TwinSpires will exit the online sports betting and iGaming space over the next six months, according to comments made by Bill Carstanjen, CEO of Churchill Downs Inc., on the company’s quarterly earnings call Thursday.
Carstanjen cited the competitive marketplace for online sports betting and casino, with limited opportunity for profitability, as a reason for the decision. He said the four CDI-owned casino spaces with retail sportsbooks — Harlow’s Casino in Greenville, Mississippi; Presque Isle Downs Casino in Erie, Pennsylvania; Ocean Downs Casino in Berlin, Maryland; and Rivers Casino in Des Plaines, Illinois — are profitable.
“We had high hopes for the potential to build a profitable business in this space. … We have profitable retail sportsbooks in four of our casinos. However, the online sports betting and online casino space is highly competitive, with an ever-increasing number of participants that the states have licensed,” Carstanjen said on the call.
“Many are pursuing market share in every state, with limited regard for short-term, or potentially even long-term, profitability. Because we do not see — for us — a path in which this business model delivers predictable and acceptable margins for at least several years, if ever, we have decided to exit the B2C online sports betting and iGaming space over the next six months.”
Carstanjen also said CDI, which most famously owns Churchill Downs Racetrack, the home of the Kentucky Derby, “will seek to monetize, where appropriate, our market access rights, to other participants. We consistently receive interest from other industry parties, with respect to market access, in states where we conduct operations or have the rights to do so.”
CDI’s initial foray into the online sports betting world was through the platform BetAmerica, but it was rebranded as “TwinSpires Sports” in 2021. CDI purchased BetAmerica, then only an advance-deposit wagering platform for horse racing, in 2017.
CDI did not respond to requests for further comment Thursday.
Casino, Sports, and Horseracing…oh MI!
Big things are coming soon to Michigan…
— TwinSpires Racing 🏇 (@TwinSpires) January 11, 2021
Numbers indicative of struggles in sports
TwinSpires has online sportsbooks live in Arizona, Colorado, Indiana, Michigan, New Jersey, Pennsylvania, and Tennessee. It has online casino operations in Michigan, New Jersey, and Pennsylvania. Reported revenue and handle numbers illustrate TwinSpires’ competitiveness in the sports betting market.
In the four states where individual sportsbook handle and revenue numbers are reported — Pennsylvania, Michigan, Indiana, and newcomer Arizona — TwinSpires generated just more than $84 million handle and close to $5.9 million in gross gaming revenue since launching in those states. Gross revenue is the key caveat, since TwinSpires finished with -$1.6 million in adjusted gross revenue across Pennsylvania, Michigan, and Arizona when accounting for promotional play.
In Michigan alone, TwinSpires had an adjusted gross revenue of more than -$1.1 million from close to $22.2 million wagered since it launched. It finished in the red in both gross and adjusted revenue in January 2022, with adjusted revenue totaling -$248,533 compared to gross revenue of -$39,894.
In Pennsylvania, TwinSpires reported an adjusted revenue of -$912,241 in 2021 from nearly $32.6 million in wagers as promotional revenue was more than $2.8 million, compared to the $1.9 million in gross revenue.
CDI’s 2021 revenue report published Wednesday said, “Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) for 2021 decreased $34.9 million from the prior year due to a $27.1 million increase in the loss from Sports and Casino due to increased marketing and promotional activities, and a $7.8 million decrease from Horse Racing primarily due to the decrease in net revenue.”
Sports betting exit part of a bigger picture?
TwinSpires’ planned departure from the online sports betting market comes after other significant moves in the industry. Caesars this week announced it would cut advertising spending considerably. Wynn Resorts is reportedly considering a sale of its online platforms. DraftKings’ stock has dropped significantly amid concerns about profitability.
Will Hershey, CEO of Roundhill Investments, said smaller sportsbook operations may not continue to drop out, as TwinSpires did, but market consolidation could continue through mergers and acquisitions.
“In terms of online sports betting, it’s such a top-heavy space in terms of market share, and I actually view this as incredibly bullish to the [larger] players involved in this space,” Hershey said. “It just all happened way quicker than anybody expected — from euphoria last year to realization. … The small players that are trying to carve out half a percentage of market share in New Jersey are realizing that is an incredible uphill battle with the way DraftKings, FanDuel, Caesars, and MGM are spending on customer acquisition.”
But Hershey said CDI is a unique case, because sports betting is not its primary business. That is not the case for other smaller operators. Instead of dropping out entirely, those smaller operators might look to sell to larger companies seeking a way into the sports betting market.
“Churchill Downs, as a company, is going to be fine,” Hershey said. “But an operator like PointsBet can’t drop out. Maybe they will drop out in terms of selling themselves, but sports betting is their business. I think you’re going to see the Disneys, the NBCs of the world, as well as companies like Fanatics or [Las Vegas Sands], start sniffing around.”
CDI ‘committed’ to profitable TwinSpires ADW
Although TwinSpires may be leaving other online gambling spaces, its ADW platform for horse racing will last, according to Carstanjen’s comments during the earnings call.
“We remain absolutely excited and committed to TwinSpires horse racing, as its top line, bottom line, and margins continue to demonstrate that this is a special online business, with a sustainable, scaleable, and unique business model that delivers profitable growth today, just as it has since we started this business well over a decade ago,” Carstanjen said.
A Bloomberg report in December indicated CDI was considering a sale of the TwinSpires wagering platform in some form. The Bloomberg story did not say if sports or casino would be included in a potential sale, but reported the transaction could pull in $1.5 billion. Two weeks later, CDI Senior Vice President and Chief Technology Officer Ben Murr said there was no sale and that the “business is in the stable of CDI.”
Additional reporting by Chris Altruda