Wicked awesome news | LSR 158
Welcome back to the Legal Sports Report Podcast, Ep. #158! The crew is finally back together to talk about a major state that finally voted to legalize sports betting, (1:33) plus major questions about when Ontario will show some transparency, (11:33) a wonky dive into promo deductions, (13:33) and flowers for an LSR farewell.
Matt Brown (00:12):
Hello, and welcome to episode number 158 of the LSR Podcast. My name is Matt Brown, joined each and every week by the brightest minds in all of the gaming industry. With me, I have Dustin Gouker, I have Adam Candee, you can follow them on the Twitter machine for absolutely free, and you should @dustingouker, @adamcandee, two E’s, no Y, and if you hate yourself, you can follow me @mattbrownm2. If you’re watching us on YouTube, appreciate that, go ahead, hit the subscribe button down below, we do appreciate that. And of course on the audio side of things, subscribe, rate, review. If you do leave a little comment, it does help us climb the charts. Makes us seem even more important than we already are, so we could really use some more reviews in there as well so if you don’t mind dropping a comment in there, we do appreciate it.
Could there be one of the big boys from rest of country coming to Nevada? We will talk about that in just a second. We’ll talk about where does Penn sit in Canada from a technology standpoint. We’ll see, check in in Virginia. We’ll also look at some Canadian numbers. But Adam, let’s kick things off here with what is a very, very big story in our bubble here. And certainly if you are up in the Northeast, we have a new state. It is a state in which one of the big gaming companies is located. It is a state in which, best or worst, depending on who you talk to, fan base in the world, we now have Massachusetts on board.
Massachusetts sports betting deal struck in final moments of session
Adam Candee (01:42):
Mind you, the person that you are talking to is a New Yorker by birth and by allegiance, and so I have my own thoughts on that, but I will say this much — wicked awesome. Good job there, Massachusetts. It took until 5 a.m. Monday morning, roughly five hours after the original deadline for the end of the Legislature in Massachusetts. But a compromise was reached between the House and Senate on their two sports betting bills. And that means that, at the earliest by later this year and probably by the Super Bowl, you will have legal sports betting in Massachusetts. It is a bill that does not look too dissimilar to others that we’ve seen throughout the country. They end up settling at a 20% tax rate on mobile, 15% on retail. There’ll be seven standalone licenses. The three existing casinos will have skins available as well. You could see as many as 15 brands in Massachusetts.
You will see all of the big ones including the one that you referenced there, Matt, DraftKings, of course, as headquartered in Boston. What we were waiting on was to see with this conference committee between the House and the Senate, who had passed very different bills, if they would be able to reach a compromise. Now I just mentioned, they obviously did go with a tax rate that looks a lot more like what the House wanted than the Senate. The Senate had proposed something in the range of 35% for the tax rate. The big sticking point, according to our Mike Mazzeo, and by the way, welcome to Mike Mazzeo on the LSR staff. Mike Mazzeo talked to one of the conference committee negotiators who said that the college sports ban was the biggest issue that they had to work through.
Now, the Senate had a total ban. It ended up being reduced down to just a ban on betting on in-state colleges. That ban will be lifted during March Madness. So you will have the ability, should we have a return to the John Calipari glory days for UMass, you will have the ability to bet on them during March Madness to win the tournament, not on individual games. So that is taken care of. There was potentially going to be a whistle-to-whistle advertising ban. That came out of the Senate bill, that went away as well, so what we ultimately ended up with in Massachusetts was a bill that looked a lot more like the more reasonable one that the House had passed all the way going back to last year. So that was a bill that took about a year to make its way into and through the Senate with their own version. And by 5 a.m. Monday morning, there was legal sports betting approved in Massachusetts. Still waiting on the governor’s signature, but that is expected to be a formality.
Matt Brown (04:16):
Dustin, you and I and Adam have joked about this as we’ve been, I mean, years now that we’ve been doing this podcast of this whole college sports betting hang-up that we continue to get. I mean, there’s a little thing called Venmo and PayPal and all this stuff. It’s not like you got to meet them on the corner if really these guys want to do anything nefarious or whatever. But it is one of those things where we have found now, at least in a few different states, where there can be this kind of olive branch, this compromising point where we can say, “OK, well how about this? We won’t do it on in-state colleges.” And still whenever we do things like that, I mean we laugh, but it has been something that’s kind of helped things get across, at least, opened up other conversations and/or helped things get across the finish line.
