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MediaTalk | Season 2 | Ep. 39: Who is winning as legal sports betting grows in the US?

 

Mike Reynolds: Hi, I'm Mike Reynolds, a senior reporter covering the media industry with the S&P Global Market Intelligence tech, media and telecom news team. Welcome to "MediaTalk," a podcast hosted by S&P Global, wherein the news and research staff explore issues in the ever-evolving media landscape. Today, “MediaTalk” is going to delve into sports betting, legal and otherwise. In May 2018, the Supreme Court repealed a law that had limited legal sports betting to Nevada. Since then, 38 states and the District of Columbia have approved sports betting, which is now available via a combination of retail outlets and mobile and/or online platforms. That roster increased by one on Election Day. Here to talk about legal sports betting in the US is Dave Forman. Dave's the vice president of research at the American Gaming Association, the national organization that supports legal sports wagering as well as casino and online gaming activities in the US. Dave's going to bring us up to speed on sports betting legislation, Americans’ interest in wagering on specific sports, the industry's growth to date, and where it's heading. How are we doing today, Dave?

David Forman: I'm doing great. Thanks for having me.

Reynolds: All right, let's get to it. In Missouri, there was an Election Day ballot for sports betting to become legal via apps and casinos and on boats in the state. After some legislative attempts in the past, the ballot passed, but barely. Missouri is the 18th largest state by population. It's in the middle of the country, and all of its contiguous states offer legal sports betting, except, I think, Oklahoma. Beyond college sports, the state is home to the MLB's St. Louis Cardinals, the NHL's St. Louis Blues, and the two-time defending NFL champion Kansas City Chiefs. Is Missouri going to be a robust state for legal sports betting, Dave?

Forman: Yeah, I think no doubt it will be for a lot of the reasons you mentioned. It's got six professional teams there between the Kansas City and St. Louis markets, plus the various college teams. And when you, if you were going to compare it to another market, it's about the same size. Missouri is in terms of population as Maryland, and Maryland has been online for a couple of years now. We think it's on pace in terms of revenue to grow to about $670 million this year. I think Missouri could be right around that area. It'll be bigger than some of its neighboring states, probably with the exception of maybe Illinois and Tennessee. But it's safe to say it'll be somewhere in the $500 million to 600 million a year range in terms of revenue and business. Put it in the realm of Indiana, Maryland, Louisiana market. Pretty good-sized markets, but no, Illinois or New York, but still a good-sized market for the industry.

Reynolds: The tax rate is 10%. The monies are earmarked for educational initiatives.

Forman: Yeah, the tax percent is 10% on the earnings, and it's earmarked for public education and higher education. And then an additional portion of those funds goes towards research and treatment for compulsive gambling. A lot of states earmark a portion of their gaming revenue taxes towards problem gaming services, and Missouri is no different that way. Last year, about $115 million of industry revenue or industry tax dollars was devoted to [responsible gaming or problem gambling] funding, which is almost all of the funding that those programs get. It was good to see that included in Missouri's bill so that those programs could continue to get funded there.

Reynolds: Any sense for when things may get going? I read somewhere it could be in a month. That would seem to me to be a little bit of a push there.

Forman: I would take the over on a month. But according to the ballot initiative, it has to start by Dec. 1, 2025, and since the ballot amendment specified the answers to a lot of some of the policy-specific things that people kind of battle over, like the tax rate and the number of licenses and a couple of other details, hopefully, they'll be able to move pretty quickly, and we'll get it launched before next December. But at some point next year is probably a good estimate.

Reynolds: Okay, so another legislative matter I wanted to address: US Rep. Paul Tonko from New York and Sen. Richard Blumenthal from Connecticut in September introduced the SAFE Bet Act or Supporting Affordability and Fairness with Every Bet Act. Among other things, the bill would look to prohibit the use of artificial intelligence to track players' gambling habits and activations of individual promotions, regulate advertising, including messaging during live games, and limit customer deposits to five within a 24-hour period. Dave, can you talk about AGA's position here at all?

