Following the Supreme Court’s historic decision on the federal ban on sports betting in May 2018, a handful of states moved quickly to legalize sports gambling. Last year, eight states added legalized sports betting regimes before five more officially began accepting sports wagers in 2019.
Over the last 12 months, Arkansas, Indiana, Iowa, New York and Oregon introduced legal sports betting operations in some form. Of the five states, New York has ostensibly garnered the most controversy as political leaders remain far apart on reaching a consensus for bringing mobile sports betting to the Empire State.
The continued state-by-state expansion of U.S. sports betting represents our top storyline of the year. Here is the complete list of the most notable storylines of 2019.
1) State-by-state expansion
By end of 2019, 21 states will have some form of legalized sports betting. @EricRaskin goes state by state outlining the impressive progress across the country as the year winds down: https://t.co/6r9Lg4sGX2 pic.twitter.com/o51GWRgbhC
— US Bets (@US_Bets) December 25, 2019
Although 13 states currently allow licensed sportsbooks to accept sports wagers, seven others (plus Washington D.C.) have passed legislation that paves the way for legalized sports betting in their respective jurisdiction. Over the first six months of 2020, key markets such as Michigan, Colorado and the District of Columbia may have sports betting operations in place.
The three markets will be watched closely by industry observers as the calendar turns to 2020. The jurisdictions include Denver, Detroit and Washington D.C. – three cities among a select group nationwide that have franchises in all four of the major North America professional sports leagues. Besides the rollout of sports gambling at brick-and-mortar facilities within those regions, cities like Denver and Washington D.C. may provide a key litmus test for the expansion of in-stadium betting.
Other states with a more limited professional sports presence will also be monitored. Two states, Montana and New Hampshire, do not have a single team in the Big Four sports leagues. While the New Hampshire border is located in close proximity to several pro teams in Boston, Montana residents must travel more than 500 miles to the closest major pro sports venue. Tennessee, a state with three pro franchises, is expected to launch sports betting at some point in the spring.
With estimates of a fully mature sports betting market potentially reaching somewhere north of $15 billion annually, the addition of several new states in 2019 represents steady progress for the industry.
2) Robust M&A activity
As sportsbooks engage in an intense battle for market share, top operators continue to pursue merger opportunities in an effort to increase scale.
It comes as little surprise, then, that rivals FanDuel Inc. and DraftKings both announced proposed mergers at some point over the last 12 months. The proposed combinations set the stage for a flurry of additional deals in 2020.
Days before the Christmas holiday, DraftKings announced an unorthodox tri-merger, in the process receiving a sorely-needed infusion of capital.
On Dec. 23, DraftKings entered into a definitive business combination agreement with Diamond Eagle Acquisition Corp., a publicly traded special purpose acquisition company and SBTech, a leading sports gaming technology company. Under the deal, the new company will become the first vertically-integrated sports betting and online gaming company in the U.S. A vertical integration occurs when the supply chain of a company is also owned by that company.
DraftKings appears encouraged by a funding round of $304 million from a group of institutional investors including funds managed by: Capital Research and Management Company, Wellington Management Company and Franklin Templeton. At the close of the deal, the company is expected to have a market capitalization of $3.3 billion and about $500 million of unrestricted cash on its balance sheet.
Sports-Betting Company DraftKings to Go Publichttps://t.co/znOJ3wH0gc
— Alfonso Straffon 🇨🇷🇺🇸🇲🇽 (@astraffon) December 23, 2019
With Michigan and Colorado set to launch legalized sports betting in 2020, the capital investment will enable DraftKings to expand aggressively into new markets, CEO Jason Robins told CNBC on Dec. 23.
The announcement from DraftKings came several weeks after Flutter Entertainment plc and The Stars Group Inc. (TSG) agreed on the terms of an all-share combination through Flutter’s proposed acquisition of TSG. In 2018, the combined groups had annual revenue of £3.8 billion, according to the companies, a figure that would have made it the largest online betting and gaming operator in the world.
Previously, Paddy Power Betfair completed a merger of its U.S. businesses with FanDuel in July 2018, forming a company that boasted a presence across 45 states, 8 million customers, and $265 million in annual revenue at the time. TSG, meanwhile, jointly launched FOX Bet with FOX Sports in May after reaching terms on the first-of-its kind sports betting and media partnership.
Edward King is a managing director and global head of gaming coverage at Morgan Stanley. During a panel appearance at the Sports Betting USA Investor Summit in November, King was asked if Morgan Stanley believes the merger will withstand antitrust scrutiny. While King expects the deal to be approved, he noted that questions remain on whether the companies will be required to divest certain assets.
Two other deals stood out this year. In July, Penn National Gaming made waves with a market access deal that figures to have considerable ramifications for the U.S. sports betting industry over the next decade. Penn National bolstered its portfolio with market access agreements with DraftKings, PointsBet USA, theScore and The Stars Group, one that will be managed by Penn Interactive Ventures, LLC (PIV), a wholly owned subsidiary of Penn National Gaming.
