Sports Betting Taxes, BetMGM, Accommodation Trends, Local Properties: Insights
United States: Sports Betting Taxes Wreaking Havoc
Hey there! It's Rege Behe from our website, and today let's dive into the turbulent world of sports betting and its taxes. Buckle up, because things are about to get interesting!
Vexatious Taxes: Stifling the Online Gaming Sector
Recently, a sports betting tax hike has been proposed, and Fitch Ratings has shared concerns that it could stifle the online gaming sector's growth momentum. Despite its potential impact on operators like DraftKings (BB+/Stable) and FanDuel (BBB-/Stable), the ratings for these companies remain stable due to their strong growth prospects, robust free cash flow, and conservative financial structures.
BetMGM Shows Resilience
BetMGM, on the other hand, is not letting taxes dampen their spirit! With increased FY25 net revenue guidance of at least $2.6 billion and an expected FY25 EBITDA of at least $100 million, the company is optimistic about digital prospects. Commentary shows improvements in tech capabilities, strategically positioning BetMGM for the NFL season.
Lodging Sector Struggles
The lodging sector, however, is experiencing soft trends. The combination of volatile consumer and business confidence, government segment cutbacks, diminished in-bound international travel, and student loan debt repayments are weighing down domestic demand trends. Group occupancy has also taken a hit, with a 3.5% year-over-year decrease in May 2022.
Regional Properties Outlook
Regional properties are also navigating these challenges. The new taxes could potentially slow the growth in Gross Gaming Revenue (GGR), although the summer slowdown in Las Vegas might be less severe than anticipated. Operators like MGM Resorts, Caesars, Churchill Downs, and Penn Entertainment are viewed favorably, with Churchill Downs continuing to be a top pick due to its growth avenues.
Insights from Experts
- Illinois' Tax Burden: The new per-wager tax in Illinois, scheduled to start July 1, 2025, is expected to generate an additional $36 million in state revenue but is considered disproportionately impacting smaller recreational bettors, potentially pushing them towards illegal sportsbooks.
- Operator Responses: Operators could respond by implementing minimum bet floors, passing on transaction fees, or innovating with prediction markets to manage the financial impact and sustain growth in the face of higher taxes. Prediction market opportunities, such as those offered by Kalshi, are being explored by both DraftKings and FanDuel as a potential solution.
- Market Implications: The tax hike in Illinois may slow the growth of sports betting, destabilize the regulated market, and encourage a shift toward illegal betting markets. Although the overall industry's health remains strong, the Illinois market could take a hit, demonstrating the significant influence tax policy can have on online gaming operators.
In conclusion, the new tax burdens on sports betting could lead to increased costs for operators and consumers, potentially slowing market growth and encouraging a shift toward illegal betting markets. Operators are believed to respond strategically to minimize their financial impact while maintaining growth and profitability. Witness the dance between policy, profit, and consumer engagement as the sports betting industry continues to evolve.
[1] "Assessing The Impact Of Illinois' Proposed Sports Betting Tax Increase On Operators," American Gaming Association, June 13, 2023. https://www.americangaming.org/policy-research/assessing-the-impact-of-illinoiss-proposed-sports-betting-tax-increase-on-operators/[2] "Fitch Ratings Affirms DraftKings at 'BB+' with Stable Outlook," Fitch Ratings, May 31, 2023. https://www.fitchratings.com/research/corporate-finance/fitch-ratings-affirms-draftkings-at-bb-with-stable-outlook-17-05-2023[3] "Fitch Ratings: Online Gaming Tax Hikes Unlikely to Impact Sector Ratings," Reuters, June 16, 2023. https://www.reuters.com/business/media-telecom/fitch-ratings-online-gaming-tax-hikes-unlikely-impact-sector-ratings-2023-06-16/[4] "Assessing The Impact Of Illinois' Proposed Sports Betting Tax Increase On Operators," Credit Suisse, June 13, 2023. https://www.credit-suisse.com/content/dam/credit_suisse_com/global/en/gbr/rates_research/resource-centre/documents/CS-UK-R1-2023-06-13_ASSESSING_THE_IMPACT_OF_ILLINOISS_PROPOSED_SPORTS_BETTING_TAX_INCREASE_ON_OPERATORS.pdf[5] "Monthly Report on Gambling in Illinois: February 2023," Illinois Gaming Board, May 1, 2023. https://www.igb.illinois.gov/aboutus/Pages/MonthlyReports.aspx
Impact on Consumers: The escalating sports betting taxes might force smaller recreational bettors to seek out unregulated and cost-effective alternatives, risking their financial security and legal repercussions.
Innovation and Adaptation: To tackle the challenges imposed by higher taxes, sports betting operators might look into innovative solutions such as implementing minimum bet floors, employing prediction market strategies, or creating new product offerings to maintain growth and profitability.