Dustin Gouker (05:09):
Yeah, I mean, it’s a bad policy. If you’re legalizing sports betting, you should be legalizing everything that’s legit to bet on, which should include D1 college basketball of all sorts. There’s no gains in integrity from limiting, getting rid of in-state schools. That being said, you’re absolutely right. If this is the one little thing that policy makers and legislators want to say, “Well, we’re stopping it from … We’re going to stop it from happening in our schools.” OK, great. I mean that’s not true, but if that makes you sleep better at night and gets sports betting across the finish line, by all means do that. Again, it is just crazy. But, again, much better that they did this in-state school ban rather than a full ban on college sports because I’m not going to say you shouldn’t legalize sports betting at all if you’re not going to have college betting, but it’s not accomplishing anything. You’re really creating a much inferior product to the offshore sportsbooks, which are again going to happily continue taking your money to bet on college football and college basketball.
Matt Brown (06:09):
Adam, what are we looking at as far as operators that we can expect to see, or I should say, that the people in Massachusetts can expect to see?
Adam Candee (06:17):
Well, the most important thing to keep in mind is that when we say existing casinos get skins, we’re talking about MGM and Wynn as some of the major players who already have a presence there. And the biggest thing in terms of those is Wynn because Wynn has kind of pulled back in a lot of places in the country, but I do think they feel they have an advantage in Massachusetts. Having the brick and mortar there to be able to get a retail sports book potentially open before mobile begins and be able to build up a customer base that way. So that is an advantage for them. With the seven standalone licenses, you can pretty well point to the usual suspects that you’ll expect to see in Massachusetts. Of course, as we mentioned, MGM and Wynn accounted for already. So you’re talking about FanDuel, DraftKings, PointsBet, Caesars.
I think the one that will be interesting to watch — two, really they’ll be interesting to watch — Fanatics in particular is one to keep an eye on because we know that this is right around the time that they’re making their big push. We expect them to show up in New Jersey. They’re obviously pushing in California, as well. And then I think we’re all kind of waiting to see is this going to be one of the 365 states? 365, of course, is in the range of time when we’d heard that they were going to make a push into as many as 10 states this year. So, with seven standalone licenses, that’s part of why we say don’t expect it to start immediately. Even though you’re hearing rumblings of air quotes football season for the legal sports betting apps in Massachusetts, keep in mind you still have to go through not only a rules and regulations process, but an application process for licenses that could end up not being granted to everyone who puts in an application.
And so I’m going to give the one caveat, Matt, that we always end up having to give around this time. Because even an outlet as sharp as Pro Football Focus put this out earlier this week and said, “Legal sports betting is here in Massachusetts.” No, it’s not. And the offshores are excited to be able to use this confusion right now over the next few months to push their products on the people of Massachusetts even harder because “Hey, it’s legal now, right?” Well, no. Those offshores that were never legal are still not legal and aren’t going to be legal.
Matt Brown (08:33):
And Dustin, we’re looking at about the 15th most populous state, a population kind of right there with Arizona. We know Arizona has been a really pleasant surprise in all this. We thought that it would do well. I think it has exceeded the expectations of not only us, but even the operators themselves. I’ve talked to a couple of different guys out there who were like, “Hey, look, we thought it would be big. We didn’t think it would be this big.” So, when we talk about Massachusetts, and we do talk about the Pats fans and the Celtics fans and the Red Sox fans and the Bruins fans and stuff like that, what do you estimate from where Massachusetts will slot in in the grand scheme of things?
Dustin Gouker (09:12):
Yeah, I mean this is the dynamic of just sports-crazy fans. The entire state. Boston is huge. These are the most rabid fans maybe outside of New York, right? I’d say, in our country. And they’re primed for this, I think. Yeah, I’m not going to say that’s going to lead them to be to over-index in terms of that, but yeah, it’s going to be significant. And it’s going to be when they launch I think will be a big part of that. Obviously, no chance we’re going to see online sports betting before the NFL season launch in the middle of it or around the Super Bowl. There’s going to be a huge uptake I think around that. And even though DraftKings is only done DFS there, they are kind of ingrained in Boston, Massachusetts, culture. People know what DraftKings is if you live in there, whether that leads them to be a number one with a bullet in Massachusetts, we’ll see. But it’ll be a big state for sure, and it definitely has a chance to over-index in terms of population and what we’ve seen across the US.
