[h=1]CNN Wrong To Say Sports Betting Isn’t Good For Gaming Stocks[/h]
Joss Wood, Aug 29, 2018
Joss Wood, Aug 29, 2018
The gaming industry media is full of euphoria about the opportunities for growth now that state-regulated sports betting is rolling out across the country. CNN has a different view, suggesting that the big casino stocks aren’t necessarily a good bet.
Writing for CNNMoney, Chris Isidore made the point that just because sports betting is becoming legal in many states doesn’t mean that the existing brick-and-mortar casino businesses will be the beneficiaries:
Writing for CNNMoney, Chris Isidore made the point that just because sports betting is becoming legal in many states doesn’t mean that the existing brick-and-mortar casino businesses will be the beneficiaries:
“But that doesn’t make it a good idea to place a wager on casino stocks, which face stiff competition in the multi-billion dollar industry from racetracks, overseas operators and new entrants like fantasy sports operators.”
He makes the observation:
“Leading gaming companies, including MGM Resorts (MGM), Caesars Entertainment (CZR) and Wynn (WYNN), have seen their stocks fall since a Supreme Court decision in May opened the door for sports gaming nationwide.”
Rationalizing his position, Isidore argues that despite a lot of offshore action shifting to regulated sportsbooks and the likelihood that sports betting will increase after legalization, big casinos won’t benefit as much as could be expected. He gives three main reasons:
[*=1]Sports betting is typically a low-margin activity
[*=1]“… experts predict much of sports wagering will occur online and on mobile apps”
[*=1]Competition from new market entrants will reduce the share of profits going to the casinos
Is he right or will the casinos have the last laugh?
[h=2]US regulation is biased towards casinos[/h]
In every state where online gambling regulation has been introduced, the new laws have limited participation to licensed casinos. The laws allow them to partner with previously unlicensed companies, but the casinos are guaranteed access to the market.
This is so standard in the US that it hardly merits comment, but in global terms it’s not the usual way the gaming industry is regulated. Belgium requires partnerships with casinos, as do a few other countries, but all the large regulated markets in the EU don’t include this stipulation.
In the UK, France, Spain and Italy, online sports betting providers can apply for licenses themselves without any need to partner with a land-based casino.
Demanding that online operators partner with land-based casinos is nothing more or less than crony capitalism. It’s a political decision to protect existing businesses and employees, and a way of maximizing revenues generated in the state.
Margins may be thin, but they are low risk, turning casino operations into utility-like businesses.
[h=2]Casinos are guaranteed a piece of the action[/h]This is so standard in the US that it hardly merits comment, but in global terms it’s not the usual way the gaming industry is regulated. Belgium requires partnerships with casinos, as do a few other countries, but all the large regulated markets in the EU don’t include this stipulation.
In the UK, France, Spain and Italy, online sports betting providers can apply for licenses themselves without any need to partner with a land-based casino.
Demanding that online operators partner with land-based casinos is nothing more or less than crony capitalism. It’s a political decision to protect existing businesses and employees, and a way of maximizing revenues generated in the state.
Margins may be thin, but they are low risk, turning casino operations into utility-like businesses.
The result is that the casinos are guaranteed a stable long-term revenue stream as long as they can capture a share of the newly regulated market.
The casinos have developed some online expertise, but there’s no doubt that the big international online sports betting and poker brands are well ahead of US casino capabilities.
Even in Nevada, where sports betting long has been legal, it is foreign companies like William Hill that provide most of the technology platforms.
If politicians didn’t force online operators to partner with the local casinos, the foreign companies would slaughter them in free-market competition.
The same law applies to DFS operators like DraftKings and FanDuel. They don’t have their own casinos, so they have to partner with the local businesses if they want access to the market.
Not only do US sports betting laws limit the competition to licensed casinos and a few racetracks, but they guarantee that foreign operators only get access to the market if they can strike deals with the locals. And the legal position gives the local casinos the upper hand.
This isn’t a normal competitive environment, so Isidore’s fears that competition will reduce the casino’s market share are overblown. He’s not completely wrong: there is a mountain of new competition, but the casinos have their fingers in every pie and take a piece from everyone in the market.
