My new Kentucky (sports betting) home | Sports betting news today | LSR Podcast 189
In just weeks, Kentucky went from a major underdog to legalize sports betting to becoming the first state to pass a law in 2023. How did it happen? Also, rumblings of a bet365 US push, an inkling of hope for legislation in Texas, and why problem gambling advocates are joining the long list of people frustrated with the Washington DC market.
Matt Brown (00:12):
Hello and welcome to episode number 189 of the LSR Podcast. My name is Matt Brown, joined each and every week by the brightest minds in all the gaming industry. With me, I have two of those minds; you might have forgotten about one of them. We have Adam Candee and Eric Ramsey with a triumphant return to the LSR podcast. Eric, this is an honor, this is a pleasure. Everybody, right now, just because you decided to come back, should hit the pause button, go down, give this thing five stars without even listening to it because you decided to make your return. Eric, good to have you buddy.
Eric Ramsey (00:49):
Yeah, good to be here. You might be getting a little ahead of yourself with the triumphant thing, let’s give it a half hour and see where this thing goes. But no, you know, longtime fan. Big, big fan of you guys, been following for a long time. I can’t believe it’s been 189 episodes now that you guys have done. Congrats on that. And yeah, happy to be here with you, gentlemen.
Matt Brown (01:08):
Everything we do, absolutely free, so go in, subscribe, rate, review, do appreciate all that on the audio side of things. And if this is your first time finding us over on the YouTube machine, go down below, hit that subscribe button. Do appreciate that as well as we continue to grow the channel over there. We’ll talk about D.C., we’ll talk about Texas. We’ll talk about 365 as well. But Adam, let’s kick things off in Kentucky.
Adam Candee (01:33):
My old Kentucky home where I’ve never been, but it’s OK because-
Matt Brown (01:37):
Where I’ve never actually spent a bunch of time.
Kentucky making moves on sports betting
Adam Candee (01:38):
Well, hey, I’ve got a reason now. Look, we saw Kentucky go from long shot to legalize this year, to wow, this looks really possible, to, oh my God, the bill is signed in the span of about a week. And I want to give a lot of credit to our reporter, Pat Evans, who’s been following Kentucky here because he actually had the news first of the votes being there in the Senate earlier in the week before we ever got to a vote. He’s been in touch with the sponsors and found out that it looks like that they had to clear a two-thirds threshold in the Senate. In part because the fact that Kentucky has strange rules that in odd years, as in odd numbered years, you have to have a two-thirds majority to pass anything. It’s a short legislative session, and we weren’t sure if this was going to go through, but it did.
You’re looking at now in Kentucky, sports betting has to start by the end of the year. It will go into effect in late June. They have a six-month timeline from that point on to be able to launch. So you’re going to have a launch sometime in 2023 for Kentucky. Could be up to 27 different brands. Of course, we know the way this has shaken out, there will not be 27 different brands, but the nine horse tracks that have the ability to partner with up to three online sports brands apiece make for 27. The model in some ways looks like New Jersey. The in-person tax rate, 9.75%. The online tax rate is 14 and a quarter. Those are almost perfect analogs for New Jersey as are the three skins per partner. So you can see where some of this bill ultimately came from.
And look, this is remarkable in that we’ve seen Kentucky try multiple times. This is, I believe, the fifth attempt for Kentucky to get something through on sports betting. And representative Adam Koenig had been at the front of this for a number of years. He’s no longer in the Legislature, and yet the handiwork that he had laid down there ultimately ended up paying off this year. So Kentucky will launch in 2023, and for those who thought we might not get any states in 2023 that chose to legalize, you’ll get at least one.
Matt Brown (03:52):
Yeah, this certainly surprised me, Eric, I’m pretty sure a lot of the analysts that I follow out there on the Twitter machine too, just how rapid this came about and how quickly it all started to form and gel certainly was something that I think caught kind of everybody off guard there. How are we looking at from a market standpoint? What are we thinking that Kentucky can generate and contribute?
