The chief executive officer of FanDuel’s parent company was optimistic on Wednesday in discussing the prospects of sports betting in California — but that was before it was totally clear how badly an online-wagering measure was going to lose in the state.
With 100% of precincts partially reporting on Wednesday afternoon (on the East Coast, anyway), Proposition 27 had been approved by just 16.7% of California voters and rejected by 83.3%.
That was worse than what public polling had suggested about the ballot measure, which would have provided a way for operators such as FanDuel to legally offer online sports betting sites in California.
FanDuel pumped more than $35 million into the pro-Prop 27 campaign, according to state records. Six of the bookmaker's rivals chipped in another $130 million or so combined, but by Election Day, it was looking like the measure was about to go down in flames.
Even so, the chief executive officer of FanDuel’s parent company was bullish about the future of legal sports betting in the state during Dublin-based Flutter Entertainment PLC’s latest earnings call, which took place as the results were still being tabulated.
“Firstly, although the results are not yet in, the polling indicates that California is very unlikely to pass our initiative to legalize a competitive online sports betting market on this occasion,” Flutter CEO Peter Jackson said early Wednesday during the call. “As we think about the U.S. market longer term, we find it hard to see a scenario where a sports-mad state like California won't have access to what will be legally available in so many other U.S. states.”
Jackson’s comments were similar to those made by FanDuel CEO Amy Howe and DraftKings CEO Jason Robins during last month’s Global Gaming Expo in Las Vegas.
Nevertheless, all of the comments came before it was clear just how badly Prop 27 was beaten in California. Furthermore, the biggest opponent of Prop 27, the tribal-backed "Coalition for Safe, Responsible Gaming" says their research has consistently shown that voters in the state aren't interested in what FanDuel, DraftKings, and other operators were trying to sell them with their ballot measure.
“Our internal polling has been clear and consistent for years: California voters do not support online sports betting,” said Anthony Roberts, the tribal chairman of the Yocha Dehe Wintun Nation, in a press release. “Voters have real and significant concerns about turning every cell phone, laptop and tablet into a gambling device, the resulting addiction and exposure to children.”
In other words, a coalition of online sportsbook operators spent roughly $188 for each of the votes in support of their ballot measure in California. pic.twitter.com/YldkT28wDh
— Geoff Zochodne (@GeoffZochodne) November 9, 2022
The costly loss in California for both Prop 27 and Proposition 26 — which would have allowed in-person sports betting at racetracks and tribal casinos — means there will be no forms of legal sports betting in the state for some time. However, another attempt at legalizing retail or online sports betting in the state seems inevitable given its size and the value it could offer to whoever can gain access.
In the meantime, though, Prop 27’s loss will save operators a ton of cash they would have had to spend on trying to acquire customers in the California market. The California-related investment for FanDuel would have been “massive and material,” analysts and investors heard during the Flutter call, and one that would have come as Flutter is forecasting its U.S. business will turn consistently profitable in 2023.
Flutter reported on Wednesday that FanDuel was responsible for generating 42% of gross gaming revenue among online sportsbooks for the third quarter in the states in which the operator was taking bets, down from 51% for the second quarter.
Still, even with the dent to FanDuel's market share, Flutter reported revenue for its U.S. division shot up 114% year-over-year for the three months that ended September 30, to approximately $683 million. Average monthly players in the U.S. were up by 42%, to around 1.86 million.
“Customer economics remained compelling, despite the anticipated step up in competition at the start of the NFL season,” Flutter said in its quarterly trading update. “We continued to apply a disciplined approach to investment with expected payback periods in September remaining within 18 months.”
And, Flutter added, FanDuel remained the leading online sportsbook operator in the U.S. despite the diminished market share.
The company said its U.S.-based handle was 82% higher for the quarter, at around $5.3 billion, which was helped by the addition of six new legal sports betting states since the start of the third quarter of 2021. The net revenue margin for its U.S. division also reached a record high of 8.5% for the quarter.
“This was primarily driven by structural improvements due to the growing popularity of our market leading sports betting products such as [Same Game Parlay] Live which launched in September, and bookmaker friendly sports results which we reinvested in promotional generosity for our customers,” Flutter said.
A win's a win
Flutter as a whole reported revenue growth of 31% for the third quarter compared to a year earlier, as receipts rose to approximately $2.2 billion.
Average monthly players across all of the company's sites, which include FanDuel, Paddy Power, and PokerStars, increased by 23% to about 9.6 million.
Flutter also took another victory lap concerning the recent arbitration decision on Fox Corp.'s option to buy 18.6% of FanDuel. The tribunal sided with Flutter's preferred valuation of FanDuel, which will increase the cost of Fox buying its equity stake if it ever does so.
“This vindicates our position on the matter, with FanDuel valued at $20bn based on its fair market value at 3 December 2020 and provides important clarity on the significant cost required to buy into the number one US gaming business,” Jackson said in Wednesday’s press release.