The company awarded 32 skins to the four operators across 19 states, some of which are nowhere close to legalizing sports gambling.
Then, on Nov. 15, shareholders of Eldorado Resorts, Inc. and Caesars Entertainment Corp. approved Eldorado’s $17.3 billion acquisition of Caesars, at separate meetings in Las Vegas and Reno. The transaction is notable in light of a deal completed last January that gave Eldorado a 20 percent equity stake in William Hill US.
3) Vegas consolidation
The two deals have raised concerns that Caesars’ sports betting operation could be downsized considerably in the coming months. Already, several former members of the Caesars trading team have taken positions at other Las Vegas sportsbooks in recent weeks.
William Hill US, a subsidiary of William Hill PLC, continues to flex its muscle from an M&A standpoint. In November, William Hill purchased the sportsbook assets of CG Technology in a deal that included the company’s Nevada and Bahamas operations. William Hill acquired the leases of sportsbook properties at The Cosmopolitan of Las Vegas, The Venetian and The Palazzo, The Palms, the Tropicana and Silverton.
Upon the close of the deal, there will be less than two dozen disparate sportsbook operators throughout the state of Nevada.
“Honestly, there are very few choices in Nevada,” an industry source told Sports Handle.
I'm afraid this won't be the last time we bemoan the loss of another bookmaking voice. Huge consolidations are coming.
— Captain Jack Andrews (@capjack2000) November 21, 2019
As major sportsbooks continue to grow in scale, smaller boutique operators could find it difficult to survive. The trend potentially draws comparisons to a pattern of consolidation that prevailed in the daily fantasy sports (DFS) industry in the early 2010s when a host of undercapitalized companies struggled to compete with FanDuel and DraftKings. Within several years, the number of DFS companies in the space fell precipitously.
4) Leagues align with operators
William Hill also entered into a partnership with the NBA in October to become an authorized gaming operator (AGO) of the league. William Hill joined MGM Resorts, FanDuel, and The Stars Group on a list of top sportsbooks to forge partnerships with the NBA.
The deal turned some heads within the industry considering William Hill US CEO Joe Asher’s resistance to paying so-called “integrity fees” to the leagues in exchange for access to their official sports betting data. William Hill also came to terms with Monumental Sports on a deal that will lead to the opening of a sportsbook inside Capital One Arena, the home of the NBA’s Washington Wizards and NHL’s Washington Capitals.
The NBA wasn’t the only league in 2019 to build its AGO empire. Over the last six months of the year, Major League Baseball added FanDuel, DraftKings and The Stars Group as direct licensees of the league. Both the NBA and MLB took part in an extensive road show earlier in the year to sell sportsbooks on the merits of their programs.
In addition, the NFL inked an expanded data partnership with Sportradar under which the Switzerland-based company gained exclusive rights to the distribution of the league’s official data to U.S. sportsbooks. For a brief period in October, several Las Vegas books lost their signal to Sportradar’s live data feed due to a miscommunication between the parties on the deadline of a data fee. After a short outage, the signal was restored for numerous books for the remainder of the NFL regular season.
5) Shaw suspension
When the NFL suspended Cardinals defensive back Josh Shaw for betting on league games in November, Shaw earned the dubious distinction of becoming the first active player to be suspended by the league for a gambling-related offense in more than a decade. Shaw also became the first U.S. professional athlete to receive a suspension for gambling since the high court’s PASPA decision.
Shaw, a fifth-year defensive back from USC, reportedly made the wager in question at a Caesars Entertainment property in Las Vegas, according to ESPN. Shaw also bet against the Cardinals in a second-half wager vs. Tampa Bay as part of a three-team parlay, ESPN’s David Purdum reported.
The defensive back had been away from the team facility for weeks since the Cardinals placed him on injured reserve with a shoulder injury in August.
An NFL investigation found no evidence that Shaw used inside information while placing the wager or that any game was compromised in any way, the league said in a statement.
“The continued success of the NFL depends directly on each of us doing everything necessary to safeguard the integrity of the game and the reputations of all who participate in the league,” NFL Commissioner Roger Goodell said in a statement. “At the core of this responsibility is the longstanding principle that betting on NFL games, or on any element of a game, puts at risk the integrity of the game, damages public confidence in the NFL, and is forbidden under all circumstances. If you work in the NFL in any capacity, you may not bet on NFL football.”
Shaw’s incident raises a litany of questions. According to ESPN, Shaw listed his occupation as a professional football player while completing an application for a Caesars’ account. Shaw’s actions indicate that he made little effort to hide his identity even as NFL policy forbids players from betting on league games.
The NFL also disclosed publicly that it trained thousands of league employees, including players, on its gambling policy in the wake of the Court’s decision. Are players for the most part unaware of the severe penalties associated with betting against their teams or is Shaw’s case simply an anomaly?
Shaw is suspended, at a minimum, until the end of the 2020-2021 NFL season.
By then, the sports betting landscape in the U.S. could change drastically on a number of fronts compared with the one that exists today.