Forman: The act does a lot of things, and we should be clear about what it is, and they're clear about what it is. The first bullet that they put out on their fact sheet about it, right? It establishes a general nationwide prohibition on sports betting. Its underlying goal is to reinstate the federal prohibition on sports betting. We think that it undermines the expertise of state and tribal gaming regulators across the country to tailor frameworks and laws that meet the needs of their states and their jurisdictions. We also think that by rolling back the legality framework, it again fails to protect Americans from the very accessible, pretty dangerous illegal market in sports betting. That's always going to be available if you ban sports betting. People were betting on sports before 2018.

Reynolds: Sure, absolutely.

Forman: They'll go back to it, so in terms of the prohibition on sports betting, that's what it is. It's also got really heavy-handed restrictions on advertising, potential affordability checks, and things on restrictions around AI that also, again, we think will create pretty significant friction that will push Americans back into the arms of a lot of those illegal operators, not to mention violating pretty well-established free speech protections around advertising. It doesn't have a lot of support right now in Congress, but we think there are some really fundamental problems with the bill around free speech and around allowing the still nascent legal market in sports betting to grow and develop and provide legal innovative products for consumers who clearly want access to it.

Reynolds: All right, let's take a look at the fourth quarter. It's the busiest time of the year for the US sports market. NFL and college football are in full swing. The MLB playoffs capped by the World Series just concluded. We're in the early days of the NHL and NBA seasons, and college basketball has just tipped off. Any sense for action so far this fourth quarter, Dave?

Forman: We're at the mercy of state regulators releasing their books, and we still haven't been able to close the books on September yet, so we don't even have a full picture on the first month of the NFL yet. But I think the trends that we've seen throughout the year so far are going to continue. If you look at the market nationally through August, sports betting revenue is up more than 30% from 2023. And even if you strip out some of the new markets that have launched since last year, like Kentucky, Maine, North Carolina, and Vermont, the organic revenue growth that we've seen in those markets that have been around for a year or two years, they're still growing at nearly 22%. New consumers are coming into the market, and people who are playing are having a good time, and they're playing more. So I don't think there's any doubt that we're going to see a lot more action, as you put it, in September, and the states that we have seen have shown really healthy growth. Handles up in places like Michigan, Iowa, and Pennsylvania by 10 to 12%, places like Ohio and Indiana, it's up by 25%. Football season is the biggest season of the year for the sports betting industry, and I think we're going to see really strong growth this year, even stronger than we've seen through the first eight or nine months of the year.

Reynolds: Given your comments there, I take it you guys had projected earlier in the year that the sports betting handle will reach, I think, $155 billion in 2024. That's up about 25% from $120 billion last year. Sounds like you might be heading in that direction or maybe even surpass it.

Forman: Yeah, through August. Like I said, we only have full numbers through August, but we were out about $88 billion in handle. And I guess for folks who don't know that, the handle is the amount of money that's in the bet on the game, not necessarily won by anybody. But that's up about 30% from last year through August. So I think we're staying pretty true to that projection that we put out earlier this year. We might come in a little bit on the high side, maybe closer to $160 billion in handle, especially if we have a strong football season. The other thing to keep in mind, especially with the launch of Florida, that I think we don't talk about enough is none of this includes tribal betting, which probably isn't a big portion of the market in a lot of places. But in Florida, it's all there is. So we talk about these revenue numbers and these handle numbers, and I think we shouldn't forget that it's actually bigger than that because what we have access to doesn't include the Florida market, which is obviously pretty significant.

Reynolds: Let's scorecard a bit if we can. Any general sense for the affinity for MLB's postseason? Obviously, it was capped by two iconic teams, maybe the wrong one, but that's another story. But yeah, just trying to get a sense for betting affinity for MLB these days.

