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State of the Union: DraftKings, MI, NH, NV and more

Insight | Analysis

This week’s State of the Union, in partnership with Segev LLP, covers DraftKings and SBTech’s merger and listing on the Nasdaq stock exchange, as well as the long-awaited ratification of a bill legalizing of both sports betting and igaming in Michigan and the launch of sports betting in New Hampshire.

DraftKings and SBTech to combine as listed gaming giant
DraftKings has struck a deal that will see it acquired by a special purpose acquisition company alongside betting and gaming technology provider SBTech, with the combined entity to be listed on the Nasdaq Stock Exchange.

Diamond Eagle Acquisition Corp will acquire the businesses to create what is described as “the only vertically-integrated pure-play sports betting and online gaming company” based in the US.

The business was established by film producer Jeff Sagansky and Harry Sloan, previously chief executive of US media giant Metro-Goldwyn-Mayer to invest in new media businesses in May this year. That month it raised $400m through an initial public offering, and currently trades on the Nasdaq.

Diamond Eagle will be renamed DraftKings Inc once the transaction is closed – something expected to take place in the first half of 2020 – with the business to reincorporate in Nevada. Institutional investors, including funds managed by Capital Research and Management, Wellington Management and Franklin Templeton, have committed to acquiring $304m in Class A common stock, in addition to the $400m raised through the initial public offering.

Michigan Governor signs betting and gaming bills into law
Michigan Governor Gretchen Whitmer has ratified bills to legalize sports betting and online gaming in the state, paving the way for a 2020 roll-out.

Whitmer signed House Bill 4311, which creates the Lawful Internet Gaming Act, allowing the Michigan Gaming Control Board (MGCB) to issue licenses for online and mobile casino games.

A similar proposal, put forward by Representative Brandt Iden, had been vetoed by Whitmer’s predecessor Rick Snyder in December 2018. For much of the year it looked as if the current Governor would refuse to ratify the bills if they passed the legislature.

However, her concerns about igaming cannibalizing lottery revenue, and in turn having an adverse impact on education funding, were assuaged by significant changes to the tax rate set out in HB4311. This saw the minimum rate raised to 20% of gross gaming revenue of $4m or less, and to 28% for venues generating annual revenue of $12m or above.

Sports betting live in New Hampshire
Sports betting is now live in New Hampshire with patrons able to bet both online and at retail locations.

The New Hampshire Lottery and partner DraftKings officially launched mobile and online sports betting in the state on 30 December.

Governor Chris Sununu placed the state’s ceremonial first legal sports wager on the New England Patriots to win the Super Bowl at a licensed restaurant alongside DraftKings co-founder and chief revenue officer, Matt Kalish, and former NFL star Rob Ninkovich.

DraftKings’ contract with the New Hampshire Lottery was approved in late November 2019 by the state’s Executive Council after being selected through a bidding process. As part of the agreement, New Hampshire will receive 50% of sports betting revenue, which will support the New Hampshire Lottery’s mission to drive funds in support of education in the state.

Nevada November sports betting handle reaches record $614.1m
Nevada’s sports betting handle reached a new high watermark of $614.1m as the state’s casinos took in a total of $937.5m in revenue.

The state’s gambling establishments took in $31.0m in revenue, up 14.3% year-on-year. Football was by far the most popular sport, bringing in $22.5m on stakes of $384.6m. Basketball followed, taking in $8.1m from $399.3m worth of wagers.

Players bet $11.2m on sports parlay cards, with operators taking in $2.4m, while casinos made $4.2m on $53.2m from other sports.

Casinos in the state lost $6.2m in revenue from baseball despite receiving only $240,284 worth of wagers, as operators paid out the results of bets on October’s MLB World Series.

Illinois launches sports betting licensing process
The Illinois Gaming Board has issued emergency rules to kick off the first phase of the state’s sports betting licensing process.

The emergency rules issued by the Gaming Board make master sports wagering, management service provider, supplier, official league data supplier, management service provider and occupational licenses available.

They set out the eligibility criteria for each, and confirm the fee for master licenses will be 5% of handle for the 2018 calendar year, at a minimum of $2.3m, and capped at $10m. Racetracks that apply for this license will pay whichever is greater of $5m or 5% of 2018 handle, also capped at $10m.

While an online betting license is to be capped at $20m, this is not included in the emergency rules.

Mobile sports betting bill filed in Vermont
Vermont state senators Dick Sears and Michael Sirotkin have filed a bill that would allow mobile, but not land-based, sports betting in the state.

Bill S.213, to “ to establish a system for the licensure and regulation of mobile sports wagering operators and suppliers, authorize sports wagering through licensed operators, and tax gross sports wagering receipts,” was filed on 7 January.

