DFS goes all-in on gambling
When the U.S. Supreme Court cleared the way for states to legalize sports betting on May 14, the first entrants were those long expected to be the leaders: William Hill, a global sportsbook with London roots that trace back 84 years, and MGM Resorts, the colossal U.S.-based casino chain.
Both opened sportsbook locations on June 14, the first day allowed by New Jersey regulators, with William Hill taking bets at Monmouth Park Racetrack and MGM operating at its Borgata Hotel in Atlantic City.
Exactly one month later daily fantasy operator FanDuel opened its location at the Meadowlands Racetrack. The nation’s leading DFS site, DraftKings, eschewed a brick-and-mortar presence entirely, instead focusing on being first to market with its online offering, which went live Aug. 1.
Despite that later start, those daily fantasy operators have emerged as market leaders in the early days of sports betting. That may be the most intriguing story from the sea change that has occurred since the nation’s highest court struck down a long-standing federal prohibition that covered every state but Nevada. Driven, as expected, by the promise of new tax dollars, Delaware, Mississippi, New Jersey, New Mexico and West Virginia now have sportsbooks operating within their borders and, in the case of some, available to every adult fingertip at the touch of a mobile device. More than $336 million had been wagered in New Jersey — the only one among those states to have a major professional sports team — through the end of September, the latest month for which figures are available. Mississippi casinos had handled $34 million in sports bets through that same date.
With the impact of gambling-friendly football in full bloom, sports betting revenue figures from New Jersey reveal that, at least so far, the familiarity that the DFS brands have built with U.S. sports fans in recent years has trumped the fact that neither had been a place to bet on sports. DraftKings and FanDuel ranked first and second in sports betting revenue in New Jersey in September, together accounting for $15.74 million of the $23.96 million brought in by New Jersey’s nine licensed sportsbooks (65 percent). DraftKings dominated the online market, bringing in as much as $8.5 million of the $12.5 million that was bet through digital. FanDuel ranked second at $2.8 million.
The $100 million carpet-bombing of the airwaves that the DFS companies laid down in September 2015 irritated some and attracted heat from regulators. But it — and the reduced but still steady presence of the two companies across sports properties and platforms — gave them an edge when it came time to pivot to sports betting.
First Look podcast, with sports gambling discussion at the 8:50 mark:
“If you measure DraftKings against any other brand and you ask a question like, ‘Who do you think of to win money on sporting events?’ DraftKings is No. 1 by far,” said Matt Kalish, the company’s co-founder and chief revenue officer. “It’s not even really close. FanDuel is No. 2. And nobody else is on the radar, really. That’s the brand building we’ve both done over the years.
“William Hill is a very respected brand in Europe. And people in the U.S. who are in-the-know respect them as well. But when you’re talking about the broad base of American consumers, those 320 million people, I think less people have had exposure so far to William Hill as a brand, so they’re starting from a lower point of awareness.”
These three states combine for 45.4 million people and 20 major pro sports teams and thus are being watched closest by people in the industry.
The state passed an online casino bill last year that included a sports betting provision. Regulators are now reviewing applications of operators, who will pay a hefty $10 million fee and cough up a 36 percent tax rate on sports bets. The state is likely to be open for business this month.
It cleared the path for casino sportbooks through a 2013 voter referendum. That’s on indefinite hold as regulators try to figure out how to roll out sportsbooks at the state’s horse tracks. MGM Resorts placed a big bet here in May when it acquired Yonkers Raceway and its Empire City Casino.
State senator Napoleon Harris (a former NFL player) introduced a bill last year that included the now toxic “integrity fee.” It stalled and state legislators are back in the hearings stage. Democratic gubernatorial candidate J.B. Pritzker, who has a large lead in the polls, has voiced support.
Even William Hill’s executives would not debate that point. Though the brand is steeped in tradition in the UK, U.S. CEO Joe Asher jokes that when it launched in Nevada six years ago many assumed it was a Napa Valley winery.
Today, William Hill is Nevada’s leading sportsbook, with 60 percent of the state’s locations and a 30 percent market share. While it did the most of any existing sportsbook to carve a path in New Jersey ahead of the ruling — it opened a branded sports bar at Monmouth Park four years ago and sponsored the track’s biggest race, the Haskell Invitational — sports fans in the Garden State have heard far more from DraftKings and FanDuel.
In hindsight, that was one of three advantages that would lead to the DFS companies’ early success in New Jersey. Along with owning familiar brands, they had existing customer bases in the millions, people who not only visited their websites but had opened accounts where they deposited funds and collected winnings. And they had insights developed through years of experience building, operating and marketing sites at which U.S. sports fans played daily fantasy.
