official odds provider for AP’s global sport report. Under the new agreement, BetMGM’s odds will appear in AP’s daily sports odds fixtures, game previews and other sports stories where odds are mentioned.
Spanish news reports suggest that Blackstone, the owner of CIRSA, is looking to seek an IPO for the gambling group, with the PE house rumored to have engaged Morgan Stanley, Deutsche Bank and Barclays.
By the numbers
North Carolina: April revenue rose 58% MoM to $105m on handle that was up 25% to $569m.
What we’re reading
Sharp words: Civil rights campaigner Al Sharpton has penned a letter to USA Today complaining that FanDuel and DraftKings’ dominance of the OSB market raises “serious concerns about competition, fairness and consumer protection.”
Las Vegas supply
One door closes: The upcoming closure of the Mirage added to the recent shuttering of the Tropicana will see room inventory across the Las Vegas Strip market decline by about 3% from July, according to analysis from JMP.
The team suggested this “tightening of room supply” would benefit MGM Resorts and Caesars Entertainment.
That Riviera touch: The example from the most recent period of room supply decreases came with the closure of the Riviera in 2015 when total supply fell by ~1%. JMP noted that occupancy hit an all-time high for the Strip of 91% in the following year while average room rates also experienced an above-average growth rate.
“The current environment paints a mixed picture on the Las Vegas Strip as it faces historically tough gaming comps in the coming year,” the team cautioned.
But expectations do not incorporate supply declining to 151k rooms, no hotel capacity coming to the Strip for at least the next three years and growth around entertainment/sports.
Recall, the Mirage has been bought by Hard Rock and will be closed for extensive remodeling for the next three years. Meanwhile, the Tropicana closed as part of the MLB stadium plans for the site.
“The construction schedule for the Las Vegas Strip highlights no incremental hotel supply in the pipeline until the Hard Rock reopens in 2027,” the team said.
The outstanding Dream Las Vegas project, on the southern part of the Las Vegas Strip, and Tilman Fretitta’s project, on center Strip, are still uncertain around timing and completion, JMP added.
Analyst takes – Q1 review
Stormy weather: The team at Macquarie have noted that only 30% of companies within the sector beat estimates, as the US regional B&M operators struggled to overcome the bad weather-related issues at the start of the quarter.
Unsurprisingly, then, the listed sector has fallen 12% over the quarter compared to the 4% decline for the S&P.
Tiring: In Vegas, the market is somewhat bifurcated with the high-end continuing to outperform but with evident “fatigue” on the lower-end customer. The team noted optimism at MGM Resorts that it will continue to grow EBITDA this year, while Caesars was “clear that volumes are healthy.”
More takes
Flutter: The team at Jefferies suggested FanDuel’s iCasino momentum has continued into April, with GGR up 54% YoY vs. the 13% increase for DraftKings and BetMGM’s mere 2% of growth.
“This represents 5 ppts of GGR market share gains for FanDuel, versus -2 ppts and -4 ppts of losses for DraftKings and BetMGM,” the team added.
They noted that April marks FanDuel’s seventh consecutive month as the no. 1 iCasino brand and its second consecutive month as the no. 1 iCasino operator.
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Startup focus – Fluid
Bright spark: Fluid's journey began with “a spark of frustration” a couple of years ago, when the founding team were all working for a medium-sized iGaming operator, says Roberto Rubio, CEO of the payments provider.
Seeing how standard iGaming cashiers provided a “subpar and slow user experience,” while also not offering operators the ability to customize nor track anything, they decided to take matters into their own hands.
Funding backgrounder: Fluid was more or less bootstrapped by Rubio during the first months of 2023, before securing €500k in July from HappyHour. The company is currently completing a seed round of ~€1m.
Liquid engineering: Fluid uses advanced machine learning algorithms designed to improve conversion and reduce fraud. “We believe in merging great user experience with technology in order to create the best possible ‘money-in and money-out’ experience,” says Rubio.
The response has been “overwhelmingly positive.” But the company’s main challenge, he adds, lies in “convincing” potential clients that the technical installation is “not that complex” and that it can be completed within two days.
“We have put a lot of effort into making our solution extremely easy to install; hence why we call it ‘installation’ and not ‘integration’.”
Flexible friend: Flexibility across markets is paramount, with the ability to adapt features as needed to comply with regulations. “Additionally, our product is compatible with a wide range of gateways,” Rubio says.
The company has also recently announced a partnership with Devcode Identity that enables it to integrate KYC functionality directly into its wallet solution.
Growth company news
No swap shop: The Nevada Gaming Control Board has nixed the idea of a sports-bet resale exchange more than two years after regulators forced PropSwap to cease operating in the state.
PropSwap operates in more than 20 other states, facilitating the sale of sports-wagering tickets by bettors who wanted to cash out early and take guaranteed money.
Sports-betting provider CopyBet has entered a new partnership with TrueLayer that will see instant deposits and withdrawal payments being introduced for UK customers.
Games studio and supplier 4theplayer has secured regulator approval to offer its games in Pennsylvania.
Calendar
May 30: Rivalry
Jun 6: Gaming in Holland
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