The bill includes a 10% tax on the gross sports wagering receipts of each operator, much lower than many other states, including neighbouring New Hampshire, where DraftKings must pay 50% of revenue back to the state under its exclusive agreement.

The taxes will be paid into the state’s general fund and if an operator loses money, the losses can be used to offset future tax payments, reducing operators’ tax bills further.

DraftKings reveals $114.1m loss in SBTech merger statement
Diamond Eagle Acquisition Corp – the special purpose acquisition company formed as part of DraftKings and SBTech’s merger – has filed a registration document revealing DraftKings made a loss of $114.1m in the first nine months of 2019.

The document also confirms that DraftKings will – eventually – migrate from its current sportsbook technology partner Kambi to SBTech’s solution.

In the prospectus, filed with the United States Securities and Exchange Commission (SEC), the acquisition company revealed that DraftKings’ revenue for the nine-month period came to $192.0m, a 44.3% year-on-year increase.

DraftKings’ direct costs of revenue, however, were up to $64.7m, a 143.5% increase. The business said that product taxes, platform costs, and payment processing fees and chargebacks contributed $13.1 million, $12.4 million and $6.4 million, respectively, to the $38.2m increase in costs of revenue from 2018.

WV sports betting revenue reaches $13.8m in first half
Sports betting revenue in West Virginia amounted to $13.8m in the first six months of the state’s fiscal year, with retail the primary source of income for licensed operators.

Consumers spent a total of $144.5m and won $128.7m during the period, which included the six days to the start of the fiscal year on July 1. The reporting period ran for six months through to December 28, 2019.

Retail was responsible for $9.1m of overall sports wagering revenue during the period, with players spending $87.8m and winning $76.8m.

Mobile revenue stood at $5.0m for the six months, which returned to West Virginia in August 2019, when FanDuel rolled out a new app in partnership with The Greenbrier, closely followed by DraftKings.

WV sports betting revenue reaches $13.8m in first half
Delaware’s sports betting market generated $12.5m in revenue in 2019, the first full year of regulated activity in the state.

Consumers spent a total of $102.6m on sports bets over the past year, winning $79.6m in the process. Overall, 2.55m wagers were placed through licensed operators in 2019.

Delaware Park was the leading operator in the state, turning revenue of $7.8m after taking $64.1m in bets in 2019.

Revenue was up 25.2% year-on-year from $6.2m in 2018, despite Delaware Park having only accepted sports bets for six months in the previous year. Customer spending was also only up 5.4% year-on-year.

GAN operator revenue skyrockets thanks to US growth
Gambling software supplier GAN’s gross operator revenue increased 171.3% year-on-year to $315.6m in 2019 thanks to the growth of legal gambling in the US, according to the company’s Q4 key performance indicators.

In addition, the supplier saw a 70.5% increase in active player days, defined as the number of unique active gamblers who gambled at least once online each day, aggregated over the period, to 24.5m. GAN’s average revenue per active player-day (ARPDAU), meanwhile, also rose, by 58.9% to $12.88.

For the fourth quarter of 2019, GAN’s operator revenue increased 189.1% to $120.8m. Its active player days rose 94.8% to 9.0m while ARPDAU increased 48.4% to $13.43. All three figures were by far the highest of any quarter in 2019.

Mississippi betting revenue more than doubles in November
Mississippi Gaming Commission figures reveal that the state’s sports betting market has seen revenue more than double year-on-year in November, though the monthly total fell sharply from October’s record sum.

Casinos in Mississippi’s central, coastal and northern regions generated revenue of $3.8m in November, a 126.0% rise from the prior year, with amounts wagered up 26.7% to $56.4m.

As usual, the coastal casinos accounted for the majority of revenue and handle. These venues brought in $2.4m (64.3% of the market total, up 532.1% from November 2018) and $36.1m (64.1% of the total, up 30.7%) respectively. This came predominantly from betting on football, which accounted for $24.3m of regional handle, and $1.4m of revenue.

The northern casinos, meanwhile, saw handle grow 24.9% to $13.5m, thanks to increased customer activity around football, basketball and parlay cards. This resulted in revenue of $939,951.33, up slightly year-on-year.

CDI rolls out BetAmerica sportsbook online in Pennsylvania
Churchill Downs Incorporated (CDI) has announced the launch of its online sportsbook in Pennsylvania, in a move that builds on its retail presence in the state.

The online service will allow consumers in Pennsylvania to place bets on a wide range of global sporting events, including professional and collegiate sports. It is powered by SBTech’s sports betting technology, via an agreement struck in May 2018.

CDI already operates a land-based sports betting service in the state, having launched a retail sportsbook with the Presque Isle Downs & Casino in August. CDI also offers online gaming in Pennsylvania.

“We’re thrilled to offer the sports betting players in Pennsylvania a new platform to place bets on a broad range of sports events,” BetAmerica president Ian Williams.