“What DraftKings in particular has been able to do in the early days in New Jersey with their mobile product is cross-market their old DFS database over to that [sportsbook] product,” said Michael Marino, senior vice president of marketing and chief experience officer for Caesars Entertainment, which last week announced high-visibility sponsorship deals with the NHL’s New Jersey Devils and the NBA’s Philadelphia 76ers. “What we’re trying to do here is to get in front of those fans … to showcase that there are other options beyond the product that they’re already familiar with.”
The importance and potential of FanDuel’s brand was evident to Irish bookmaker Paddy Power Betfair, which in May acquired the company in a deal that valued the combined businesses at $1 billion. Paddy Power was following a playbook similar to the one it used to build the No. 1 sports betting provider in Australia, where regulated sports betting has taken off in the last decade.
“They [Paddy Power] know from firsthand experience how hard that is,” said FanDuel CEO Matt King. “The analog they always had in their mind is what they were able to do with Sportsbet Australia, where they created the leading platform in Australia by taking a great local business and combining it with their global expertise. And they created a really differentiated platform in the marketplace. They saw the opportunity, given the brand strength we have in the U.S., to do the same thing here. And they recognized that to try to do it without an existing brand was both going to cost a lot of money and take a lot of time.”
The combined company’s approach has been three-pronged. It married the experienced back-of-the-house bookmaking operation of Paddy Power to the familiar U.S. brand of FanDuel, then added a deal with Meadowlands Racetrack that gave it a 5,310-square-foot retail sportsbook located a long field goal away from two NFL teams.
That retail presence has made the Meadowlands the busiest brick-and-mortar sportsbook in New Jersey, with about $4.4 million in revenue in September.
“Having both retail and online, if you do it the right way, can be really self-reinforcing and attractive,” King said. “And retail is something we had never done before. We never could have pulled off the Meadowlands from a retail perspective without the help of Paddy Power Betfair.”
In contrast, DraftKings chose to launch in New Jersey without a physical location. It also opted against a merger or acquisition such as FanDuel’s or a joint venture, like one MGM Resorts entered into with sportsbook service provider GVC Holdings. Instead, DraftKings focused on building the sort of sportsbook app that would appeal to its DFS players, and it made sure to be ready to launch as soon as New Jersey regulators would allow it.
Kalish said DraftKings was confident that large swaths of its user base were sports bettors lying in wait. In researching its database, DraftKings found offshore sports betting “hugely prevalent” among its users, many of whom reported that they would prefer a legal, regulated option if it was available.
That didn’t guarantee that they’d migrate to DraftKings’ new sportsbook site. Consumer regulations around sports betting are tighter than those around DFS. In Nevada, for example, bettors must register in person when opening an account. New Jersey allows online signups, but varying policies among banks and credit card issuers make conversion of a DFS player more complicated than clicking a box.
Kalish said the conversion rate of DraftKings DFS players to sports betting has been “really strong.” At FanDuel, King said the crossover of active DFS players to the betting platform is still a small percentage, in part because the online wallet used for DFS can’t automatically be used to make sports bets. But he does attribute much of the company’s early success to sports fans’ familiarity with the site.
“People short-hand customer base and oversimplify what that actually means,” King said. “It’s one thing to have a database. Any land-based casino is going to have a great database in the state of New Jersey. … What distinguishes ourself and DraftKings is that we have a real relationship with our customers. It’s one where they trust us. They trust us in an online environment to hold their deposits and deliver a great gaming experience. That degree of relationship and trust with those users is the big differentiator. It’s not just that we know their name and email address.”
These are the earliest days for U.S. sports betting. William Hill, MGM and Caesars may have a long way to go to catch the DFS providers when it comes to sports fan mindshare, but they have long histories as sportsbook operators and deep pockets, and they’ve already taken steps to close that gap. MGM gave an indication of how it plans to raise its profile with sports fans by being first into the pool as a league sponsor with both the NBA and the NHL. William Hill and Caesars have planted their flags with the New
All of this activity is merely a prelude to what will come next, as other states and other sports jump in. It may not be exactly what was envisioned back on May 14, but it could be even more significant.
“I think when PASPA [the federal law that once restricted sports betting] first got repealed, it was sort of a euphoria,” said Scott Butera, president of interactive gaming for MGM Resorts. “You’d hear all these crazy numbers -— a $150 billion illegal market that can be regulated and made legal. I think the good news is that wa lot of that has gotten flushed out of the system. But it’s very much going to be an evolution. It really is a rollout state-by-state. So the question is, how do you manage that? How do you help create that? And what do you do along the way?”