On 31 January, retail sports betting became legal in the state of Massachusetts. However, online sports betting is not expected to go live until next month.
In advance of the March launch, the Caesars Sportsbook app has been made available to download. From today, bettors can register and make deposits in order to access early sign-up offers.
The case’s failure means that Maverick’s push for sports betting a within neighborhood cardrooms is dead for now.
The federal lawsuit, which was filed in January 2022, sought to challenge tribal sports betting compacts which granted tribes exclusive rights to offer some forms of gaming – notably sports betting – in Washington non-tribal commercial gaming properties.
State tribal interests have characterised the suit as a direct attack on the Indian Gaming Regulatory Act (IGRA), the 1988 federal law which provides the legal basis for tribal gaming.
The dispute dates back to March 2020 when governor Jay Inslee signed into the law House Bill 2638 which legalised in-person sports betting at Class III gaming facilities.
Catena was able to launch in a number of US states during 2022 following the legalisation of online betting in key markets such as New York, Louisiana, Ontario, Kansas and Maryland.
This tied in with the group’s new strategic focus on high-growth and regulated markets in North America, which ultimately led to the sale of the AskGamblers brand to Gaming Innovation Group (GiG) in January this year.
While other areas of the business experienced a decline in revenue as a result of the switch, Catena’s North American operations blossomed and drove year-on-year growth in revenue and allowed a return to net profit.
“Fully exploiting the high-margin opportunities on offer in this market will be our core operational focus going forward,” Catena chief executive Michael Daly said. “The shift towards regulation in online sports betting and casino continues to gain momentum globally – and nowhere more so than in North America, where five new states and provinces legalised online sports betting in 2022, while Ontario also opened for online casino.
“We believe regulated markets provide a more protectable and predictable environment for operators and for affiliates like Catena Media.
“As a remote-first, global organisation we possess the ability to invest flexibly into newly regulated markets in different regions once they can offer stable and foreseeable operating frameworks for affiliate marketing.”
Looking at Catena’s results and beginning with the fourth quarter, revenue from continuing operations in the final three months of 2022 amounted to €27.4m (£24.1m/$29.1), up 31% year-on-year.
Breaking this down, search revenue accounted for €27.3m of all revenue, up 16%, though paid revenue dropped 37% to €152,000. Cost per acquisition drew 74% of all revenue, with revenue share at 22% and fixed revenue at 4%.
Sports betting activity resulted in €14.2m in revenue during Q4, with casino revenue at €13.2m. In terms of geographical performance, North America revenue was 31% higher at €21.5m, while rest of world revenue dipped 20% to €5.9m as a result of the strategy change.
Turning to costs, operating expenses increased 57% to €25.9m, but net financial income stood at €362,000. This meant a pre-tax profit of €1.9m, down 65% on the previous year.
Catena received €1.4m in tax benefits, leaving a net profit of €3.2m, a year-on-year drop of 30.4%, though adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) was 14% higher at €12.3m.
However, when also including an €11.4m loss from discontinued operations and €1.1m in interest payable on hybrid capital securities, the left a total comprehensive loss of €9.2m, compared to a €4.5m profit in 2021.
Turning to the full year, revenue increased 8% year-on-year to €110.1m, This comprised €109.4m in search revenue, up 8%, and €717,000 in paid revenue, down 42%.
Sports betting activity drew €55.9m in revenue during the year, while casino revenue hit €54.2m. North American revenue was 24% higher at €84.5m, while rest of world revenue slipped 27% to €25.6m.
Operating costs were reduced by 23.5% to €81.7m while net financial expenses amounted to €2.2m, leaving a pre-tax profit of €26.2m, compared to a €12.8m net loss in 2021.
After paying €604,000 in tax, this resulted in a net profit of €25.6m, compared to a €14.2m net loss in the previous year, though adjusted EBTIDA fell 16% to €50.1m.
Catena also noted an €18.1m net loss from discontinued operations and €4.3m worth of interest payable on hybrid capital securities, which left a total comprehensive profit of €2.3m, on contrast to the €12.7m loss posted in 2021.
“I would like to express my appreciation for the efforts of all our employees throughout 2022,” Daly said. “Their ability to remain focused on the business despite the sometimes significant distraction of organisational change impressed me greatly and I warmly thank each and every one for their valuable contributions.”
Turnock’s new role will place him in charge of business intelligence for Checkd, while also managing the finances for all its divisions. This includes Checkd Media, Checkd Dev and its international subsidiaries.
Originally joined the UK-based affiliate in June 2019, Turnock was first elevated to finance controller of Checkd Media. In that role – according to the company – he was instrumental in the launch of its US brand FlashPicks and gaining 10 cost per acquisition (CPA) state licences in the country.
“I am incredibly proud to be taking on the role of finance director at a time when the group is experiencing such dynamic growth,” said Turnock on his new appointment.
“Checkd Group is in the strongest position in its history; with an experienced team driving our strategic initiatives forward, we are very well-positioned for considerable further growth.”