Eric Ramsey (04:15):
I think we generally tend to, well maybe this is me, but I think as a whole, we generally tend to underestimate the eagerness for gaming in Kentucky. Obviously a horse racing state, there is an appetite for gambling in Kentucky. There’s obviously an appetite for sports in Kentucky as well, particularly college sports. I think the only pro team is probably the women’s soccer team in the NWSL. But obviously a huge college sports culture, which will drive most of the betting. I have it in the forecast, pretty comparable to what Iowa did in the last calendar year, somewhere around two and a half billion in total handle, which should yield somewhere around $200 million in operator revenue. They are projecting themselves $23 million in tax revenue from this industry. I see it maybe a little more closer to $30 million. Not going to fill too many potholes in Kentucky, but it will be a robust market. And I would expect with the number of skins and the climate in the region, I would expect most of the big operators to find a way into Kentucky.
Matt Brown (05:16):
And to put a bow on this, Adam, we do know you mentioned that the tracks are going to be able to give out multiple skins. We just saw last week, DraftKings launched DK Horse, which is actually in partnership with CDI. And so we do have kind of a Churchill Downs partnership already in place there with DraftKings. So we assume we’re going to see the big boys. In your opinion, do we have any of the ancillary guys come into Kentucky? Is it worth the marketing push? Is it worth whatever, or do you think we’re just kind of going to get the biggest of the big?
Adam Candee (05:54):
That’s going to be interesting. I think ultimately we haven’t had as many smaller launches of late. I think Kansas really the only one that we’ve seen lately on the smaller side that’s come in. And it’ll be a good test when it comes to, I’ll use PointsBet because we use PointsBet often as the example where they’ve chosen to focus on existing markets. They’ve decided not to play in Massachusetts. That’s a more competitive market I would think than Kentucky. And you’ll see, I would believe, obviously as Eric said, the major, major operators, the top four get in. How seriously will others go after this? Who knows, because there’s not really much of a home-field advantage for anyone in Kentucky. If that were going to exist, it would’ve been Churchill Downs, and Churchill Downs pulled out of the sports betting business last year.
And in fact, you talk about them launching DK Horse and they’ve partnered up with FanDuel as well. They’ve reinvented what they’re doing as more of a B2B provider for horse racing than offering their own sportsbook. And they were one of those smaller operators that really wasn’t accomplishing much in the larger US market. So they found a way in now that will benefit them. And I think when you look at Kentucky overall, I don’t see where these market dynamics end up being a lot different than anywhere else because it’s pretty much the same. It’s online only. It’s tax rates that are competitive. I think that the playbook rolls out the same for DraftKings and FanDuel there as it has everywhere else. Take the DFS database and let them run.
Rumblings of a bet365 US push
Matt Brown (07:28):
Eric, we talk a ton, and I know that you listen to the pod and we have wasted a lot of air on this podcast talking about Bet365 and wondering when they were actually going to make the push, when were they going to or if they were actually going to make the push and decide that it was worth it here in the States. Now it starts to look like maybe the ball is rolling there for, again, if you’re in the industry, you know what a behemoth 365 is. If you’re not, you might soon find out.
Eric Ramsey (07:57):
Yeah, it’s the biggest sportsbook in the world really, but still hasn’t made its move on this US market, only active in four states today. Ohio’s the one we’re really looking at when we’re having this conversation though. Just kind of looking at the numbers out of Ohio through the first two months, I think 365 turned some heads in January. The first set of numbers we got, we saw them right off into fifth place in market share and competing on spend. Spending aggressively to acquire customers, which sort of got us giving them a second look here, what are they doing? February’s results kind of reinforced that. They jumped over Barstool into number four position in market share. Absolute terms we’re talking about 5% of the market, so not a huge number, but if we take away the bigger operators, they’re more like 20% or 30% of the remaining market once you remove FanDuel and DraftKings.
So seems like they’re making a real push in Ohio and maybe it’s interesting to have this conversation about Kentucky in the same breath. We talked about the lack of a home-field advantage for any sportsbook operators in Kentucky, no land-based casino presence there. Maybe that’s another spot where a brand like 365 could really come in and assert itself in a way we haven’t seen yet. So I don’t know. It seems like there’s something just kind of brewing here with 365 starting to take some tangible steps toward inserting themselves in the conversation and obviously really haven’t made a national marketing push yet that we’ve seen. So probably a lot more to come from them it feels like.