Forman: Yeah, I'm a Boston guy, so I know the wrong team won there, but we're on opposite sides of that. Yeah, no, I think obviously the broadcasters, and I'm sure Major League Baseball, were happy with the two teams that ended up in the World Series. And like I said, we don't have data for it, but I have no doubt that it has attracted a lot of attention. Unfortunately, the folks in New York could bet on their own team. California, being one of the two biggest markets, really, that are left without legalized sports betting, the other being Texas. Hopefully, we'll get them on board. There's kind of different dynamics in each of them. Legislation passed one chamber in Texas last year, and it will be probably an uphill climb to get anything done there this year or next year when they reconvene. California, I think we all know what happened, and it was one of the most expensive ballot initiatives of all time a year or two ago around sports betting that went down. But the state of the industry there in terms of sports betting, at least, is ultimately going to be up to the tribes who really run gaming in that state. And I think the tribes and some of the online operators have become more cordial and collaborative, and so I think there's hope within the industry that something will get some movement and access to the California marketplace, maybe as soon as 2026, but...

Reynolds: Really?

Forman: Hopefully, certainly more likely 2028.

Reynolds: You'd mentioned Florida before as well, Dave. I think it's the 3rd or 4th largest state by population. The Seminole tribe, I guess it's with Hard Rock. That's the activity now in terms of online, and is it casino betting? Can you give us a little bit more sense for Florida?

Forman: Yeah, in terms of sports betting, Hard Rock is the only game in town right now in Florida. There have been some discussions between them and I think at least one or maybe two of the commercial online operators in terms of partnering or lending each other's brands or tech to each other. There may be an opportunity to get access to different kinds of products. But ultimately, the Seminole tribe has a monopoly on the sports betting there. But I do think the kind of discussions we've read about over the last few weeks between them and some potential commercial partners are indicative of the falling of what had been a pretty adversarial relationship, especially in places like California, between some of the commercial online guys and the tribal operators.

Reynolds: The college football game is growing. We're going to a 12-team expanded college football playoff this year, Dave. Your sensibility for that? Is that bringing in anecdotally more action, or expect a huge turnout as we get into December and January with the culmination of the college season?

Forman: Yeah, I think the expansion of the football from four to 12 teams is, of course, going to bring more interest in college football. It's going to create more meaningful bowl games. That's why they did it. They want more eyeballs on what have been pretty meaningless games. So if you get more eyeballs, you get more excitement on those games. I don't think there's any doubt that's going to flow through. And as a result of that, we'll see more people betting more money on these games come December and January, games that need something, games that are on national TV rather than what might be a game that almost nobody cares about. So for some of these bowl games, it will certainly drive more interest in the games.

Reynolds: So I talked about college hoops a little bit before the season's underway. I don't know the activity levels there, but then when we get to March, that's the biggest event of the year, right? That's March Madness; it's bigger than the Super Bowl in terms of legal betting.

Forman: Yeah, March Madness is definitely the biggest single wagering event of the year. If you want to think of it that way, obviously, there's a lot of games involved in March Madness compared to the Super Bowl. But yeah, March Madness is the single biggest betting event of the year. Right up there with basketball in general is right up there with football when it comes to just the amount of money people bet over the course of the year. And I guess maybe just to put it in a little bit of context, how big March Madness is: we estimated last year that about $1.5 billion was bet legally on the Super Bowl. And again, that's one day, one game. We estimated that March Madness was just short of $3 billion in legal terms. That's twice as much, between the men's and the women's tournaments. So it's a lot more games, but it is twice as big for the industry. So college basketball is certainly a really big driver of interest in sports betting.

Reynolds: More teams, more alumni, and you mentioned the women. I was going to ask you, obviously from a commercial standpoint and her exploits on the court, Caitlin Clark is the sportswoman or sportsperson of the year. Did you guys get a sense that there was more wagering than ever on the women's version of March Madness as well?

Forman: Yeah, unfortunately, no state breaks out betting on men and women sports. But we've heard from our members who've been speaking to the media about it anecdotally. You know that it was maybe not huge, but it was a huge uptick for them in terms of betting on the women's tournament and women's games in general as a result of the increased interest in it. I think BetMGM said they had seen a historic increase in betting on the WNBA, and another bookmaker said that they had taken almost three times as many bets on the WNBA in the first half of the season as they had last year. We don't have any firm numbers, but when you hear from our members who actually run the books, I don't think there's any doubt that betting on women's sports and WNBA in particular is up a lot, in large part because of Caitlin Clark.

