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TGS SPECIAL REPORT...WSJ AND FOOTBALL'S BIG BET

by Bruce Marshall, Goldsheet.com Editor


For those of us who remember a sports gaming marketplace that mostly existed in the shadows outside of Nevada, events of the past 42 months have been enough to make our collective heads spin. We’ve already touched upon some of this in earlier featured pieces in our new 2021 TGS publishing season. As we should; sports gaming has evolved from being a “sophisticated diversion” operating outside of the media mainstream, to newsworthy stuff. The sector’s explosion was reflected in some new information recently highlighted by Carlo Santarelli, a New York-based analyst for Deutsch Bank.

As reported last week in the Las Vegas Review-Journal, and select other periodicals, Santarelli said the gaming industry is outpacing every other form of entertainment spending, including amusement parks, movie theaters, concerts and live spectator sports as the economy continues to recover. Santarelli was quoted as saying that the main question facing the industry is how long the pace can be sustained.

“In 2019, $142 billion was spent through gambling related channels,” Santarelli noted. “Of this, $109 billion, or about 77 percent, was spent on casino gaming. After gaming comps turned positive, relative to 2019, in March of 2021, growth in the segment has accelerated, with each of the subsequent months experiencing double-digit increases, relative to the corresponding months in 2019.”

White it should be noted that Santarelli was including all of casino gaming into his numbers, the sports gaming industry continues to push its own envelope. Indicative of the sector, DraftKings has continued its march, beating its second-quarter revenue estimates in August. After its robust quarter, DK raised its revenue estimates for the full year to a range of $1.21 billion (with a “b”) to $1.29 billion (again, with a “b”), up from previous estimates of $1.05-1.15 billion. While the first three weeks of September were not especially kind to DK’s stock price, which had fallen roughly 10% into the last week of the month, many analysts, citing still-favorable marketplace and industry dynamics, suggest DK remains a long-term play for investors who don’t mind assuming a bit of risk. Though some analysts also believe a further pullback in prices might present an even better buying opportunity in the short-term.

We’re not here, however, to recommend buys and sells on stocks; leave that to CNBC’s Jim “Mad Money” Cramer and others. But we think the evolvement of what is now a fascinating sector of the economy is worth a bit more review, especially since most major media outlets are nowadays covering the sports gaming boom very closely.

And, while many analysts are still suggesting long-term upside with DraftKings and other sports gaming heavyweights, one venerable publication did sound the alarm for an industry that appears to be in the midst of the same sorts of gyrations and growing pains as we saw in high-tech marketplace a generation ago.  

The caution? Not every participant is going to win in this game.  Follow along. . 

The iconic Wall Street Journal has been keeping a closer eye on the sports gaming sector since New Jersey first began to challenge PASPA almost a decade ago, and has accelerated its coverage accordingly since the spring 2018 repeal. Recently, WSJ devoted a substantial piece, penned by Katherine Sayre, at the outset of the new 2021 football campaign. “The Big Sports-Betting Kickoff” was a comprehensive feature in the August 21-22 weekend edition that we mentioned in our kickoff issue and promised a further review of its contents when time and space permitted. As we’re still in the early stages of the new gridiron calendar, now is a good time to drill a bit deeper into this intriguing WSJ piece.

Sayre jumped right to the point within the first paragraphs of her featured presentation. “A crowded field of sports-betting companies are spending billions pf dollars to promote their brands at a crucial turning point for the fast-growing industry,” Sayre wrote. “The stakes are high. Companies are grappling for toeholds in the growing market as they seek to ensure long-term survival. Online gambling, including sports betting and casino-style games, has exploded in popularity in the U.S. during the pandemic and could become a $40 billion industry in the next decade, according to analysts and executives.

“This season, the NFL for the first time is allowing sports-gambling companies to advertise during games,” Sayre continued. “Up to six ad slots a game will be open to seven league-approved betting companies.”

After setting the framework for the 2021 gridiron gaming narrative, the WSJ piece began to suggest that tapping the brakes just a bit, from all angles, might not be the worst idea.

