`Gigantic Pool' of Cash Awaits Teams in Dawn of Legal Betting
(Bloomberg) -- Professional sports team owners, already some of the richest people in the U.S., are about to get richer.
The Supreme Court officially ruled against the major leagues and college sports yesterday in their decision to strike down the federal prohibition against sports gambling. But the ruling is likely to enrich every part of the sports economy, including team valuations, media rights fees, ticket sales and advertising revenue.
“There’s an underground gigantic pool of revenue and now it moves into the sunshine,” said Ted Leonsis, owner of basketball’s Washington Wizards and hockey’s Washington Capitals. “It’ll make sports betting for the next generation of sports fans as mainstream as buying stock in Fortune 1000 companies.”
The American sports-betting market is projected to be one of the biggest in the world. Research firm Eilers & Krejcik Gaming estimates that as many as 44 million people could place $245 billion in bets each year if all 50 states were to allow widespread betting. The more likely scenario, according to Eilers, is that 32 states would allow betting by 2023, with $120 billion in total bets creating some $6 billion in annual revenue for the sports book operators.
There’s no easy way to estimate how betting will inflate other industries, but those billions will have widespread knock-on effects in at least five areas.
As of now, most leagues allow teams to accept sponsorship money from casinos or racetracks, as long as they don’t also have a sports book. Each individual league will have to decide whether to relax that prohibition, and there’s a strong incentive to do just that.
In the U.K., bookmakers are among the most generous sponsors of sports teams. All but one of the 20 English Premier League teams have some form of gambling sponsor. Jersey sponsors are the most common, with almost half sporting a betting company on their jerseys. Betway pays West Ham United 10 million pounds ($13.6 million) a year for the rights, the biggest jersey deal in team history, according to the London Evening Standard.
Leagues can also sign wide-reaching partnership deals. England’s second-, third- and fourth-tier soccer leagues are all sponsored by Sky Bet, the gambling company owned primarily by private equity group CVC Capital Partners. The deal is reportedly worth 7 million pounds ($9.5 million) a year, plus a share of revenue from bets wagered.
2. Media Rights
Broadcast deals comprise the lion’s share of sports revenue. The NFL’s annual revenue has eclipsed $14 billion on the strength of its media rights. Colleges such as Alabama and Auburn earn $41 million a year as their share of Southeastern Conference broadcast revenue.
Add gambling to the mix and the audience expands to include bettors alongside already passionate fans. An NBA game might be a blowout, but if you bet on LeBron James to score 30 points and he’s stuck on 28, you’ll likely stay through the next commercial break to see the bet to conclusion.
“If sports gambling is legalized, you’ve suddenly enhanced the value of every piece of content that you have,” said Lee Berke, a media consultant. “There are no more dog games.”
For media companies, more viewers means higher ratings, which means more revenue from advertisers. As the industry moves toward digital streaming, it also means more money from subscription fees. All that will translate into higher prices paid to leagues and college conferences for their broadcast rights.
The spread of sports gambling will also drive demand for the kinds of content bettors rely on to inform their wagers -- pre-game shows, post-game shows, injury reports, weather forecasts and more. “Now there’s more information people want to obtain about the team, about the players, about the conditions, about the betting lines,” Berke said. “And advertisers who want to reach those people intently.”
Three years ago, daily fantasy sports companies DraftKings and FanDuel dominated the airwaves with ads for their pay-to-enter contests. Each company took turns outspending the other in the early part of the 2015 NFL season, combining for $266 million in TV ad dollars over the course of the year, according to iSpot.tv. The industry was new, and the land-grab happened quickly.
If left unrestricted, “the sports gambling ad blitz will blow the fantasy sports ad blitz out of the water,” said Nic Sulsky, a sports gaming consultant who previously ran DraftDay. “The ad revenue will be enormous. These companies have so much money, and they’re looking for new places to spend it.”
In England, roughly 95 percent of advertising breaks during soccer games features at least one gambling commercial, according to a BBC report. Gambling made up about 20 percent of all ads.
As of now, most leagues don’t allow their broadcast partners to accept advertising from sports books. Many in the industry also expect a relaxed but still limited approach to sports book TV advertising, similar to the limits that the NCAA currently places on beer ads.
4. Official Data
Over the past few years, as momentum grew for legalized sports gambling, U.S. leagues began signing exclusive deals with companies to sell their official in-game data to gambling houses. This data is often the fastest and the most accurate, especially important for in-game betting, the fastest growing type of wager worldwide. The NBA, for example, has a six-year, $250 million partnership with SportRadar, a Switzerland-based data firm that counts the NFL as an investor.
The existing deals, however, all exclude North America. Many leagues are already negotiating the sale of their U.S. data rights -- deals that will be very lucrative, especially if the leagues can persuade states to require sports books to use official data streams.
A small amount of this money flows back to the same companies -- SportRadar and Genius Sports are the biggest -- to monitor worldwide betting markets for suspicious patterns. Leagues are trying to offset those costs by lobbying states to give them a cut of all bets made on their games.
This “integrity fee,” which NBA and MLB officials describe as part royalty, part insurance policy, could push billions to the leagues and shave off some profit for the bookmakers and casinos operators, who are lobbying in opposition.
5. Team Values
All these revenue streams will further feed soaring team valuations. Over the past decade, lucrative media rights deals have fueled rising valuations. Forbes estimates that the Knicks, the NBA’s most valuable franchise, are now worth a league-record $3.6 billion, a fivefold increase over the team’s $613 million valuation in 2008.
Gambling could have a similar effect. “It’s not hyperbole -- they will at least double,” Mark Cuban, the owner of basketball’s Dallas Mavericks, wrote in an email, pointing to increased competition for media rights and a bigger audience.
Owners can definitely expect a boost, said Peter Schwartz, a valuations expert and consultant at Anderson Economic Group in New York. “The primary driver would be the potential revenue that leagues could generate from becoming business partners with gaming corporations,” he said, suggesting that teams might share the revenue as they currently do with media money.
Some of that will depend on how quickly owners move to embrace the new market. Some owners, like Leonsis, have already considered a future where his arena doubles as a sports book. “This is a new frontier for professional sports,” Leonsis aid. “Teams who don’t seize on this opportunity will be left behind.”
©2018 Bloomberg L.P.