Matt Brown (09:26):
And Adam, one of the things we have talked about with 365 was just one of the deals of what could a company bring outside of, again, like an ESPN, which just brings the name power, right? But what could a company really bring in to disrupt the market? We talked about, well, 365’s been around forever. They know the sports gambler just about as well as anyone. They offer a ridiculous amount of markets and offer some things specifically on the golf side of things and each way betting that you don’t really get from the other big operators here. So it will be, as betters become more savvy, I do wonder if they do get exposed to a 365 where they say, and they look and go, “Oh, you know what? They do have some different stuff here, and this might be someone that maybe doesn’t get my exclusive business, but certainly could get some of my business.”
Adam Candee (10:14):
I think 365 is going to be a good test of stickiness in the US in the long term because you can look at what they just did here, which was to kind of, I’m going to say dip two toes into the pool and start to push with the promo spend a little bit, which again has been something they’ve not been willing to do in previous markets, and they really haven’t gone very hard past New Jersey. And as Eric mentioned, Ohio is one we’re keeping an eye on there. But I think if you look at the top four operators and say, “OK, where’s the path for 365?” Well, they have the tech developed because they’ve been doing this for years across the world. They don’t necessarily have the brand recognition that BetMGM and Caesars do. Well, that’s where they can spend the money and be able to make that up should they so choose to.
I mean, our friends who are in the New York metropolitan market will tell you that they’re still running the original ads that they put up when they first got into New Jersey. Guys, Jesse Pinkman hasn’t been Jesse Pinkman for quite a while. They might need to update those at some point. But anyway, ultimately 365 can look to Ontario as proof that yeah, there’s a way here. Because they were in the gray market in Ontario. They came into the legal market, and really there was no penalty. That was Ontario’s way of trying to convert the gray market was to say, “Hey, listen, we’re going to give you a path to licensure. We’re going to shut you down in the gray market, but as long as you come in, then come on down. The water’s fine.” And we’ve informally heard that 365 is the dominant market player in Ontario, so we know it’s possible for them.
And this is a company that in the fiscal year ’21, ’22 had $3.4 billion in revenues. So we know that they’re capitalized well enough that when they decide to make the push, if, or though it looks like when now, that they certainly have the wherewithal to be able to, I’m going to say lose money just because everybody loses money in some way in the market upfront in the United States. But they have the ability to withstand this in a way that DraftKings, FanDuel, et cetera, for the long haul probably does not because we’ve seen everyone’s concerns turn to how do we get to profitability. That’s the buzzword of the last six to 12 months. Well, 365 can actually play in this market without worrying about it in exactly the same way that some of the other operators here do.
Matt Brown (12:42):
Yeah, anecdotally, I weirdly have two friends that live in Ohio. Somehow ended up in Ohio somewhere along the way and just shared with me unsolicited. They were talking about, of course they have DraftKings, FanDuel, that’s who where they do the majority of their stuff, but anecdotally offered up that they were using 365 as well. And it was kind of the same deal that Adam, you and I have talked about several times with, it’s like there’s no real big difference between DraftKings’ app and FanDuel’s app. They both perform great. They both look slick. They both whatever. So the 365 they said was a little bit different and offered a little bit something different and a little bit whatever and is getting some of their business. So again, it was interesting, a completely unsolicited opinion was tossed my way by two different people that I know there about 365, so we will certainly monitor that.
Adam Candee (13:32):
Question for you, Matt, they weirdly live in Ohio? How do they live weirdly?
Matt Brown (13:37):
Well, it’s like you’re from Louisiana. You either live in Louisiana, you migrate over to Texas, whatever. I have several friends in Texas. You don’t have too many friends that oh, end up in Ohio. And what was weird about it is that it’s two people up there. It’s like it’s not just one that’s strayed up to Ohio. It’s two somehow ended up in Ohio, one in Cincinnati, one in Cleveland, so anyway.
Adam Candee (13:59):
Wow, weirdly. So weirdly.
Inkling of hope for legislation in Texas
Matt Brown (13:59):
Yeah, shout out. Shout out to everybody out there. Adam, I’m going to stick with you here. Texas is kind of the other big thing on our radar. We talked about this at the end of 2022. This was going to be one of the biggest stories, if not the biggest story should something actually come out of this here in 2023? So what are we seeing going on in Texas?
