Monday, June 20, 2022

"Putting on a Show & No Off Book Money" Has Tied Racing's Hands. It's a Load of Hooey

I was doing some reading on the revenues and spend for sports betting companies, and they certainly live in a world we're unfamiliar. 

The sports betting industry is unique in a very important perspective - customer acquisition is just about everything. And these companies are investing in customers in mind-boggling amounts. 

As reported today, Fanduel spent $5.5M on just promotional credits in May in Pennsylvania. This does not include a penny on the copious commercials we see on TV, or in-print. Estimate on the low-end is that 30% of each dollar in gaming revenue is a promotional credit. 

We often hear sports betting companies don't "put on the show" so they can afford to spend this kind of money. But that's not true. They do put on a show - to the government in taxes. And some of these tax rules are incredible, leaving only crumbs when the dust settles. 

For example, in New York in January this year, handle was $1.6B, gross gaming revenue was $113M. 

After fed taxes, GGR dropped to $109M.

After 51% tax rates, revenue dropped to $52M. 

Further, these companies that spent 30% on promotional credits still have to pay tax on this phantom wagering, because it's wagering. That would bring the effective tax rate to 77%.  

That's worse than "putting on a show". 

One of the reasons these companies can do this is because of how cheap it is for money is to be raised (well, it was before inflation hit), and they are operating at a loss. But if we're being honest, horse racing had the exact same thing for many years - it was called slots. 

Peeling off $X for promotional credits or lower takeout is what could have been done in the exact same fashion. But of course it wasn't. Something as basic as a bet $100 get $100 credit was not seen on the retail side of this business for years. 

If this business, which has seen billions upon billions of money from slots, spent 30% of that revenue to acquire customers, guess what - we'd have more customers. 

Horse racing complains a lot about a couple of things with sports betting competition as a reason it can't compete: That they don't have to put on a show, and they use money outside a profit and loss statement to acquire customers. I'm sorry, it's a load of hogwash. 

Horse racing's customer acquisition trails others because of one simple fact - acquiring customers, even with decades with billions in slots, preferential tax treatment, and a de-facto online monopoly on gambling, was never a priority. 

Have a nice Monday everyone. 

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