M SCIENCE BLOG

Breaking Down Sports Betting

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Michael Erstad, CFA

Senior Research Analyst

Football is back. Just a handful of games into the season, NFL fans are not only following their favorite teams and players, but some are also channeling their excitement into betting on game outcomes and individual performances.

This is not a new phenomenon for the league. In fact, there has been a noticeable cultural shift in how sports betting is perceived in recent years. Between quarters and time outs, sports betting ads featuring popular celebrities frequently appear on T.V. broadcasts and radio shows. So, what is driving this change?

M Science Senior Research Analyst Michael Erstad pointed out a few reasons. “There has been a legalization at the state level met with a great digital product,” he said.

Prior to 2018, only two U.S. jurisdictions permitted betting on sporting events. Over the past six years, sports betting has seen increased legalization, after a Supreme Court decision reversed the ban. Now, sports betting is allowed in 38 states and the District of Columbia.

This movement can be partially attributed to the promise of increased tax revenue. As select states started to introduce sports betting, others became incentivized to join in. To illustrate this, Erstad highlighted differences between rules in New York and New Jersey. “Some New York residents were going to New Jersey to spend their money out of state,” he said. “In theory, they could have been sitting at home on their smartphone or in a bar in New York, allowing the state to collect those tax revenues.” 

At the same time, consumers were asking for decreased restrictions. “This is something that the consumer has wanted, and it’s probably been long overdue,” Erstad added. “When legalization happens, we observe a pretty healthy adoption curve from consumers into all the public apps.” 

The proliferation of sports betting is made possible by key industry players offering a strong product. Notably, DraftKings and FanDuel maintain a significant market share. Sports books that are owned, wholly or through a JV, by large casino operators are also seeing success, including Caesars and BetMGM. Meanwhile, newer companies such as Fanatics Sportsbook and ESPN Bet continue to join the space.

According to M Science analysis, football remains the most common sport for betting. “It’s all about football,” Erstad explained. “The NBA is super popular. There’s progress being made for the MLB, but really, the main driver is the NFL.” Fans are also gambling on NCAA teams, especially during March Madness.

Based on engagement, it appears that the industry will only get bigger as more states sign on. Still, populated states such as California and Texas have yet to legalize sports betting. 

From the company perspective, bringing in new users could cause some initial financial strain. “A big topic is around profitability and what that ultimately looks like,” Erstad said. “There is a sizable upfront cost, largely subscriber acquisition costs, when you have a number of states going live at the same time.” However, this tends to drop off over time. “Once the brands move through and start lapping the different state launches, profitability improves,” he said.

M Science data is greatly positioned to monitor this sports betting expansion. Already, most states are publishing gaming revenue reports monthly. But M Science offers a deeper perspective. “Where we really stand apart is in our understanding of consumer behavior,” Erstad offered. “By and large, where our unique insights come into play is in understanding the individual on an aggregated, anonymized basis.” 

Through cohort analysis, our firm provides a deeper look into how users are engaging with betting tools. “We follow differences between states, overlap, and competitive dynamic behavior across platforms. Additionally, we measure new states and user adoption,” Erstad said. “These things can’t be understood by looking only at state data releases, because there’s no customer-type metrics.”

M Science data also provides this individual detail on a state-level. “We can track the health of a newly initiated state, while understanding the differences between a state that solely allows sports betting versus a state that permits sports betting and iGaming,” he added. “We can provide that analysis in almost real time.”

M Science publishes written research on leaders within the Casinos and Gaming subsector, covering Boyd Gaming (BYD), Caesars Entertainment, Inc. (CZR), DraftKings Inc. (DKNG), Flutter Entertainment plc (FLUT), MGM Resorts International (MGM), PENN Entertainment Inc. (PENN), Red Rocks Resorts Inc. (RRR), and Wynn Resorts, Limited (WYNN).    

In our Digital Sports Betting and iGaming Dashboard, we supply insights into industry and operator trends by state for U.S. online sports betting and iGaming companies. We deliver a view into subscriber growth by state, present relative share, and display spending dynamics for new and existing customers. Furthermore, our online solution tracks new customer cohort activity for each brand.

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If you want to hear more from Senior Research Analyst Michael Erstad, or if you would like to speak to our team about our sports betting offerings, please contact us!

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