- Penn National has secured online ‘second skin’ access to the New York market by entering into a 20 year partnership with Rivers Casino & Resort.
- New York is expected to create a framework for online/mobile gaming within the next year.
- There’s some risk that New York could make the boneheaded decision of putting the lottery in charge of sports betting.
New York is the fourth largest state in the US and currently the largest with any form of regulated sports betting. The presence of New York City alone has the potential of making the Empire State the most lucrative gaming jurisdiction in the US. The three states with more population–California, Texas and Florida–are either hardcore anti-gaming freedom (Texas), bought and paid for by the tribal casino lobby (Florida) or insanely dysfunctional (California). New York also has a long history of gambling and bookmaking stretching from Brooklyn to Saratoga Springs. In many ways, New York could be considered the ‘crown jewel’ of all US gaming jurisdictions. The only thing that could stop them from ranking right at the top in terms of revenue is if they should screw up the implementation of mobile/online sports betting.
When it comes to New York ‘not screwing things up’ is a big ‘if’. The state has made bureaucratic dysfunction at the state, county and local level an art form. Just take a look at the New York reaction to the COVID-19 pandemic. Were there not a body count and other collateral damages caused by their ineptitude it would be a classic comedy of errors that continues through the present. Watching the egomaniacal pissing match between Governor Andrew Cuomo and Mayor Bill de Blasio over who could implement the most onerous regulations in the early days of the pandemic made the ongoing turf battles on The Sopranos look downright gentlemanly.
Oddly enough, Governor Cuomo has practically begged the state legislature to send him a bill to create a regulatory framework for mobile/online sports betting and casino gaming. Cuomo rightfully stressed the huge influx of revenue it could bring to perpetually financially strapped state–and then he turned right around and articulated a plan that would guarantee that New York would never come close to the level of success that neighboring New Jersey has had with sports betting. Cuomo’s plan would relegate New York to subordinate status to most of their neighbors–definitely behind Pennsylvania, West Virginia as well as their neighboring states beyond the Great Lakes Michigan and Indiana.
Cuomo floated the urgency of online betting and then just a day or two later torpedoed even the most modest revenue projections while pouring a bucket of cold water on the ebullient speculation of gaming companies. Cuomo’s suggestion was that New York have only one sports betting provider working at the behest of the state’s lottery–likely based on Rhode Island’s relationship with William Hill. Hey, it worked out great for the state’s off track parimutuel betting monopoly–uh..wait–no it didn’t. They ran it into the ground going from 150 OTB locations in the 1980’s to 50 when the dumpster fire was shut down for good in 2010. The story of the OTB in NYC is very interesting–I’ll write y’all an article on it at some point.
PENN NATIONAL GETS PROACTIVE TRYING TO SHAPE NEW YORK ONLINE BETTING
The foolishness of a sports betting monopoly in New York is apparent to everyone that knows anything about the gaming industry which clearly does not include Governor Cuomo. The same system hasn’t worked in Oregon with nearly a quarter of the population of New York State. New York is at a crossroads–if they do online betting right they’ll immediately vault to the top of the revenue hit parade and if they do it wrong it’ll make the OTB look like a successful business model.
The stakes are high and if New York politicians show some atypical behavior and do a good job with the regulatory framework they could have a great sports betting ecosystem for players and everyone involved on the other side of the counter will make a ton of money. This is why Penn National Gaming (NASDAQ: PENN) has made a proactive move to secure access in the New York market. It not only gives them access but helps them subtly send the message to New York politicians that a competitive environment is the ticket for sports betting in the state.
Here are the particulars–Penn National announced that they’ve entered into a 20 year strategic partnership with Capital Region Gaming, better known to the masses as Rivers Casino & Resort in Schenectady, New York. The deal “will provide Penn Interactive, a wholly owned subsidiary of Penn National, with “second skin” access to the New York mobile sports betting and iCasino market, subject to legislation being enacted and regulatory approvals”.
Jon Kaplowitz, Penn National’s Sr. Vice President of Interactive Gaming, made the intent of the company’s move to secure ‘second skin’ access clear with his quote in the press release:
“Gaining potential access to what could become one of the nation’s most lucrative sports betting markets has been a major priority for our Company. We are hopeful that the New York State Assembly will follow those leading revenue producing states that allow for multiple skins for mobile sports betting. A state the size of New York certainly warrants open competition and a free market approach.”
Kaplowitz continued, emphasizing the immediate success of the company’s Barstool Sportsbook brand in Michigan from their February 1 launch:
“We’re very encouraged by the initial results we’ve seen in Michigan, as we registered over 48,000 new customers and generated total handle of $27.5 million during the first 10 days of operation. We remain very confident in our ability to win sizable share in new markets based on the power of the Barstool brand and media assets, which allows us to begin to leverage the meaningful cross-sell opportunities from the Barstool Sportsbook, iCasino and our mychoice loyalty program audiences. We hope to bring our unique and exciting brand of sports entertainment and iCasino to the Empire State.”
PENN NATIONAL’S DEAL IS A GOOD SIGN FOR SOME TYPE OF COMPETITIVE MOBILE/ONLINE GAMING ECOSYSTEM IN NEW YORK STATE
Nice to see that at least some players in the financial industry are starting to get a handle on the realities of sports betting. Morgan Stanley analyst Thomas Allen hits the nail on the head with his comments on the Penn National New York access announcement. He does make the hopeful point that Cuomo’s camp had already been ‘moving away’ from the single operator nonsense:
“Given PENN’s leading position in US regional gaming, we believe the announcement provides a vote of confidence that the market will be more competitive than Cuomo’s original ‘monopoly’ proposal, though notably Cuomo’s camp had already been moving away from just a single operator.”
Financial news site SeekingAlpha reports that Morgan Stanley’s ‘sources’ suggest that New York will go for a framework that is at least semi-competitive:
Sources had suggested previously to Morgan Stanley that the state would likely go for either 7 or 14 operators, which gives the firm the confidence after the Penn announcement to forecast a greater than 50% chance for 14 operators.
I’ll never understand why a state doesn’t just license as many operators as the market can support. Actually, I understand too well–if politicians put an arbitrary limit on the number of available licenses it gives them something of value that they can use to further their own ends. I won’t open this can of worms now and 14 would definitely be better than just one.
Penn National is such a solid company. They’re not a sports betting ‘pure play’ because they every segment of the gaming industry well. No matter how the US market evolves they’ll be a winner. The funny thing about their stock is that Wall Street types have been loving it for the wrong reason. The financial industry and media have practically soiled themselves over the sportsbook branding deal with Barstool Sports. Don’t get me wrong–that was a great move for PENN and it gave their solidly run but lacking a brand identity sportsbooks just what they needed. It doesn’t mean that Penn National has ‘already won’ the battle for US market sports betting market share (a dubious concept at best as I’ll discuss in the future). How could it when the Barstool app is only live in two states along with four retail locations in three states (Colorado, Indiana, Michigan)? Penn National is the ‘steak’ and while Barstool’s brand gives them some ‘sizzle’ it’s just not possible to conflate the insane popularity of the Barstool Sports ipso facto with an equal level of sports betting revenue.
At the time of publication, James Murphy has a long position in PENN.