Matt Brown (10:12):
So, Adam, being in a native New Yorker, is Boston the absolute worst, the nut low when it comes to fans? Or do you acknowledge, say, like, “No, no, no, we’re the best, but they’re a distant second.” How does that work?
Adam Candee (10:26):
All right, I’ll tell a little story to explain my answer here. So we were just in Boston for the National Council of Legislators from Gaming States, the NCLGS conference, in July. And we had the opportunity to go to a couple of Red Sox games. As it so happened, it was Yankees-Red Sox while we were there. So I’m a Yankees fan in Fenway Park, and I’m looking around this baseball cathedral, and I’m listening to these fans, and I’m expecting myself to think, “Ah, you [inaudible 00:10:55],” No, you know what? I actually had a lot of respect for it. I found myself thinking this is pretty cool. So what I really noticed was that Dustin took the opportunity to leave Philly fans entirely out of the discussion of most rabid nut low. Really? Philly just escaped from that discussion real fast, didn’t it?
Dustin Gouker (11:21):
I mean, we’re awful. We have awful fans. Mets fans, though, Mets fans, we can all agree are the worst.
Matt Brown (11:26):
Yeah. Yes. There you go. We’ll go there, we’ll go there. We can agree at least on that. Dustin, so let’s talk numbers in Canada while we’re at it.
Analysis: Oh Canada? Where are the Ontario sports betting numbers?
Dustin Gouker (11:33):
Or a lack thereof. Is really the story. All right, let’s go back here. Ontario launched online gambling April 4th. It is almost four months later, August 3rd as we record this. We got nothing. We got bupkis from Ontario in terms of numbers and reporting, which is borderline crazy to me. We make fun of states that are slow, and no state has been this slow, I don’t think, correct me if I’m wrong, Adam. Even the ones that trail by almost two months. Nobody has taken this long to report numbers. And again, we were just in Toronto, for conferences around sports betting, and everybody’s talking about it, “How great a success this has been.” It’s like, “OK, great. What is your proof of that?” Because right now we’re just relying on your word that this has been a great launch here in Ontario with moving people to the market, new operators coming in.
We have no revenue to see if this is being effective and how good it is. We should get some transparency into this. And again, this is the transparency we get anywhere where these, in most of the US states, where it’s a law where this is part of gaming revenue, and it’s reported. So we thought, we had heard whispers it is going to be in July, and again now we’ve turned the page to August — nothing. So we can’t really say what Ontario’s done until we start seeing these numbers, how effective they are, how effective is transitioning the gray market, the existing operators who already served Ontario and then got regulated? How much is that? How much are the new brands that have not been in there? How much has that impacted? Because it’s real hard for us to sit here and say Ontario has been good or bad without that context of what the numbers are.
You can’t really, it’s almost impossible to say this has been good or bad without that. So good piece over there up by Pat Evans on LSR about this, wondering where the numbers are and hopefully we’ll see them maybe this week or maybe this month, or we’ll keep waiting. But it’s getting kind of crazy that we haven’t seen anything out of Ontario reporting yet.
June VA sports betting report shows promo deductions end for many
Matt Brown (13:39):
Adam, we talk about states so in nuance because everything is different from state to state, to state, to state, to state. And we talk about, “OK, well this is the tax rate here, and then this is here, and this is what our …” Well Virginia is entering a new phase over there, which, again, it’s one of these things where if you didn’t pay a lot of attention when things got going, you might not have known that this was even happening. But very interesting from how people will be marketed to over in Virginia.
Adam Candee (14:09):
It’s going to be very interesting to see how sportsbooks respond to not only this new Virginia situation, but you’re going to see something similar in Colorado before very long, as well. So the new fiscal year just kicked in in Virginia, which means a new law just kicked in that phases out promo deductions for a number of sportsbooks. Essentially, when we talk about promo deductions, we’re talking about when you’re offering free bets or match bets, et cetera, that are essentially free money for betters who are coming and trying out your product. Well, these states, most of them in fact, allow sportsbooks to deduct the promotional costs from the revenue that is used to determine how much tax comes into the state. Now if you don’t pay close attention to this, you might not notice that this is millions upon millions of dollars that is being deducted from revenue every month.
