The sports betting industry in Pennsylvania is young. Barely a month old and still with only three operational sportsbooks, PA sports betting is still a ways off from reaching its potential. The future remains a mystery.
A recent report from Fitch Ratings Service, however, details how legalized sports betting nationwide will pay dividends for investors.
A global leader in financial information services, Fitch estimates that the US sports betting industry, fueled by eight states currently with regulated wagering, could reach $1 billion annually. Should an additional 10 states — states that are considering passing bills to legalize betting — join the fold, that total could come near $3 billion.
Essentially, Fitch concluded:
“The proliferation of legal sports betting in the US is a net positive for gaming operators.”
Even Pennsylvania, a “notable exception” to the trend of “manageable tax rates” within regulated markets, could realize $256 million per year. That ranks third among active industries, behind Nevada ($273.7 million) and New Jersey ($267 million).
The report at a glance
The report, “What Investors Want to Know: US Sports Betting,” noted that regulated sports betting “provides some incremental direct revenue and another attraction to draw customers into the casino as younger customers might be less interested in slots than their older counterparts.” Summed up: Sports betting will allow casinos to attract a younger demographic who they have yet to reach.
That said, Fitch added, the benefits of in-person wagering “could be diluted” by the advent of “other gaming options” outside of the casino. That includes online sports betting, which will launch in Pennsylvania in early 2019.
The potential national market could generate between $3 billion and $5 billion, Fitch said. Though, the service did stipulate the industry is “not a credit mover.”
After all, the report states, sports betting revenue figures are not expected to have “a profound impact” on operator profits after accounting for the margins. In New Jersey, for example, wagering done at casinos accounts for 1 percent of total gaming revenue in the state. Still, online sports betting will undoubtedly provide a boost. And in the Garden State, it did. Mobile wagering represented more than 7 percent of total gaming revenue, per Fitch.
The outlook for PA sports betting
The sports betting potential for Pennsylvania, despite its lofty 36 percent tax on revenue, remains high. Mostly, if not solely, due to its standing as the fifth-most populous state in the country.
Certainly, operators such as William Hill US at Hollywood Sportsbook, Kambi Group at Rivers Sportsbook, SugarHouse Sportsbook, and soon Parx Sportsbook and FanDuel, which intends to operate at Valley Forge Casino, recognize the high population in the state. Thus, they have taken steps into the PA sports betting industry.
Of note, over the final few weeks of November, Hollywood took in $1.4 million in wagers that resulted in just more than $500,000 in gross revenue. Those figures reflected a hold of 35 percent.
Additionally, operators took note of Pennsylvania allowing for online sports betting in addition to brick-and-mortar books. Such an amenity, Fitch said in its report, will carry significant weight in an industry realizing its monetary potential. Even in Pennsylvania, where the state receives a hearty cut of revenue.
From the report:
“Having a broad retail footprint and/or ability to offer online betting, and having ability to offer in-play betting are key drivers for generating meaningful revenues.”
Forecast optimistic despite PA’s credit rating
This recent Fitch report comes a year after S&P’s Global Ratings downgraded Pennsylvania’s credit rating. In doing so, the group relayed that the state’s ability to meet financial commitments is “more susceptible to the adverse effects of changes in circumstances and economic conditions.”
At the time, according to PennLive, Pennsylvania’s A+ rating stood at its lowest in 39 years. Conversely, an AAA rating indicates a state is an ideal financial standing.
Not long after this downgrade, a major credit agency, Moody’s, also downgraded Pennsylvania. Its report came on the heels of PA lawmakers enacting the state’s new gambling expansion law.
From the report, which cited Pennsylvania’s high tax rates and expansion as problem areas:
“While the state finances may benefit from this bill, it is less clear to what extent existing operators in the state will actually benefit.”
The state’s recent fiscal history itself has been problematic. So these less-than-rosy ratings came as no surprise.
Pennsylvania continues to move forward. Gambling expansion continues to take root. Even with a high tax rate, according to Fitch’s goals for success, the Keystone State still checks all the boxes for “meaningful revenues” within the sports betting industry.