Reynolds: Is there any sense you can give us for the profile that way? Are more women plunking down some dollars as well on the outcomes?

Forman: Yeah, I'm actually not sure that they are. There's a lot of talk about the industry trying to get more women involved in it, but we run surveys pretty frequently in terms of asking people if they bet on sports in the last year, and we really haven't seen an uptick in the number of women who say they've bet over the past year. About 10% of women say that they had placed a bet on sports in the past year. That's compared to about 33%. Both of those are relatively flat this year. So I actually think a lot of the betting interest, at least in the WNBA, is being driven by men, which may not be great for the gaming industry since we want to attract new female players, but it's obviously good news for the WNBA and other women's sports that are perhaps attracting new male fans and viewers as a result of those people becoming interested in betting on the game.

Reynolds: Can you give us a sense overall for the number of people in the US that are betting legally?

Forman: Legally, it's hard to say, but about 20%, 21%, 22%, 23% of adults say that they've placed a kind of a traditional sports bet in the last year. Testing my math here, but that'd be like 70-ish million people or something like that. That's a pretty good number, I think.

Reynolds: Any sense you can give us for young people? Back in my day, you couldn't do this, but are young people today, are they going toward the legal means as opposed to the guy down the street or their friend in the dorm that might've been doing something illegally, as the case may be?

Forman: It's actually something we're looking at right now in terms of young people. We don't have the results yet. But especially as it relates to some of these parlay sites that we see out there, certainly they're drawn to them. The other thing that we know from past research is that younger people actually are much more likely than older people to move their business between the legal sites here and the offshore site and maybe some of these parlay places. They're higher spending, and they're just more likely to move to where, whether it's promotions or the easier deposits or the kind of bet that they're looking for is offered. They don't feel as strongly as older people do to stick with a legal operator, which is actually a little surprising when you consider so many of the older people probably grew up betting with a literal bookie. They didn't have access to some of these offshore places, but it's switched, and older people are now have embraced the legal market and sticking to it, while younger people who never had that kind of old-school illegal bookie are now so used to these offshore sites or the more fluid ones, and the ones we need to reach to raise awareness in terms of the risks that they're running when they bet with those sites. Not being able to potentially withdraw your money or get paid out if you win, and certainly not having any access to responsible gaming resources. They are a group of people we're interested in reaching and trying to drive home the importance of who's legal and who's not and why you should stick to the legal sites.

Reynolds: You had mentioned before responsible gaming. How closely do you work with the leagues on that? Different players? I don't know, again, the overall gestalt of what you're doing in that space and how effective has it been?

Forman: Yeah, the industry overall is really focused on responsible gaming and ensuring that people are aware that the industry really does want them to bet responsibly. And they could do that in a variety of ways. We have our "Have a Game Plan" campaign. It's a public service campaign that we've rolled out a few years ago. We've recruited now more than 30 partners right across sports betting, including Major League Baseball, the NBA, the NHL, PGA, NASCAR, and dozens of others. When we've rolled out some of these co-branded PSAs across social media, I'm across the street from Capital One Center here in D.C. Right? Sometimes when I'm coming into work, I see it on the giant billboard outside. Certainly, you see it inside when you go to a game there. And it really focuses on four key tenets to remind people that: one, make sure you set a budget and stick to it; two, keep it social—a reminder to people that this is entertainment, right? You shouldn't be betting on sports as a way to make money; you should be doing it as a form of entertainment; three, make sure you know the odds—understand what you're doing; again, understand that it's entertainment; understand that it's budget; you are likely to lose money; and then again, as we just discussed, make sure you're keeping it legal and betting with a legal regulated site so that you have access to important tools like time limits or deposit limits if you need them, and of course being able to withdraw your money if you want.