A bit of caution was suggested by Lloyd Danzig, an investor and mergers and acquisitions adviser who specializes in sports gaming for Sharp Alpha Investors, of which he is a founder and Managing Partner. “There’s only going to be a handful of brands when this market matures,” warned Danzig.

Entering September, 32 states and the District of Columbia had legalized sports betting, though not all have commenced with accepting wagers (10, in fact, still fit into this category). Along the way, according to the WSJ, operators are seeking to acquire companies to quickly “scale up” their businesses. (Not too dissimilar, perhaps, from Google’s practice of swallowing potential new competitors, which at times has been at a head-spinning rate of nearly one per week). The WSJ story further noted that some sports betting companies are still acquiring or entering partnerships with sports media entities and makers of technology that powers their apps.

Within the industry, however, the WSJ piece also noted that the expected market consolidation was sorting out winners and losers in the sector more quickly than most had envisioned. “You are seeing public markets more clearly reserve the upside for companies that have a credible shot at a national market leadership position,” the WSJ quoted Chris Grove, a partner at Eilers & Krejcik Gaming.

Among those trying to muscle into a marketplace where MGM Resorts, Caesars, FanDuel and the aforementioned DraftKings have established footholds is Penn National, which has a presence with its gaming operation in 20 states and recently agreed to buy Canada’s Score Media & Gaming (operators of “thescore" app) for in the neighborhood of $2 billion. Earlier, Penn National had acquired a stake in Dave Portnoy’s Barstool Sports, launching a Barstool-branded app in the US.

There might still be some room for others at the front table, at least according to Wynn Interactive CEO Craig Billings, also quoted in the WSJ piece. According to the WSJ, Wynn Interactive has been busy lately, too, recently spinning off its online division through a blank-check company founded by Bill Foley, owner of the NHL’s Vegas Golden Knights, for a deal in which Wynn Resorts will hold 58% of the new publicly-traded company once the deal closes, likely later in the year. Wynn Interactive had also recently invested in sports podcasting studio Blue Line, which includes a studio at the Wynn Las Vegas casino.

Billings seems to think Wynn can be part of the survival group, too, believing that in such a large market, companies with just 10-15% of the market share can still operate a healthy business, according to the WSJ piece. “The competitive landscape is starting to form,” said Billings. “Your’re starting to see who, ultimately, can be relevant.”

Meanwhile, it should be noted that whatever these machinations behind the scenes, the sports betting genie has been released from its bottle. The consumer base will not care too much about whatever the industry dynamics, as long as bets are allowed to be placed. We have been quoted on several sports talk radio shows since the start of the season as believing that almost nothing could stop the sports betting boom, as we doubt even scandals would slow the appetite the marketplace has to bet, bet, bet. Even a reverse of legislation (which isn’t going to happen) would merely push the business back underground or to the offshores. Which, it should be noted, have hardly disappeared from the radar screens themselves (more on this dynamic in an upcoming TGS feature). 

We would like to believe, however, that the countless sports bettors would have at least a little bit of interest in the behind-the-scenes maneuvering of an industry in which they provide most of...no, make that all of, the fuel.  There are some interesting storylines going on here besides simply going up to the window and making a bet, or conducting business on a sports wagering app!

For the more curious, it's worth noting that industry mergers and acquisitions take place away from the purview of much of the sports wagering public anyway, just as market dynamics in other sectors will occur outside of the consumer conscience. Sports gaming-wise, more impactful to the consumer base will be various legislations from the states, either how quickly they might be able to get their sports betting operations up to speed, and, correspondingly, how swiftly they incorporate a viable mobile-wagering platform. Even in that case, it’s mostly a matter for the betting market to either move from the offshores, or the dark underground, into a legalized and regulated channel. Such machinations will have more of a direct impact on the marketplace, which, frankly, doesn’t care too much about the mergers and acquisitions angle.

But as long as there is a place to bet, all the better if legally, we suspect the masses will continue to drive business far over the horizon and into the future.


(Our next related feature will focus more on the consumer protection mechanisms which will soon become parallel storylines if the industry won’t be able to police itself in a responsible manner. In the meantime, we’ll preview the upcoming MLB playoffs in next week’s TGS No. 6 issue.)
 


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