THE NAME OF THE GAME

This June marks three years since the United States Supreme Court struck down the Professional and Amateur Sports Protection Act (PASPA), paving the way for regulated sports betting across the country. In the time since, more than half of all states, plus the District of Columbia, have legalized sports wagering. Several more state legislatures are debating bills to regulate the activity as early as this year. In states where sports betting is already legal, the question is no longer whether operators can attract customers, but rather how fast and large sports betting can grow. Gaming America recently spoke to state o cials from a half dozen regulated markets to gather what they’ve learned from the past year, their expectations for the rest of 2021 and why American sports betting has only scratched the surface.

When looking for explanations to sports betting’s success in the United States, there’s perhaps no place better to start than Pennsylvania, which has emerged as a top-four market for handle since launching in spring 2019. With two large population centers, seven professional sports teams and several more NCAA Division I football and basketball programs, it’s little surprise that the Keystone State would attract a wide swath of bettors.

“Population is, by far, the main factor,” says Doug Harbach, the communications director at the Pennsylvania Gaming Control Board. “As with all other jurisdictions that offer sports wagering online, wagers must be placed within the jurisdiction. Thus, the larger the population, the larger the potential customer pool.”

Harbach says location has worked to Pennsylvania’s advantage as well, at least for now.

“From a retail standpoint, there was certainly an advantage for the casinos, which opened a physical sportsbook to attract out-of-state customers to increase overall volume just as they have done for years to attract out-of-state patrons into their facility for other offerings,” Harbach adds. “There is no doubt that some bettors, favoring a short drive then accessing a land-based casino, entered Pennsylvania in order to establish an account and place online wagers since their state did not offer this option. Of course, with surrounding states like Maryland, New York and Ohio making moves to launch online sports wagering soon, those treks from non-Pennsylvania residents will likely decrease to some extent.”

Pennsylvania retail sportsbooks have only partially been able to capitalize on attracting customers, whether in or out of state. Pennsylvania casinos were hit twice by Covid-19 related shutdowns, once last spring and again from December 10 to

January 4. The second shutdown arrived during the final weeks of the NFL season, an especially hard blow in a state that lives off the Philadelphia Eagles and Pittsburgh Steelers. Casinos reopened in January at 50% capacity.

The drop in retail sportsbook traffic has expectedly led Pennsylvanians to heavily gravitate toward online sportsbooks. In March, mobile sports wagers made up $514m, or about 90%, of the state’s handle’s monthly handle.

“The pandemic was a unique circumstance, one that all of us hope does not occur in our lifetimes. So it’s a good question but probably unanswerable today,” he says. “Certainly, the use of the internet to place wagers will remain strong and likely be the favorable choice for wagering. At the same time, the release from the stringent and necessary safety precautions due to Covid may nudge many gamblers to get out of the house and seek in-person gambling options. We will just have to wait and

DOUGLAS HARBACH

see how this highly unusual event plays out.”

Far across the continent, a similar dynamic is playing out in Colorado, where legalized sports wagering is nearing its one-year mark. Geography was always sure to play a heavy factor for Colorado’s retail sportsbooks, which are located in the mountain gaming towns of Black Hawk and Central City 40 minutes to the west of Denver, and Cripple Creek two hours to Denver’s south.

“People couldn’t go the mountains because in the first initial stages they were closed and they’ve been under different restrictions ever since,” says Dan Hartman, director of the Colorado Division of Gaming. “My feeling in Colorado was always going to be about 93% online and 7% retail. We’re a little bit higher online than that right now. It’s about two or two-and-a-half percent. We’re seeing it gradually pick up market share on the retail side as people get more comfortable. As vaccinations roll out, we’re seeing a lot more people go up to those mountains.”

Though still one of the nation’s younger markets, the Centennial State is beginning to flex its sports wagering muscle, as shown by January’s record handle of $327m, followed by February wagers of $267m.

Coloradans wager heavily on football and basketball, but what’s unusual about the state’s sports betting breakdown is the surprising popularity of table tennis. Bettors regularly place more money on table tennis than ice hockey, soccer, tennis or golf, which goes against American sports logic. The best explanation is that tennis table gained traction last May, when it was one of the only sports available to bet on during the state’s launch. Remarkably, the sport has maintained a strong and loyal legion of bettors a year later.