Reynolds: I think you've told me this before, and I probably should have asked earlier, but in terms of legal sports wagering, 90% of the business comes from online or mobile? Dave, is that right?

Forman: Yeah, people overwhelmingly want to bet online here in the US. There was a debate two years ago when sports betting was rolling out about what it would look like here in the United States. And would it look like what it looks like in the UK, where if you've been over there to the high streets, there's like the betting parlors and the kind of retail. There's a really big retail aspect to it, but that's just never developed here. And it's overwhelmingly online here and about 90%, I think it's more than that, almost 95%, I think it's that online.

Reynolds: Still relatively early days here in the States, and I was going to bring up the UK. I'm glad you did. If FanDuel Inc. and DraftKings Inc. are the top players, in the UK, I'm not sure how this played out. Are there still years into it, still many players in the game? I'm just wondering if the US evolves into maybe just a two or three or four company orientation, what might that do for sports betting going forward?

Forman: I'm not an expert on the UK market; there's a lot happening. Here is the industry grows. It's not surprising we've seen a ton of kind of new entrants, whether they were European companies or DraftKings and FanDuel or guys who started in the DFS space or others dip their toes in and try to take advantage of legalization here. And obviously, there's been a shakeout over the past few years as some folks have been able to make it; there's been a lot of consolidation. But I think we've seen a lot of interest from media companies or even apparel companies like Fanatics Holdings Inc. getting into the space. Sure. So I think we're going to see still a lot of innovation in ways you might not think, right? I don't think anybody would have guessed, at least originally, that you'd see an apparel company like Fanatics get into sports betting reasonably successfully. But I think we're going to try new models here that are different than the UK. The same game parlay was innovated here. That's not a huge part of the industry. I think we've got so many different state markets here set up in so many different ways with so many different operators that it's a great lab to find out what works for people and how people want to engage with the products and what products they want to use.

Reynolds: Getting to the end here. Now that we're like 40 states out of 50 are going to be in the game, so to speak, the advertising may become more national. Any sensibilities for how that will map out in the years ahead?

Forman: I think you're going to continue to see fewer ads. I think sports betting ads are one of the biggest issues that are misunderstood by a lot of people around sports betting. There's a sense out there that people are just being overwhelmed by sports betting ads, and I just don't think it's the case. Sports betting ads peaked in 2021, and they've declined pretty significantly recently. Since then, they were down a third last year from 2021.

Reynolds: All right.

Forman: And the share of TV advertising volume is actually lower than alcohol. We asked people this in a survey recently, and almost half of the people said they thought they saw more sports betting ads than alcohol ads. But that's just not the case. People are just used to the alcohol ads. They blend into the kind of background of their lives, whereas sports betting for people is still this thing that was this underground illicit activity until not that long ago. So I think it's jarring to see the sports betting ads to people still, but I think as people just get used to seeing them, it'll blend into the background. And as you said, there are a lot of operators moving to a more national model, and they do try to taper off their marketing spend as markets mature. So I think you'll see the volume of advertising probably continue to decline unless a large new state like Texas or California opens up, when you'll see a brief spike as people hustle for market share there.

Reynolds: Last one here, for the baseball analogy: where is the legal sports betting industry? What inning are we in, Dave?

Forman: Oh, I think the sandlot, if you want to stick with baseball. I think sandlot is the better analogy there, right?

Reynolds: Okay.

Forman: The kids say the game would never end. I think the game will keep going on, and we'll keep seeing more and more innovation and products will change, and the companies will evolve. And we'll evolve with consumers and evolve with the sports landscape and keep offering really interesting and compelling ways for people to engage with the games and with our members.

Reynolds: A lot of swings still to come. That concludes this episode of "MediaTalk." I want to thank our guest Dave Forman for spending his time and sharing insights about the state of legalized sports betting in 2024 and what may come down the road. This is Mike Reynolds. Thanks to all of you for listening. I'd like to bet the over that we'll catch up soon on the next installment of "MediaTalk."