Igaming Focus: TAM factors MkII, with offshore component thrown in By Jake Pollard, CDC Gaming Reports September 21, 2021 at 8:00 am The size of the total addressable market in the U.S. depends on many factors, regulatory mainly. But the role of offshore books, which continue to be highly popular with U.S. players, should also not be discounted. Having looked into the significance of the total addressable market (TAM) for U.S. online betting and gaming in my previous column, and whether the numbers and forecasts (accurate or not) really mattered at this point in the development of the U.S. igaming sector, it was interesting to read a research note published by the analyst team at Deutsche Bank a few days later for its take on the U.S. TAM issue. Basing its calculations on the numbers generated by operators working in New Jersey, the DB team extrapolated an “aggressive” blue sky TAM totalling $16.4bn in GGR, of which $9bn-$11bn GGR would be addressable and would generate stabilized NGR of $6.75bn-$8.25bn. Within the analysis, around 78% of the adult population would have access to mobile wagering. However, basing its projections on New Jersey, “the most mature domestic sports betting market,” the DB team says TAM projections in 2022 and “perhaps even this NFL season” will face strong questions if NJ sports betting were to contract “something we believe to be likely,” the report stated. Sports betting contraction The reasons put forward for its belief that the sports betting market will contract include: Lockdowns are easing and gaming spend has been strong on state lotteries, parimutuel and traditional casino gaming. For DB, the investment community hasn’t necessarily “thought much about the overlay to sports betting” given its early-stage growth. The rescheduled sporting calendars of the past 18 months have “been an unquestionable tailwind for GGR results,” with key events “happening twice within the LTM period” and generating higher than usual consumer attention and betting volumes. Promotional spend will likely rationalize and “create a headwind in 2022” with operators stepping back on NFL promotions. No more “boredom bettors”: the end of COVID restrictions (with usual caveats), return to the office and other forms of recreational entertainment reopening and viewed as safe could lead to less “wagering spend from the entertainment enhancement bettor.” Household income and adult spend: discounting the c15% contribution from “New York border hoppers” to New Jersey’s sports betting revenues, DB estimates average adult spend on sports betting in NJ at ~$88 per adult for a TAM of c$16.4bn. For the DB team, NJ is also an outlier; it is second only to Maryland and the District of Columbia in terms of national household income levels. Comparing it to other states that have both mobile and retail wagering as well as online casino regulated, Indiana and Pennsylvania’s household income levels are 32% and 26% lower and per adult GGRs over the LTM are 41% and 46% below respectively than New Jersey. More importantly for those working in the industry, the financial wellbeing of a number of operators will depend on the addressability (or otherwise) of the regulated market. In other words, a best case scenario could see U.S.-licensed sportsbooks target a market valued at $16.4bn, but it doesn’t mean every operator “will have access to the entirety of the pie,” says DB. The lack of access to the entire ‘addressable’ market comes down to the regulatory structures that are adopted by different states; whether it is lottery monopoly model or in casino-only betting, a limited number of licensees, or jurisdictions such as Florida and California that could be tribal-only once they legalize. And while Texas shows little sign of regulating sports betting in the near future, New York will leave a number of high profile brands on the outside looking in, but also prove highly challenging when it comes to generating profits for the companies that are licensed there. Offshore boom Another key factor within the U.S. betting ecosystem and its overall value has been how much offshore bookmakers have benefited from the rise of regulated sports betting in the past three years. Numbers are hard to ascertain due to the nature of the activity — they also vary quite a lot — but having a clearer idea of how much is bet on those books would give a much more complete picture of the U.S. betting landscape at this point in time. Nonetheless, it’s clear that the popularity and exposure of the NFL and the amount of sports and betting content and advertising that reaches millions of sports fans has led to confusion among consumers, and this has led to big increases in signups in both regulated and unregulated states. Indeed, offshore books may have officially stopped operating in regulated states, but the interest from consumers certainly hasn’t abated, and many will not be able to tell the difference between a regulated brand and an offshore one. This has hugely benefited the offshore books, notably the ‘three Bs’ (Bovada, Betonline and Bookmaker), that take so much of the unregulated U.S. action; to enjoy record signups and wagering volumes. As intimated in my previous column, it is debatable how much an accurate evaluation of the U.S. TAM matters currently, and much will be decided after the waves of M&A and industry consolidation have taken place in the next few years. Still, the offshore books will continue operating, and beneath all the noise and advertising the amount of business they are able to channel away from their regulated counterparts will continue to have a sizable impact on the size of the overall market, addressable or not.