DAN HARTMAN

“What it did in the beginning was people didn’t come on and just focus on football, basketball or baseball; they focused on what was available,” says Hartman. “I think by doing that, you’re seeing that the other obscure sports that were around, it gave them that opportunity to enjoy or search out and become familiar with what Colorado did offer. You know they’re going to come back to the big four sports, but the little ones never really left their mind.”

Colorado joined Michigan as the two to launch sports betting during the first months of the pandemic. In Michigan, retail sportsbooks were open for only four or five days before closing in mid-March. Retail sports wagering was always set to launch well ahead of online because state regulators had to write separate rules for mobile sports wagering and online casinos. Those rules were finalized in early December, about one year after Governor Gretchen Whitmer legalized expanding gaming in the Wolverine State.

Online sportsbooks went live on January 22, which Richard Kalm, the executive director of Michigan’s Gaming Control Board, calls record time.

“We launched 10 operators for sports betting and online gaming at the same time,” Kalm says. “That year even while we were writing rules, we were communicating directly the other platforms to make sure they’d be ready to go when we pulled the okay. And they were.”

Demand was immediate. In February, Michigan’s first month of mobile sports wagering, online sportsbooks reported $302m handle, adding on to the $115m wagered during the last 10 days of January. Online handle grew to $359m in March, while Detroit’s three retail sportsbooks reported another $24m.

Michigan’s market is made hyper competitive by the fact that the state’s gaming tribes can offer sports betting. Bay Mills Indian Community, located on the very northern tip of the state, beat out several tribes for a partnership with DraftKings. The deal is sure to be life-changing for the tribe’s approximately 2,000 members. In March, DraftKings took in $73m of sports betting handle, third in the state behind MotorCity/FanDuel’s $98m and MGM Grand/BetMGM’s $82m.

Kalm believes online and retail will coincide nicely as business picks up this summer.

“I think what you’re seeing in the market is the online sports betting and online casino games are attracting people who didn’t necessarily travel to a casino anyways,” Kalm says. “When those casinos open at full capacity, you’re going to see that cross pollination in order to keep the numbers robust in the casinos regional environment.”

It helps that Detroit’s three commercial casinos are all located within a mile of each other and within walking distance of the city’s professional sports stadiums.

“When the Lions are in town, people tend to go to those casinos and bet football,” Kalm says. “When the Tigers are playing, those casinos are right there. They can stay overnight and they can bet on baseball. It helps that we have that relationship of people being there and being allowed to bet.”

Detroit is one of the first US cities to offer retail sportsbooks in proximity to professional stadiums and urban nightlife, but it certainly won’t be the last. 300 miles west, the Chicago Cubs have announced plans with DraftKings to open a retail sportsbook at or near Wrigley Field. The city of Chicago is also in the process of gathering proposals for a downtown casino expected to open in 2025.

Illinois’ retail sports betting ambitions will hinge greatly on where that casino is built. Though there are a few brick-and-mortar sportsbooks spread out through the Chicago suburbs, they’re not likely to attract the same clientele as a downtown location, says Eric Noggle, senior analyst at the Illinois Commission on Government Forecasting and Accountability.

“If you were a tourist and you were looking for a place to do that and you don't know the city very well, not having one in downtown Chicago, you lose out on a potential revenue stream there,” Noggle says. “So I think it is the tourism industry that would really benefit from having a Chicago casino and having a place to go for those people downtown.”

Retail sportsbooks take on special significance for Illinois sports bettors, as customers must go inside a physical sportsbook to open a sports betting account. Illinois’ original sports wagering law in 2019 required in-person registration, and last December, Governor J.B. Pritzker signed a pandemic-related executive order allowing for mobile sign-ups in order to slow down foot traffic at casinos as Covid-19 cases soared. That order, however,

expired in early April, which leaves customers no choice but to once again go inside a retail sportsbook to register an account.

DraftKings, whose Illinois partner is Casino Queen in East St. Louis, stands the most to lose from in-person registration. A Chicagoland resident would have to drive four hours across the state to create a DraftKings account, or they could choose a competing operator at one of the five sportsbook locations around Chicago.

