Daniel McIntosh from Arizona State predicts a decrease in the sports betting market in the future.
Arizona betting apps quickly reached $1 billion in handle within the first three months of operation.
Arizona’s sports betting launch has received notice for its meager taxable revenue, as the market has produced just over $4 million from the September 9 launch date to the end of November.
Yengols.com interviewed Daniel McIntosh, a Senior Lecturer at Arizona State University specializing in sports business and economic impact studies for events like the Super Bowl and NCAA Final Four. They discussed the state’s revenue projections and the potential future of the market.
Below is a condensed and more concise version of the conversation transcript.
BetArizona: Arizona’s sports betting tax revenue has been under $5 million from September to November. How do you anticipate the state’s tax revenue will change once the free bet write-off period ends in the new year?
Daniel McIntosh emphasizes the importance of considering other potential factors that may be influencing the situation, rather than looking at it in isolation.
For example, concerns about inflation and a potential economic downturn may result in a decrease in state management without any input from the operators themselves.
Hence, the benchmark number mentioned previously may be impacted by external factors. It is commonly recognized that football is the most popular sport when comparing various sports.
With the Super Bowl only two weeks away, a substantial increase in revenue is anticipated. February is usually a month of heightened sales due to this event. However, once football season concludes, there is a marked decrease in revenue due to seasonal fluctuations. This trend has remained consistent throughout the football season, with sales spiking in the initial month and then gradually declining as customers use up their entertainment budgets.
BetArizona: Do you foresee any potential contraction in the sports betting industry, or do you think that smaller players such as WynnBET and Unibet will remain successful by generating monthly revenues ranging from $500K to a few million dollars?
McIntosh predicts an industry shakeout, where competition for market share will significantly impact customer expectations. As a result, some customers are now requesting free bets as a condition for participation.
This is evidently impacting profits and leading to a decrease in overall financial performance. Conventional gambling models indicate that market dynamics are likely to be oligopolistic, characterized by a small number of dominant players controlling the market.
I think it is inevitable, but there are also other structural factors that will contribute to this result.
Operators may choose to allocate resources to states or locations where they have a competitive edge for greater effectiveness.
I think you will see a time of contraction, also known as a shake down, as market dynamics start to play out.
Do you believe that industry leaders such as DraftKings, FanDuel, Caesars, and BetMGM will be purchasing their struggling competitors in the coming year?
McIntosh: It may seem like a minor distinction, but I wouldn’t necessarily call it “buying out a competitor.” Purchasing another company can be a significant financial investment.
I think smaller companies might decide to leave the market and consider merging or selling assets to larger competitors with a strategic edge.
The result will stay the same: we will see a contraction and an oligopolistic competitive environment, with smaller players voicing discontent over their perceived disadvantage.
As a successful player in the market, you have the financial capacity to outlast your competitors. It doesn’t make sense for me to spend money on acquiring them when my current investments are yielding strong results. It’s probable that the competitors will eventually exit the market on their own, so there is no need for me to overspend to expedite that process.
I agree that it is probable, but it is unclear who will be the one to make the first move – A towards B or B towards A.
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Do you think the Arizona sports betting market will bounce back in 2022 after experiencing a 3.9% decrease in wagers in November, or do you believe this decline indicates a waning interest in sports betting among Arizonans?
McIntosh predicts that competition dynamics will once again impact the NFL season. It is common in states with more experience to see a decrease in activity during the second half of the season.
There are fewer rewards to be had and more people have already participated in the market. Because of this, I am not worried about seeing a 4% decrease.
Do you believe that we will see continued growth in the future? I think it is probable, although it may not be solely attributed to online platforms. It is likely that we will see a combination of online and physical locations emerging in the coming years.
As betting options become available, you can place bets at TPC, the Suns arena, and the D-backs stadium.
As we broaden our avenues and channels, we anticipate a boost in overall engagement, which will ultimately result in higher revenues and tax contributions.
We are noticing various factors at play, such as the increase in both online and in-person activities, as well as the seasonal fluctuations in November that could result in a short-term decrease. Nevertheless, I am of the opinion that this does not signal a major setback, but rather a common pattern observed in other regions.
Do you think Arizona has maximized its sports betting market to generate the most tax revenue possible after four months of legalization?
McIntosh: I find it intriguing how we have previously talked about this topic and mentioned the various opposing parties involved.
There were established casinos run by current operators and tribal nations, along with online gaming exemptions being eliminated to allow new players to join the market.
I don’t think we’ll be going to the DMV to gamble while waiting in line, but I do believe we have worked hard to satisfy stakeholders and establish mutually beneficial partnerships to boost tax revenue throughout the state.
We provide on-site and online services, as well as hosting large events to enhance our offerings. It is crucial to take into account the varying tax rates across states, with New York having significantly higher fees for operations compared to Arizona.
There is a delicate balance between the percentage and the market’s capacity to support it, and overall, I believe the state is effectively managing their first year of operations.
Will events such as Spring Training and the 2023 Super Bowl in Arizona lead to a rise in sports betting activity?
McIntosh: Absolutely. This can be seen in several ways. For example, at the W.P. Carey School of Business at Arizona State University, we regularly conduct economic impact assessments. We examine the consequences of events like the Super Bowl. When you bring in 75,000 fans to a stadium, including many out-of-state visitors, as well as support staff, media personnel, and other attendees, you can anticipate a notable rise in the number of people coming to your state.
This pattern is noticeable in both hotel occupancy rates and overall tax revenue. I predict that we will see a similar surge when the Super Bowl arrives in town in 2023. This uptick will not just impact online gambling, but also in-person betting at the stadium, resulting in a substantial rise in overall activity.
Can we compare the market for the first four months of sports betting in Arizona to any other markets?
According to McIntosh, the market trends in Arizona are similar to those seen in most markets. He anticipates that other states will also experience a rise in football betting throughout the year, followed by a decline and fluctuations during major events such as the World Series or NBA Finals. Overall, he foresees a surge in activity when football season resumes, as it remains the dominant sport.
I typically don’t draw comparisons between Arizona and neighboring states like Nevada in terms of online gaming. From my perspective, all states seem to be adopting similar approaches when it comes to introducing online gaming.
BetArizona: Is there anything else you would like to discuss that we haven’t touched on yet?
McIntosh recognizes the significant issues related to gambling addiction and raises concerns about the adequacy of state efforts to safeguard citizens from the financial risks associated with sports betting.
I think there is a commonly ignored aspect that needs to be addressed. Although we recognize the substantial profits being made, it is crucial to assess whether we are behaving responsibly. It is essential to have safeguards in place to shield people from potential harm, even amidst the thrill they may experience.
Placing a bet on a game and winning can be thrilling and emotional, yet it can also trigger impulsive decision-making. It is crucial to introduce this activity responsibly to maintain its enjoyment for all involved.
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Author
Peterson Christopher has spent over seven years reporting on sports and sports betting in Arizona, with previous roles at ArizonaSports.com, the Tucson Weekly, and the Green Valley News. He currently holds the position of lead writer at yengols.com.
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