California will have at least one online sports betting question on the ballot in November.
However, the measure itself appears to exclude one of its biggest backers from the market.
The CA sports betting initiative is funded by six US sportsbooks and one company trying to enter the space:
- Fanatics Betting and Gaming
- Penn National/Barstool Sportsbook
What’s the catch?
The initiative says California licensees must already be licensed in 10 states, or operating in five states and running 12 casinos.
Five of the seven backers fulfill that first requirement. The 12 casinos alternative appears to be a nod to Bally’s.
But Fanatics has neither 10 online betting licenses nor 12 casinos. Yet the apparel company has given $12.5 million to the CA campaign so far, with more likely on the way.
So how could the apparel giant scrape together 10 licenses if the measure is successful?
Next step for Fanatics in California sports betting push
If the measure passes, operators could be taking bets by 2023, DraftKings said last week. Assuming a go-live date at the end of 2023, Fanatics sports betting has around 18 months to clear up a murky path.
The company has been involved in market-access discussions in various states, sources said. But it might still face an uphill battle to get it done organically.
“You would be hard-pressed to get 10 new licenses in the states that exist today,” said Brendan Bussman, a regulatory expert and managing partner at B Global. “While not insurmountable, Fanatics would have to be aggressive now to gain market access in the states that still have open licenses.”
Buy or build?
Bussman said an acquisition might be the best option for Fanatics given the abbreviated timeline.
“There are only a few companies that makes sense and I am sure Fanatics has potentially considered those companies in their thought process,” Bussman said.
A new era?
Another industry advisor, who asked not to be named, said acquiring 10 licenses was much more doable now than 12 months ago:
“I think you could get it done,” he said. “You’ve seen retrenchment from the likes of Churchill Downs and and you’ll see more of that from other players who realize they can’t make it and are going to be selling.
“You can buy one of these smaller companies and pick up four or five skins. Then if you’re Fanatics and have all that cash, it’s not hard to come up with a few more. Michigan and New Jersey might be tapped out. But you look at places like Colorado, Tennessee, I think it’s doable.”
Companies like PlayUp have previously been M&A targets in part because of their portfolio of licenses. Churchill Downs has also said it is looking to sell its access, while Penn has some spare licenses after acquiring theScore.
“It’s possible to do it organically but difficult and super expensive,” said another licensing advisor. “You would need a big bankroll and a great broker. It would be far easier to acquire a PointsBet or, hey, DraftKings might be going cheap soon.”
Fanatics did not respond to a question about its plans for market access.
California sports betting a huge prize
Fanatics doubtless has a plan in mind, though, because California is a major prize. The state could potentially generate $3 billion in annual revenues, BetMGM said this week.
However, it is far from a sure thing the CA online betting measure will succeed.
The question will face competition on the ballot from a tribal-backed retail betting measure. As sports law professor John Holden put it recently:
“If you have more than one ballot initiative on the same subject, you might as well have none.”
Indeed, CA tribes have pledged to block the online measure at all costs.
Three tribes announced last week they were delaying a betting initiative of their own until 2024 to focus on blocking the online measure.
Those tribes are:
- The San Manuel Band of Mission Indians
- The Rincon Band of Luisueño Indians
- Wilton Rancheria
Defeat the corporate books
A spokesperson for the tribes added:
“Due to the ongoing collapse of support for the Fan Duel/Draft Kings online sports betting measure and the effectiveness of our recent ads, our strategists have recommended that we have a better path for victory in 2024.
“Our focus has always been, and continues to be, to defeat the corporate operators and preserve Tribal gaming, promote Tribal sovereignty, and ensure all Tribes participate in any expansion of gaming in CA.”
What do voters think about California sports betting?
Polls funded by both sides have shown varying levels of support for both measures.
In recent earnings calls, BetMGM and DraftKings spokenpositively about the prospects for the online measure.
Perhaps tellingly, though, BetMGM did not include California in its EBITDA forecast next year.