Adam Candee (14:20):
Well, we saw a committee passage, which usually would be something that would get people at least a little bit hopeful. I’m going to give you that just modicum of hope and then I’m going to crush it because we really don’t believe that Texas is going to be able to get through this year. The session runs through the end of May. You did have a house committee passage and the state affairs committee this past week. And look, any step is a positive step. And I think Kentucky is a good analog for right now. Not in terms of the market or in terms of the bill or the Legislature, but in terms of saying incremental progress over time can lead somewhere and just education on the issue and the ability for stakeholders to mitigate some concerns, et cetera, et cetera.
There is no momentum in the Senate, we’ve heard that from Lieutenant Governor Dan Patrick, who is the president of the Senate. It’s going to take a lot of push and potentially multiple years. And remember in Texas it’s every two years, so if it doesn’t get done in ’23, it’s not going to get done until ’25. It still remains of the crown jewel states that are out there, the most likely to have a legislative solution of some sort. And it also has to go to the ballot once it is solved in the Legislature. I ultimately think Texas will figure out something. I don’t think it’ll be this year, but I do think Texas down the line is going to get this done. And the steps they’re taking now in terms of having hearings, letting the opposition have its say, letting the proponents get their case out there as well, I think is going to lead to this getting done in the future, but probably not in 2023.
Matt Brown (15:59):
Eric, you do a lot of forecasting and things like that for us. And with Texas, we know the population. We obviously know the incredible amount of sports teams that are located there. We know that the fan bases specifically of the Dallas Cowboys and things like that are incredibly rabid. We know all of this that goes on there in Texas. So comparatively, I know you’ve kind of probably started to think about this a little bit, comparatively to New York, where do you think Texas would slot in? Would it be a solid number two, or is there even a chance that potentially it could be the biggest state, should they legalize?
Eric Ramsey (16:36):
Yeah, think about tourism as well in Texas, golf, NASCAR. I mean, all the things that it really ticks all of the boxes. Yeah, I mean, should easily surpass New York’s performance honestly. Think about the neighboring states. It’ll draw some traffic from Oklahoma in the meantime, while Oklahoma sits on its hands as well. I’ve been gun shy to forecast Texas until we see a model, but it should easily surpass what we see in New York, something like $25 billion in handle per year. Just as an aside here, I will pick some nits over this framework that they’re proposing. Low tax rate, 10% with promotional deductions and a half-million-dollar license fee. That is as friendly as you can possibly get for the operators, which is maybe not unexpected in Texas, but I think they could maybe win some support by showing some larger numbers at the end of the rainbow here perhaps.
But yeah, I mean, I agree with Adam. I think we’re on the road to getting it done at some point. Just as Kentucky or New York, how long these things can take, Illinois. Maybe it’ll be part of some larger expansion in Texas. There’s a movement to add land-based casinos as well. So maybe it’ll get tied up in that. It’s too early to say how these pieces will fall into place, but it does look like they’re sort of putting the pieces together and having the lieutenant governor at least apparently no longer a roadblock is a big step for the future as well.
Matt Brown (18:04):
Adam, I’ve been told that everything is bigger in Texas except for these licensing fees. What’s going on here? They could get 5x this and people wouldn’t bat an eye. I know in the grand scheme of things, it doesn’t really matter. It’s not going to affect anything for Texas, I mean in the grand scheme of things. But even if you just said, “Hey, it’s a two and a half million dollar licensing fee, whatever.” Stuff like that, I honestly think that, as Eric just mentioned, it might at least turn some heads for a couple of different people who maybe not necessarily are in opposition, but maybe are indifferent. Like even just bigger is better in a lot of cases.
Adam Candee (18:36):
Just remember, Matthew, that taxes and Texas are quite a bit different. Quite a bit different.
Matt Brown (18:45):
No, no. Yeah, that’s on that, right?
Adam Candee (18:46):
No, no, no. No, no, no. You as a Louisiana native know well that the good folks in Texas do not enjoy high tax rates. So I think you definitely had to start with something palatable there.
Eric Ramsey (18:56):
Yeah. Fair enough.
People frustrated with the Washington DC market
Matt Brown (18:58):
All right, Eric, listen, we have spent a lot of time bashing D.C. here on this podcast, so you know what, let’s turn things around. No, I’m kidding, let’s bash D.C. some more. Come on, let’s drive it home.