[h=2]Mobile critical for online betting, but live betting is king[/h]The casinos have developed some online expertise, but there’s no doubt that the big international online sports betting and poker brands are well ahead of US casino capabilities.
Even in Nevada, where sports betting long has been legal, it is foreign companies like William Hill that provide most of the technology platforms.
If politicians didn’t force online operators to partner with the local casinos, the foreign companies would slaughter them in free-market competition.
The same law applies to DFS operators like DraftKings and FanDuel. They don’t have their own casinos, so they have to partner with the local businesses if they want access to the market.
Not only do US sports betting laws limit the competition to licensed casinos and a few racetracks, but they guarantee that foreign operators only get access to the market if they can strike deals with the locals. And the legal position gives the local casinos the upper hand.
This isn’t a normal competitive environment, so Isidore’s fears that competition will reduce the casino’s market share are overblown. He’s not completely wrong: there is a mountain of new competition, but the casinos have their fingers in every pie and take a piece from everyone in the market.
The argument that casinos will lose out because modern sports betting is predominantly mobile falls at every fence.
Globally, around 11 percent of sports betting is carried out on online or mobile devices. That percentage is much higher in modern countries with high smartphone usage.
The figure for the UK is an outlier, where 56 percent of sports betting is wagered online. The US can certainly move in this direction but is more likely to resemble other advanced markets rather than the comparatively liberal UK market.
In the US markets, sports betting at live venues looks like it will be confined almost entirely to casinos and racetracks. Unlike countries like the UK, which has betting shops on every high street, live bettors are forced to use either casinos or racetracks for their wagering.
These facts suggest that mobile and online betting will be higher in the US than in the international market, but the upper bound is still unlikely to exceed 25 percent, at least not in the next few years.
All the companies that offer mobile and online sports betting will have to strike a deal with a casino before they can launch their products in the regulated market.
All of this extra income will be incremental to the casino companies existing business.
[h=2]Racetrack competition is partially internal[/h]Globally, around 11 percent of sports betting is carried out on online or mobile devices. That percentage is much higher in modern countries with high smartphone usage.
The figure for the UK is an outlier, where 56 percent of sports betting is wagered online. The US can certainly move in this direction but is more likely to resemble other advanced markets rather than the comparatively liberal UK market.
In the US markets, sports betting at live venues looks like it will be confined almost entirely to casinos and racetracks. Unlike countries like the UK, which has betting shops on every high street, live bettors are forced to use either casinos or racetracks for their wagering.
These facts suggest that mobile and online betting will be higher in the US than in the international market, but the upper bound is still unlikely to exceed 25 percent, at least not in the next few years.
All the companies that offer mobile and online sports betting will have to strike a deal with a casino before they can launch their products in the regulated market.
All of this extra income will be incremental to the casino companies existing business.
The likelihood is that at least 75 percent of sports betting will be taking place in the casinos and at racetracks.
Isidore expressed concerns that racetracks would take casino market share. In some states this is possible, but much of the racetrack industry has close links with or is owned by the casino industry.
Pennsylvania provides a good example of this. Most racetracks in the state are directly linked to the PA licensed casino businesses:
Isidore expressed concerns that racetracks would take casino market share. In some states this is possible, but much of the racetrack industry has close links with or is owned by the casino industry.
Pennsylvania provides a good example of this. Most racetracks in the state are directly linked to the PA licensed casino businesses:
[*=1]Presque Isle Downs
[*=1]Harrah’s Chester Casino and Racetrack
[*=1]Meadows Racetrack & Casino
[*=1]PARX Casino and Racetrack
[*=1]The Downs at Mohegan Sun Pocono
[*=1]Hollywood Casino at the Penn National Race Course
Many of these are expected to introduce in-person and online sports betting over the coming months.
Isidore raises some valid points, but the casinos are in a much stronger position to see revenue growth from sports betting than the article suggests.
<strike></strike>Isidore raises some valid points, but the casinos are in a much stronger position to see revenue growth from sports betting than the article suggests.