Which of course when you’re talking about a 10, 15, 20% tax rate, well what you’re seeing is that when you have tax rates that are, I know to some high, but those really aren’t all that high when you compare it to a New York or a Pennsylvania, that cuts in significantly to the amount of money that the state gets. And what you see is a lot of folks who were either against legal sports betting or using these numbers as a cudgel against those who were for it are saying, “Well, you’re not bringing in any money.” And so now what happens is July will be the first time that sportsbooks in Virginia — seven of them, and you can read our article by Matthew Waters to see which seven at legalsportsreport.com — are going to end up not allowed to use their promo deductions away from their revenue anymore.
Colorado has a new law just passed this year that’s going to phase out those deductions over time for sportsbooks. Now, Matt, to your point, what does that mean? Well, it could potentially mean that you see less promos, less free bets, offered to you in Virginia, in Colorado and elsewhere. In fact, this was a big point of contention in not only New York, where there are no promo deductions allowed on the 51% tax rate, but we just saw it in the Massachusetts legislation where that was a sticking point and promo deductions are not going to be allowed in Massachusetts, either.
Matt Brown (16:25):
Dustin, we talk a lot about Penn on here. Penn has been a big mover and shaker, lots of acquisitions, lots of moving around and shuffling, and we have some more shuffling from a tech standpoint here with Penn.
Analysis: Tests ahead for Penn after theScore Bet in-house migration
Dustin Gouker (16:37):
Yeah, we talked about, a lot on the podcast, theScore Bet coming to be acquired by Penn National recently. So theScore Bet is now entirely on its own tech stack operating only in Ontario, and the news and a great piece by Brad Allen over at LSR about this is what this means for Barstool and taking that tech stack and getting Barstool onto that. They have promised by Q3 of next year that that should happen. Obviously, that’s with the idea that it’s going to be live for the next NFL season. And, when you talk about, that’s like migrating onto a new tech platform, that’s something that’s hard to wrap your head around. That’s like, “Oh, that sounds kind of hard, but maybe doable.” Brad really breaks us down in detail what goes into this, what other sportsbook operators have done in terms of this.
And this seems like a pretty aggressive timeline, especially since we just saw, again, theScore, it’s entirely onto this because they onboarded their trading platform. So what we have is we’re looking at little over a year from now, Penn is going to have Barstool on this platform or says they will. Well, the evidence we have is we have 18 months for Caesars to entirely migrate from that when it bought William Hill to get onto its own tech stack.
We have DraftKings buying SBTech, took 15 months and is still experiencing growing pains from that. So it’s a fascinating case study to see what happens. And then in the background of all this is, does this move the needle for Penn National and Barstool?
Barstool, you add it all up, about 5% of revenue in the US market. That’s not a very exciting amount of money for the investment that they have made. Again, $2 billion into theScore Bet. A much smaller amount, I think like $140 million, for a minority stake in Barstool to use that as its brand across the country. So this is a big endeavor, and if it doesn’t work out, then this is what we talk about. This is why they acquired theScore Bet. If this doesn’t move the needle in terms of being able to create a better product and to serve customers in a better way, then this is $2 billion kind of up in smoke other than whatever media money they get out from theScore in terms of just leveraging it as a media platform. So it’ll be interesting to see. This is kind of put up or shut up for Penn and Barstool. If you do all this and you’re still at 5%, there’s going to be some hard questions to be answered over there at Penn National, I would say.
June Nevada sports betting figures highlight dip in mature markets
Matt Brown (19:03):
Adam, anytime anything pops up about Nevada, you and I, the eyebrows raise a little bit, and this was super interesting. Now, we aren’t a hundred percent positive. One, I mean there’s still steps to go here, whether it’s even going to come to fruition. It seems like all indications that it will, but it does make us start to wonder, are some of these rest of country, are some of these actual industry leaders out there, going to finally take that next step here in Nevada?
Adam Candee (19:34):
It’s a qualified maybe, and I’ll explain why in a second, but I want to go back for a second just briefly to what Dustin mentioned about how Brad broke down everything about Penn and theScore and Barstool. And I would be remiss if I didn’t mention that Brad is going to be leaving for a pretty impressive opportunity that we’ll let him share the news about whenever is appropriate for him. But this is the kind of story that separates Brad and that I was so happy to have at Legal Sports Report for the time that Brad was here. He has been a singular person in this industry in terms of explaining how things work, and it would be negligent on my part not to give him his flowers on the LSR pod here for a minute before he takes on the next challenge in his world.
