Three early takeaways from N.J.’s explosive sports-betting launch

Just four months after launch, New Jersey's legal sports-betting industry is off to the races.

Legal bookmakers took in $24 million in gross revenue in September, and the $2.6 million in taxes paid by bookmakers accounted for 11 percent of the state's monthly gaming tax revenue. The tally from October, which will include World Series wagering, is likely to grow.

"Sports betting is a great amenity all around," said James Plousis, chairman of the New Jersey Casino Control Commission in Atlantic City. "Sports betting really adds a new dimension to the city."

Pennsylvania revenue officials are closely tracking New Jersey's experience because the state's first sportsbooks are set to begin operations soon — Parx Casino in Bensalem hopes to start in November, and SugarHouse Casino in Philadelphia has set a Dec. 1 target date. Three other casinos, including Harrah's Philadelphia Casino & Racetrack in Chester, are licensed to take sports wagers.

But analysts are cautious about how much New Jersey's experience will translate to Pennsylvania, and how much of an effect sports betting will have on the prosperity of casinos as well as the state treasury.

Experts say that sports betting is not the magic bullet that will restore New Jersey's gaming revenue to levels that peaked in 2006, before about half of Atlantic City's business was siphoned off by legalized gambling in neighboring states, said David G. Schwartz, director of the Center for Gaming Research at the University of Nevada, Las Vegas.

"It's not the savior, but that's OK," said Schwartz, an Atlantic City native. "You can't always expect a savior — I'm getting all mystical here."

While sports betting more than doubled in New Jersey in September, only 25 percent of the win was reported by Atlantic City casinos. The majority was online or at racetracks.

One licensee, Resorts Digital Gaming LLC, accounted for 35 percent of the sports betting revenue, all of it from two online operators using its license, Draftkings.com and BetStarsNJ.com. Two racetracks, Monmouth Park Racetrack in Oceanport and Meadowlands Racetrack in East Rutherford, accounted for a combined 40 percent of the sports betting revenue.

New Jersey's modest revenue for sports betting at casinos is in line with well-established patterns in Nevada, where sports betting has been legal for decades and accounts for about 2 percent of revenue at a typical casino, said Schwartz.

"In Nevada, it's not a real huge money earner," said Schwartz. "It definitely gets people in the door, but it's not going to earn a lot of money by itself. We're seeing that same pattern in the Atlantic City casinos."

Gambling expert Chris Grove, a managing director of Las Vegas gaming consultant Eilers & Krejcik, is cautious about reading too much into New Jersey's early success other than that there was substantial pent-up demand and that the market was able to get off the ground quickly.

"It's tempting to look at New Jersey and start to draw some lessons for Pennsylvania, but I think that might be a little premature beyond the broad strokes," he said.

The New Jersey market is still embryonic, and a lot of big gaming operators have yet to move in. "An important thing to remember at this stage is we only have a couple of months of revenue in a very incomplete market," said Grove.

One early takeaway from New Jersey is that on-site betting dominated the first three months, but internet betting moved to the forefront in September. Of the total of $183.9 million in sports bets wagered in September — the "handle" — about 57 percent, or $104.9 million, was wagered on the internet.

Online wagering is not necessarily robbing patrons from casinos.

The New Jersey Division of Gaming Enforcement does not break down the location of online bettors, but industry experts say much of the interactive wagering was conducted by customers who were physically located in casinos, wagering in-game bets. They just found it was more convenient to bet on a smartphone than to stand in line to bet at a kiosk or with a teller.

"The mobile product is critical to retail succeeding," said Grove. "And it's also a good example for other states that may be thinking of restricting mobile: They need to know they're ultimately damaging the retail business."

That might reassure casino operators who were concerned that online sports betting would siphon away brick-and-mortar patrons, who also spend money on food, drinks, and parking at casinos.

Grove expects that New Jersey's sports-betting market will surpass Nevada's, and that online wagering will capture 75 percent of New Jersey's sports-betting market in a few years. That may be good news to taxing authorities, since New Jersey taxes online sports-betting revenue at 13 percent, compared with 8.5 percent in casinos.

Another early takeaway from New Jersey is how quickly the two major players in fantasy sports betting — FanDuel and DraftKings — have moved into conventional bookmaking and captured a significant market share.

FanDuel operates the sportsbook at the Meadowlands Racetrack, just a few steps away from the New Jersey stadium complex and a short train ride from New York City. The Meadowlands reported $7.3 million in sports-betting revenue in September, or 30 percent of the statewide total. That included $2.9 million in internet revenue.

DraftKings and BetStarsNJ.com together generated $8.5 million in revenue in September, or 35 percent of the statewide total, under the license granted to Resorts Digital. New Jersey licensees can operate under multiple online brand names, or "skins."

Though neither FanDuel nor DraftKings had previously operated a conventional sportsbook, in which they take bets on games, they have considerable experience in the fantasy sports business, which they have turned into an effective duopoly after spending lavishly on advertising and sponsorship deals in recent years. The brands are already associated with sports betting.

"They're going to be formidable competitors in any market they get access to," said Grove. "They have an existing customer base and a deep well of expertise when it comes to digital marketing and customer acquisition."

But the pathways for FanDuel and DraftKings into the Pennsylvania market are not entirely clear, since neither has an established arrangement with any of the five casinos that have applied for a sports-betting license.

Unlike New Jersey licensees, which can engage with multiple online operators under different brand names, Pennsylvania casinos are restricted to a single online "skin." Several casinos, like Parx and SugarHouse, are intent on operating sportsbooks under their casino brand names.

FanDuel has a long-standing partnership with Boyd Gaming, an experienced Nevada casino operator that recently took ownership of the Valley Forge Casino Resort. Many industry insiders assume FanDuel will emerge as the operator of a Valley Forge license.

But DraftKings has no such relationship with operators of Pennsylvania casinos.

"Though DraftKings has built up an early lead in New Jersey by being quick to the market, how much does that persist over time?" said Grove. "Do they have a clear path into the majority of the markets that are going to open up across the U.S. in the next couple of years? That's a tricky question."