Mobile registration was undoubtedly responsible for Illinois sports betting handle reaching new heights this year. The state saw January sports wagers balloon to a record $582m. Then in February, the Lincoln State surpassed Pennsylvania as the nation’s third top sports betting market, behind New Jersey and Nevada, with handle of $510m. Online betting accounted for an eye-popping 96% of February’s handle.

“I’m sure that the sports wagering industry was very pleased to have the ability to do things online,” Noggle says. “Now that that’s being taken away and people have to actually go to the facilities, I think that’s going to hurt online operators a little bit, but it will also be able to help the casinos. You’ll be able to go in person and maybe people will be wagering at the slots and table games as well as doing some sports wagering.”

There is precedent for a state overturning mandatory in-person registration, only to see their market skyrocket. Iowa transitioned to mobile registration at the start of 2021, a year-and-a-half into regulated sports betting. The results have been just what state regulators and operators hoped for. January generated handle of $150m, a 30% increase from December and a 62% improvement year-on-year. Between November and January, online handle grew 95% from $62m to $121m, and it held steady at $140m in February despite three fewer days and the drying up of NFL playoffs wagering. Sportsbooks will likely set records too for March when the state saw two of its colleges compete in the NCAA Tournament.

The sudden rise in sports wagering activity is something the state hasn’t seen since first launching it in August 2019, according to Brian Ohorilko, director of gaming at the Iowa Racing and Gaming Commission.

“We’ve had two periods of spectacular growth – the first months after we launched sports betting in 2019 and these past couple months,” he says. “We’ve had 10 to 12 online operators express interest of doing business in our state, and we saw PointsBet launch mobile sports wagering back in January.”

With a population a little over three million, Iowa is a mid-sized market lacking a professional sports team, but home to fiercely loyal college and pro fans. Because the state is located in the heartland, residents tend to support franchises from all over the Midwest. The Kansas City Chiefs of neighboring Missouri were Iowa’s de facto team this winter, leading to a burst of Super Bowl wagering activity.

Iowa’s market also may have most in common with Indiana, another midwestern state whose residents live and breathe college athletics. Indiana is home to Big Ten programs in Indiana and Purdue as well Notre Dame, one of the nation’s name-brand college football schools. Several more Division I programs compete in men’s basketball. When crafting Indiana’s sports wagering laws, state regulators made it a point to allow bettors to wager on in-state programs.

“There’s no doubt Hoosiers love college basketball, and basketball in general, says Dennis Mullen, director sports wagering and paid fantasy division at the Indiana Gaming Commission. “Our legislation did not prohibit wagering on in-state teams and collegiate events and matches occurring within Indiana. Not having such a prohibition in our Legislation does create more wagering opportunities for patrons and operators.”

Mullen credits the state’s regulatory framework as to why Indiana has outperformed for a market its size.

“We are strong regulators but we also create an environment where innovation is not stifled and we do not impose unnecessary rules and requirements,” Mullen says. “We also took a collaborative approach with stakeholders and identified best practices. And we were certainly the beneficiaries of much assistance from other regulatory jurisdictions that came before us.”

Operators who’ve committed to Indiana are being rewarded in big numbers. Beginning last fall, Indiana pulled off five consecutive months of record handle, culminating in January wagers of $348m. Handle dropped to $273m in February but was back up to $317m in March, driven in part by a men’s NCAA Tournament played exclusively in Indiana; $168m of March wagers were placed on basketball, not counting parlays.

Sports wagering proponents hope this year’s March Madness serves as the jumpstart to a prolific late spring and summer season. As bettors continue to wager online at historic levels and more Americans gain confidence to return to retail sportsbooks, there’s every reason to think sports betting’s momentum will carry well into 2021 and beyond.

“ONLINE SPORTS BETTING AND ONLINE CASINO GAMES ATTRACT PEOPLE WHO DIDN’T TRAVEL TO A CASINO ANYWAYS. WHEN THOSE CASINOS OPEN AT FULL CAPACITY, YOU’LL SEE THAT CROSS POLLINATION TO KEEP THE NUMBERS ROBUST IN THE REGIONAL ENVIRONMENT.” -RICHARD KALM