Much like a seasoned tax attorney forced to re-read a perplexing change to the federal tax code numerous times to comprehend the complexities, a host of sports betting experts did a double take last week when New York released the details of a byzantine competitive bidding process for gaining access to the state’s mobile sports betting marketplace.
After years of inaction on legislation pertaining to online sports wagering, New York leaders brokered a deal for mobile sports betting April 6 during intense, 11th-hour negotiations. Now, comes the messy part. The agreement paves the way for the New York State Gaming Commission to select two sports betting platform providers to partner with the state to offer mobile sports betting. At the same time, no less than four additional mobile sports operators will be licensed to begin offering the activity statewide. The hybrid model is largely viewed as a compromise between the limited operator proposal favored by Gov. Andrew Cuomo and scuttled plans for an open market preferred by the New York Legislature.
The bill also requires the commission to issue a Request for Applications (RFA) for the platform providers by no later than July 1. The issuance of the RFA is expected to bring about a heated competition for the two platform provider contracts, as well as the additional mobile skins or licenses.
Here, we handicap the competitive bidding process for the platform providers and the skins.
Some key definitions
Before we delve into the field, it is important to clarify the state’s qualifications for a so-called sports betting “platform provider,” the entity that will partner with New York to offer mobile sports betting. The term is ambiguous in nature, leaving open the possibility for global sportsbooks, Business-to-Business (B2B) sports betting tech providers, racino operators (i.e. Empire City Yonkers), and thoroughbred racing advance deposit wagering (ADWs) sites to enter the bidding process. Consider the language used in the state’s Article VII Revenue bill that sets forth a definition of a platform provider:
k) “Mobile sports wagering platform” or “platform” means the combination of hardware, software, and data networks used to manage, administer, or control sports wagering and any associated wagers accessible by any electronic means including mobile applications and internet websites accessed via a mobile device or computer;
The bill also defines the term “mobile sports wagering operator,” which differs slightly from another classification, which the authors describe as a “mobile sports licensee.” Once the commission names the two platform providers, the providers will contract with the operators, which in effect will serve as sublessees of the companies. The subleasing agreement appears to be between the platform provider and the operator, Sen. Joseph Addabbo Jr. indicated, not the operator and the commission. As part of a platform provider’s application, the company is required to indicate the number of operators it plans to partner with.
(l) “Mobile sports wagering operator” means a mobile sports wagering skin which has been licensed by the commission to operate a sports pool through a mobile sports wagering platform;
(m) “Mobile sports wagering licensee” means a platform provider and a mobile sports wagering operator licensed by the commission;
Upon the completion of a deal last week, Addabbo made an appearance on an investor call April 7 to clarify some of the language in the bill. The state is looking for established companies with proven success in other states, as well as those with strong speed-to-market capabilities, Addabbo noted.
New York’s mobile sports betting framework, established this week, is:
— Sports Handle (@sports_handle) April 9, 2021
The frontrunners: DraftKings, FanDuel
Right off the bat, two companies have stood out. Cuomo himself mentioned both by name last week as the type of companies that could serve as platform providers.
Since the Supreme Court’s historic PASPA decision in May 2018, the two companies have distanced themselves from the competition. During the first quarter of 2020, the companies combined for more than 75% of New Jersey’s legal sports market, according to firm Eilers & Krejcik, a figure in line with several markets across the nation. With New York customers representing about 20% of the New Jersey market, it is critical for the platform providers to tap the customer base from Day 1.
Both maintain vast databases of customers who have routinely crossed the George Washington Bridge or passed through the Lincoln Tunnel to place wagers in the Garden State via smartphone. Addabbo hinted that a vertically integrated company with a strong back-end infrastructure could be in a favorable position during the bidding process. DraftKings at the moment is preparing for the migration to an in-house platform powered by SBTech by the end of the third quarter. Furthermore, well-capitalized companies such as DraftKings can handle the substantial investment into New York, as Oppenheimer analyst Jed Kelly noted last week. In March, DraftKings announced an upsized pricing of $1.1 billion in convertible senior notes, weeks after ending 2020 with approximately $1.8 billion in cash on its balance sheet.
In New Hampshire, DraftKings is paying the state 51% of its gross gaming revenue from its online sports betting channel across the state. Cuomo, through the gaming commission, is seeking a cut in the range of 50-55% from the two platform providers, multiple sources indicated last week.