Eric Ramsey (19:10):
Yeah, it’s real bad, huh? It’s probably the last time I was on this podcast a couple years ago, we were talking about how bad D.C. was. It’s been a mess from, really from day one. The whole lawmaking process was a disaster. The framework they put in place was bad. The regulations have been bad. And now we’re finding out that one of the few good things they did in that law was allocate money specifically to problem gambling. The first $200,000 of tax revenue, we’ll call it goes straight to problem gambling. We learn now a couple years after the fact that $0 of that money has been spent. None of that money has either been set aside or spent to help with the issue that it’s supposed to be helped for.
The agency in charge of overseeing problem gambling help in D.C. has literally zero information on their website. You can’t find a phone number. You can’t find self-help resources. There’s literally nothing, and responsible gambling advocates are frustrated. I think we’re probably frustrated by it. It is a time when the industry is starting to at least realize that there is a need for more investment in this area, a change of attitude in how we approach this. Regulators are cracking down. There’s more funding being allocated. And we have D.C. sort of taking us a step backwards. I know you’re frustrated by it Adam too, and I think we’re all kind of peeved, by the way, this is playing out in a lot of ways in D.C.
Matt Brown (20:35):
Adam, can’t they just go to a whiteboard and put like, “OK, maybe don’t charge 150 on each side from bets.” And then they put write that on there. And then they put, “Find a way to spend whatever.” Couldn’t they just put a checklist together and then go down the checklist and try to actually do the right thing? And instead, it seems as if there is, there’s not only no whiteboard that there’s no one that even cares about trying to make a list of what to do right there.
Adam Candee (20:58):
There are no markers, there is no conference room. In matrix terms, there is no spoon. That’s not happening in D.C. And the reason we know about this in the first place is because Mayor Muriel Bowser is trying to take that money and redirect it and put it into other things and cut it out of that budget. And in the end, I can’t say I blame the mayor if the money isn’t actually being spent. If you’re just going to sit on the money, if you’re going to park $600,000, then yeah, as Eric talked about earlier, I’m going to fill some potholes. I’m absolutely going to take that money and do something with it. And so that’s not to say I have any love for the idea of taking problem gambling money away, but spend it. It’s not that difficult.
We talked to Keith White, the executive director of the National Council on Problem Gambling, and he said, and I quote, “No one is going to contact your secret responsible gambling program.” They’ve done nothing to promote it. They’ve done nothing to help. But it’s not to say that $600,000 or $200,000 annually is going to make all the difference in the world, but it absolutely can make some difference. And so look, I don’t understand exactly why from A to, I don’t know where we are, are we at X, Y, Z? I don’t know where we are in D.C. right now, but it’s all been bad. It has been roundly bad. It has been mismanaged from the jump. It has not gotten any better, and I don’t have a lot of hope that it will with the direction that things have gone.
Matt Brown (22:30):
Yeah, it’s just, it’s like you said, I also don’t blame. So I mean, if there’s a whole lot of money sitting with absolutely no earmark to it, it’s like no plan for it. It’s kind of like, “All right, well, I’m going to plan where we’re going to put this money.” But D.C. our plea to you, it’s early in the year, it’s only April, just give us something. Give us something to be happy about before the end of ’23. Just something. Just, we’re holding out hope for you here with all this.
Again guys, everything we do, absolutely free, head over to legalsportsreport.com to take in all of the words that Adam and Eric and all of everybody over there is putting together. They’re doing the hard work so you don’t have to, so go in and support those guys. Again, subscribe, rate, review. Everything we do, absolutely free at legalsportsreport.com. Do appreciate you guys. Eric, it was amazing having you back on here buddy. You know what? Let’s do it again in a couple weeks. How about it?
Eric Ramsey (23:24):
Yeah, sounds good to me.
Matt Brown (23:24):
Taking next week off, fellas, so come back in two weeks. We’re all going to be … Well, Adam’s-
Adam Candee (23:29):
Hey, hey, hey, hey.
Matt Brown (23:29):
… we’re going to be in San Diego, getting together and doing the things like that. So for Adam, for Eric, I’m Matt. See you guys in two weeks.