Analysis

Is Pennsylvania a predator trap?

Delving into the sports-betting revenue data from Pennsylvania shows evidence of free-bet feeding frenzy. 

In Utah palaeontologists have found evidence of more than 40 meat-eating dinosaurs having come to a sticky end in a bog attempting to feast off the rotting carcasses of previously engulfed herbivores. 

It’s known as a predator trap.  

Fast-forward to the modern-day and shift the compass east to Pennsylvania and something similar appears to be happening in the sports-betting market.

The data from the state’s revenue report for September shows that after promotional credits – free bets – are stripped out of the $13.2m of winnings total, a mere $1.3m was left. 

It doesn’t amount even to a hill of beans to be split between 10 licensees. Nor does it leave much for the state.

Blitzkrieg bop

“The 91% online sports-betting bonus level of Pennsylvania for September is clearly not normal,” say the analysts at Regulus Partners.

Competition is clearly good for the consumer. Hence, the more sports-betting brands on offer in any given market, the more points it accrues in the Wedge Index, our guide to the gaming friendliness of each individual state.

As it stands, Pennsylvania is second in the list of states partly due to the competitive nature of the state’s sports-betting and online gaming markets. It has 86 points. 

Pennsylvania is, of course, the debut market for Penn National and Dave Portnoy’s Barstool Sportsbook adventure. It should be no surprise that as a result of the marketing splurge Barstool Sportsbook spent over 325% of its revenue as promotional bets.

It was, in other words, giving money away at quite a rate – over $2.1m.

But Barstool wasn’t alone. DraftKings spent over 200% of its revenue on promotions, or $2.3m compared with revenue of $1.1m. Unibet spend over 115%, or $1.5m versus $1.3m in revenue. 

And so on down the list through Fox Bet (75%), FanDuel (64%), BetRivers (58%) all the way through to Parx and Sugarhouse each at around 20%. Lowly Caesars managed to give away $5k of promotional bets from revenue of just over $100k.

Combustible competitors

“A big question that aggressive bonusing poses is the extent to which incentives are inflating or suppressing the underlying market,” say Regulus.

It’s a question which the marketing departments won’t be alone in hoping it is the former.

If all that money has gone merely on supplying gamblers with bets they would have gambled anyway, then the money has truly been given away.

Moreover, it would mean that forecasts for the size of the US market might be somewhat overblown.

Alternatively, the excess marketing is igniting the market.

Whichever turns out to be the truth in the long term, in the short term the amount of bonusing is problematic. 

According to reports, US sportsbook operators lobbied for gaming taxes to be applied after bonusing. It sounds like a good idea – for the books. 

For the state, however, it has less appeal. 

Despite the high tax rate in Pennsylvania – 36% – the revenues at this rate would barely cover the costs of the administrative paperwork.

Regulus point out that the differing tax treatment of bonuses means the much-vaunted ‘market friendly’ rate of 12% sports-betting tax in New Jersey is actually more like 20% of NGR.

“Indeed, in aggressive bonusing months Pennsylvania’s underlying tax rate is actually kinder than New Jersey’s,” they add.

Given the paltry returns, will the issue of the treatment of bonuses be revisited? Maybe. It might even do the books a favor if it acts as a brake on free bets.

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Scott Longley

Scott Longley has been a journalist since the early noughties covering personal finance, sport and the gambling industry. He has worked for a number of publications including Investor's Week, Bloomberg Money, Football First, EGR and GamblingCompliance.com. He now writes for online and print titles across a wide range of sectors.

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