Checkd Media managing director Alex Beecham highlighted the importance of the role in the business’s expansion plans.
“The position of finance director is a vital one as we continue to scale up our operations in both the UK and North America,” said Beecham. “It was important that we identified a candidate who has a strong track record in analysing and making valuable decisions that are grounded in data.”
Beecham argued that Turnock’s previous track record proved to be an important factor in his promotion.
“Sam fit the bill for us in every regard,” the managing director of Checkd media added. “His performance since first joining our business four years ago has been exemplary, as we have seen with his key role in the FlashPicks launch and the acquisition of all of our CPA state licences.
“He has also been a vital figure within the contract and procurement side of the business and we look forward to delivering further growth together in the months and years to come.”
The company recently launched a new tool for its FlashPicks brand, providing US players with sports data and historical statistics to enhance betting decision-making.
Checkd Group also handed a commercial director role to Andrew Grimshaw at Checkd Dev. Grimshaw joined to oversee the expansion of technology-based solutions to Checkd’s media and operator partners across both the UK and North America.
As was the case with all land-based operators, CDI was impacted by measures including capacity limits and temporary closures during the pandemic period, with this having run into the first half of 2021.
However, with restrictions having been eased and eventually removed towards the end of 2021, this allowed CDI to return to normal operations across its land-based venues during the past year.
The operator said that while revenue for the period is forecast to increase by approximately 66% to HK$45.0m (£4.8m/€5.4m/US$5.7m), profit is expected to drop 98.0% from $4.0m to just $79,000.
Loss attributable to the owners of the business is likely to be at least $1.0m, while the total comprehensive loss attributable to the owners is expected to be approximately $18.0m.
Rich Goldman said that the $1.0m loss was mainly attributable to the absence of the gain on bargain purchase on an acquisition recorded by the group during the six-month period.
In addition, the operator said the total comprehensive loss was primarily down to the net loss on foreign exchange differences related to Renminbi against Hong Kong dollars on translating the group’s operation of approximately $23.0m during the period.
The net loss on foreign exchange differences is a non-cash accounting treatment that is published in accordance with Hong Kong Financial Reporting Standards.
Rich Goldman said it is still in the course of finalising the results for the six-month period and that the final set of figures may differ.
The operator expects to publish the results for the interim period in full by the end of February.
On a recent trip to the US, we spoke with many US bettors who are incredibly frustrated with both the US online wagering experience and the US taxation system (regarding the treatment of winnings).
Due to KYC/AML requirements, it is very cumbersome to set up and fund an online betting account. We do not envision this changing any time soon – if anything, this initial barrier to entry is likely to become more challenging for consumers.
Furthermore, according to the IRS’ website, wagering winnings are fully taxable and a bettor must report winnings as income on their tax return. Gambling spans lotteries, raffles, horse races, online sports betting and igaming, and land-based sports betting and casinos.
An operator is required to issue bettors with a ‘Form W-2G, Certain Gambling Winnings’ if they receive certain gambling winnings. Whilst gambling losses may be deducted from income for tax purposes, the losses are only deductible off gambling winnings.
This taxation system means that every US gambler is effectively forced to track their betting wins and losses to avoid being taxed on winnings. For example, if a bettor wins $1,000 and then loses $600, they must track this series of bets in order to only pay tax on the $400 of net winnings. If a bettor places 10 bets per week, an Excel with over 500 rows would likely be required to track the net result.
In addition, if more than $5,000 is won on a wager and the payout is at least 300x the amount wagered, the IRS requires the operator to withhold 24% of winnings for income taxes. Unique withholding rules apply to slot machines, keno, poker tournaments and bingo winnings.
These hurdles are pushing volume to unregulated operators, such as those operating in Costa Rica.
There is not any specific online wagering legislation in Costa Rica so there are no barriers to establishing an operator in the country. Unregulated wagering websites are restricted from marketing directly to residents in heavily regulated countries, such as the UK and Australia. We have heard stories of US bettors regularly placing $50,000+ wagers through Costa Rican bookmakers.
According to Costa Rican law, the physical location of an online wagering operator’s server is not where gambling actually takes place. Consequently, it’s legal for Costa Rican operators to offer online wagering services from Costa Rica so long as they do not offer them to residents of the region.
Undoubtedly, the US will try to clamp down on Americans betting through unregulated operators in Costa Rica and other jurisdictions. However, this will be no easy feat for US regulators, who already have to deal with the circa 40 domestic US operators.
Regulated operators (such as FanDuel, owned by Flutter) are able to develop strong brand awareness in the US through marketing channels unavailable to unregulated operators. FanDuel has market-leading brand awareness and user engagement. The company’s third quarter results illustrated their market leadership, with 18% market share of gross gaming revenue for iGaming and 42% share of online sports betting.
Unregulated operators carry a significant investment risk as they could lose a large portion of their customer base at any moment, whilst it is also increasingly challenging to effectively market them. Tax-paying regulated operators can help to form the general direction of regulation and lobby regulators.