— CNBC (@CNBC) April 7, 2021
Companies with multiple brands under one umbrella may have a leg up, notes Jared Smith, a sports investment analyst and host of “The Morning After” on MSG Networks. Here, Flutter fits within the narrative. In recent months, Flutter has given consideration to divesting its U.S. assets, including FanDuel and FOX Bet, possibly as part of a SPAC deal. Under one scenario, FanDuel could become a platform provider in New York while FOX Bet receives a coveted skin. FanDuel also has a retail sportsbook partnership with Tioga Downs in Tioga County, which serves as a natural fit as a host for its mobile server. (Disclosure: “The Morning After” is sponsored by FanDuel).
In The Mix: BetMGM, Barstool, and William Hill
At present, a handful of casinos maintain partnerships with retail sportsbooks in New York, including Del Lago Resort & Casino in Seneca County (DraftKings), Resorts World Catskills in Sullivan County (Bet365), and Rivers Casino in Schenectady County (Rush Street Interactive). Three other sportsbooks, Barstool Sports, Golden Nugget, and PointsBet, have gained New York market access through various second-skin agreements. Although BetMGM has yet to secure a sports betting skin, it will not preclude the sportsbook from applying to become a platform provider, Addabbo said.
In February, Sen. Shelley Mayer, a Democrat from the 37th district, expressed concern that BetMGM could be cut out of New York’s proposed plans for mobile sports betting. But MGM has considerable lobbying heft and paid $850 million in 2019 to purchase Empire City Yonkers. The high price tag for the facility suggests that MGM Resorts might have few qualms about driving up the bidding for the platform provider contract.
By the same token, Barstool Sports seemingly joined forces with Penn National Gaming with cash cows such as New York in mind. Finally, William Hill fits the mold of a company with the scale to operate as a New York platform provider due to its impending merger with Caesars Entertainment, according to Brendan Bussmann, a partner at Global Market Advisors (GMA), a leading gaming industry consultancy firm.
Under one scenario, an applicant could come in with an “over the top” bid in excess of 55%, Susquehanna analyst Joe Stauff wrote in a research note. The scenario would result in a higher than anticipated revenue-sharing payment to the state. Potential platform providers will also receive the option of upping their bid if a competitor submits a higher offer.
Longshots: IGT, Kambi, And NYRA Bets
One analyst, Credit Suisse’s Benjamin Chaiken, wrote last week that the definition of a platform still remains “open-ended,” allowing a tech provider such as Kambi to enter the bidding. Another provider to consider is IGT, which has a technology and services contract with the New York Lottery, as well as a separate deal with FanDuel. The tech providers, however, lack the vast customer databases that seem to be a prerequisite in the bidding process.
Addabbo also confirmed last week that NYRA Bets could apply for the platform provider bids, if interested. But the New York Racing Association (NYRA), the operator of Aqueduct Racetrack, Belmont Park, and Saratoga Race Course, has largely been left out of online sports wagering discussions. NYRA Bets should be viewed as a decided underdog.
During Tuesday night’s game between the New York Mets and the Philadelphia Phillies, Bet 365 and PointsBet were among several sportsbooks that ran commercials on New York broadcast network SNY. If companies such as Rush Street (BetRivers) and Bet 365 miss out on the platform contract, there is always the possibility that the operators could apply for a skin. In fact, a major operator like DraftKings may be more willing to offer a skin to a lesser-known company than one of its top competitors such as BetMGM.
Stauff believes platform applicants will include the three in-state tribal operators given that the state’s scoring methodology will award additional points to applicants that list the tribal groups as a potential skin. The tribes are not a competitive threat for the platform applicants, Stauff adds. The Oneida Indian Nation has a retail sportsbook partnership with Caesars Entertainment, while the Saint Regis Mohawk Nation partners with FOX Bet.
Who can bid on a mobile sports betting license in New York?
Skin deals no longer govern.
It will be open bidding.
So, possibilities include:
DK, FD, CZR, PN
*Must meet def of platform provider or qualify as sub-licensee skin.
— Daniel Wallach (@WALLACHLEGAL) April 8, 2021
Regardless of the winners, it appears that mobile sports betting will be available in the Empire State by early 2022. Addabbo is hopeful that New York will go live by next year’s Super Bowl.
“With another Super Bowl gone, New York continues to lag behind other states — even states that have just legalized sports betting — when we should be leading the way,” Addabbo said in a statement.