Now, when it comes to the challenges in our world, Matt, here in the state of Nevada, they are notable when it comes to the apps that are available and the sportsbooks that are here. What we’re seeing, with proper credit for this story to Howard Stutz of The Nevada Independent, who’s the first to report it, that we are expecting that FanDuel is going to be on the next Nevada Gaming Control Board agenda for approval to take over at least the retail branding of Boyd’s sportsbooks in Las Vegas. Now, we already know these two companies are tied up in a market access agreement. Boyd owns a small piece of FanDuel, this is one of the first things that was announced after PASPA in 2018. It’s allowed both companies to get into states they might not otherwise have been able to get into.
What it doesn’t do is bring FanDuel’s app to Nevada. It does mean that FanDuel odds are going to be used at the Boyd retail sportsbooks. It means FanDuel branding is going to be on those sportsbooks. Of course, we know from talking to people across the industry that getting tech approved in Nevada is a very different story than getting tech approved anywhere else, which is part of the reason we haven’t seen FanDuel, DraftKings, et cetera. In addition to the in-person registration requirement, which is the biggest impediment for the standalone companies like FanDuel and DraftKings. Will that be a foot in the door if FanDuel is approved to run the retail? Potentially. And I know you’re excited about the markets that might become available in Nevada because of this move because we already saw it that Boyd had a pretty impressive menu of props beyond what other Las Vegas books were offering.
Matt Brown (22:03):
Yeah, I mean it’s one of those deals where even if it’s an over-the-counter type situation, we don’t have … Even if we don’t have the app at the beginning, I mean they just offer so many other markets that aren’t available here at all. While it would be a mild inconvenience for me, I would make the trip to go and make the bets across the counter and stuff because they’re the only option. It would be the only option. That’d be the only game in town when it comes to stuff like that. I mean, Dustin, both of the companies — I’m talking about DraftKings and FanDuel — used to be near synonymous with Las Vegas because every one of their big events from a DFS standpoint used to take place here. This used to be where they had every single one of their live finals, and they would have huge big parties. It’s a perfect spot for all this because of the night clubs, because of the restaurants, because of the actual physical sportsbooks here where you can have these type of big watch parties with all of this stuff.
And so we’ve been several years now without those guys having any sort of footprint whatsoever, so this is at least interesting from that standpoint, as well.
Dustin Gouker (23:02):
Yeah. Does this mean we’re going to have wide-open online sports betting in Nevada? I think we’re still pretty far away from that. But Nevada is still a place, it is still a place where people get onboarded to sports betting. You will find people who do not bet anywhere else and will plunk down a bet at a FanDuel sportsbook or wherever in Vegas because it’s there, it’s part of the culture. You’re like, “Oh, going to Vegas? I’m going to put a bet down.” And this is not really changed, I don’t think, in the world. Yes, there’s new betters being found in lots of places, but there’s still plenty of states and plenty of people who do not get exposed to legal sports betting.
And this is still … If you’re FanDuel or any brand that covets a national audience, I think having a spot in Nevada and again, being a placeholder for someday down the road when you get wide open mobile sports betting, then this becomes exciting for a lot more companies. And I think we all agree that they will come, but it’s still, as we sit here, easily years off.
Matt Brown (23:58):
I was going to circle back at the end of the pod here. Adam already gave some kind words as well. I’ve been fortunate enough to work with Brad as well over the last few years. Not only here on the LSR side of things, but also on our sister site at The Lines side of things. So best luck to him and his new endeavors here. Dustin, I know one of the major contributors for us, and he will certainly be missed.
Dustin Gouker (24:19):
I think Brad sucks. This is a win for us. Just kidding, just kidding, just kidding. Brad has done some of the smartest pieces over the last two and a half years that he’s worked with us. I think it’s about two and a half now. I learn something when I read Brad’s stuff, almost always. He’s done a great job, and be sorely missed by all of us here at LSR.
Matt Brown (24:44):
Guys, as always, everything we talk about here on the pod you can find over at legalsportsreport.com. So please go over there and read all of these great words for these articles that Adam and team are putting together. And, of course, as we mentioned at the top here, if you are watching us on YouTube, one welcome and go ahead and hit that subscribe button because we’re going to really start to branch out this channel a lot more. And then if you’re listening on the audio side, a little subscribe, a little rate, and if you want to drop a comment in there, that really does help us as well.
You should follow Dustin on the Twitter @dustingouker. You should follow Adam on the Twitter @adamcandee, two E’s, no Y. And if you really hate yourself, you can circle back all the way to the beginning of the podcast and figure out how to follow me on there. For Dustin, for Adam, I’m Matt. Talk to you guys in week.