For example, we see many unregulated operators negotiating promotional/affiliate deals with celebrities (such as UFC fighters, rappers, ex-football players, etc.). FanDuel and other US operators could lobby regulators and state governments to ban celebrities from accepting such deals. If this occurs, unregulated operators would lose a crucial customer acquisition channel.
Regulated operators like FanDuel are well-positioned to compete with unregulated operators because they have larger marketing budgets, decades of experience and many customer acquisition channels, amongst several other key advantages. One of these advantages is the relatively easy access to capital from public markets.
We have discussed Flutter in several prior newsletters (See November 2022, September 2021, January 2021). It has been a core portfolio holding since September 2019.
Flutter has long been listed in the UK and is the 27th largest company by market capitalisation. The company’s logic behind a US dual listing is three-pronged:
The US is now the firm’s largest revenue contributor.A US listing improves access to US capital pools and makes it easier to offer share incentives to American employees.US equities have long been valued at a premium P/E ratio compared to other global equity markets. Flutter’s shareholders would benefit from this uplift in P/E ratio, while the company could take advantage of a premium valuation to raise further capital.
The table below shows the P/E ratios of the largest global markets, calculated using the benchmark equity index of each stock market.
As shown in the table, many global markets trade at a >20% discount to the US market, whilst the UK (most relevant to Flutter) trades at a 25% discount. Over the last three years, as interest rates have risen globally, P/E ratios have compressed an average of 27%. In comparison, the P/E ratio of the US market has compressed just 15%.
Flutter is certainly making marketing waves in the US, with a $7m Super Bowl commercial offering $10m of free bets. A vote on the US listing would require a 75% approval rate at Flutter’s April annual meeting.
We view Flutter’s US listing aspirations as another example of their genuine commitment to remaining the market leader in US wagering. As at 20 February, Flutter is up +20% this calendar year to date.
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The total spent by players was 505.4% up from $40.5m in January 2022, though the state’s legal online betting market only opened towards the end of that month.
The monthly handle was also 12.1% higher than in December 2022 and 4.9% ahead of the previous record of $233.7m set in November.
The renewed licence will run for a period of five years, with the PGCB having ruled that the casino fulfilled the obligations under its previously approved casino operator’s licence.
In reaching its decision, the PGCB held a public input hearing in Paradise Township, the host municipality of the casino, and also consulted with local government officials, community groups and the PA State Police.
Entitled The Betting on Our Future Act, the bill aims to “prohibit the advertising of sportsbooks on any medium of electronic communication subject to the jurisdiction of the Federal Communications Commission (FCC), and for other purposes.”
If passed, sportsbooks would not be permitted to advertise on mediums that fall under the control of the FCC, such as TV, radio or the internet.
The act is modeled after the Federal Cigarette Labeling and Advertising Act, that passed in 1965 and banned tobacco advertisements in the US.
Should this act be passed, any violation would therefore be a violation of the Communications Act of 1934.
Whether or not the act goes beyond the House, its proposal reflects the rapid growth of sports betting across the US and the social change that has resulted.
The New York representative highlighted the 2018 repeal of the Professional and Amateur Sports Protection Act of 1992 (PASPA) by the Supreme Court, as well as the increased marketing spend from US-facing operators during 2020 and early 2021 as representing a danger for the American people.
“Sports betting advertisements are out of control. Congress needs to reel in an industry with the power to inflict real, widespread harm on the American people”.
The legislator pointed to DraftKings’ close to $500 million (£415m/€472m) sales and marketing spend during 2020, which was close to the height of the industry’s marketing blitz.
Most operators – with the notable exception of Flutter-owned FanDuel – have tapered down marketing spend in an increased focus of profitability. The operator spend over $1.0bn on marketing during 2022.
Tonko also pointed to Pew Research polling which found that around 1 in 5 American adults bet money on sports in 2022.
He also argued that companies are using predatory tactics to entice new business. Large promotions and verbiage such as “risk free” or “no sweat bets,” he argues, pose a risk.
According to the National Problem Gambling Helpline Network, in 2021 the organisation fielded 270,000 calls, 45% more than it did in the previous year.
The bill has faced criticism from industry who oppose any federal or state restrictions on advertising.
“The American Gaming Association (AGA) and our members adamantly oppose any legislation that seeks to ban or limit casino gaming advertising, including for legal sports betting,” said Chris Cylke, senior VP of AGA.
“Responsibility is a foundation of the legal gaming industry and that includes with advertising. In fact, there’s never been more attention paid or resources invested in responsible gaming and problem gambling resources.
“This includes our proactive efforts establishing the Responsible Marketing Codes for Sports Wagering, which mandates responsible gaming message inclusion and imposes restrictions on target audiences, outlets and content.”
Cylke argues that should this act go into law; it would benefit illegal offshore operations and undermine state and tribal gaming regulators. Additionally, the vice president said that the proposed legislation violates federal free speech protections.
