The New Jersey online betting and gaming market posted another huge month in December, with combined revenue of $79 million. Total revenue for calendar year 2019 approached $725 million — a massive figure for a relatively small market, and one that prompts some questions about sustainability.
Using just the Q4 figures (as the betting market matured), per-capita NJ online gambling revenue was approximately $100. That figure includes out-of-state traffic from New York and other neighboring states, of course, which has inflated revenues by some 20% according to analysis from Eilers & Krejcik.
Stripping out that effect gives $80 online revenue per capita, a figure which is rapidly closing in the world’s most advanced online gambling market. In the UK, online revenue per capita is approximately $105.
Another way to compare the markets would be cost-per-acquisition (CPAs) — essentially the value of a new player as worked out between affiliates and operators. According to Neil Roarty, founder of American Betting Experts, UK sports betting CPAs are around $135, while the US starts at $250 and $1,000 “isn’t unheard of.”
Some of the disparity is driven by the youth of the market and the “land grab” for new players, but it’s fair to say at this point the average US online gambling customer is betting and losing more than those in other regulated markets around the globe.
“What we’re seeing is a kind of gambling euphoria,” says Rob Gallo, a consultant with Peak Gaming and president of casino CRM firm CompLinks. “It’s the floodgates opening and people rushing in from the offshore market to a now-legal activity. And on the operator side, it’s a land-grab with all out advertising blitz and sign-up offers.”
That euphoria will inevitably dissipate and the rise in player values will flatten as more casual players come into the fold. However it’s not unreasonable for the US average revenue per user (ARPU) to settle at 1.5x the leading European markets.
The difference is driven in part by the level of disposable income in the US, with payscale.com showing the average salary in New Jersey at $67,000 compared to $38,000 in the UK.
As Golden Nugget trading chief Paul Chopin said earlier this year: “The average stake size and disposable income that seems to be available for betting compared to Europe is shockingly high. Most people are sitting around $100 stakes and then five-figure bets come flying in with regularity for something like Monday Night Football.”
The value of American players was far higher than European ones pre-UIGEA, and it’s likely to be a similar story as the regulated market matures.
“I do think it’s sustainable,” says Chris Grove, a partner at Eilers & Krejcik. “We are way past the early-adopter stage on the casino side. New Jersey is a very healthy state from an economic perspective and the marketing and promotional environment appears sustainable for at least the near to mid term.”
There is also more low hanging fruit for the industry, notably in payments. Four of the top eight card issuers currently deny gambling transactions in New Jersey according to payments consultant Gerald Rau, impacting revenues by an estimated 15%.
As sports betting and gambling becomes more accepted around the country, expect payment friction to drop and revenue to rise accordingly.
“Until recently only one of the top eight card issuers accepted gaming transactions online,” says Rau. “Now it’s four of eight. Sports betting volume has been the catalyst to the upward trend.”
All that said, big revenue figures come with strings attached, especially when they’re generated from a relatively small group of players. The online industry in the UK has increasingly come under scrutiny from media and politicians about the level of revenue coming from high-stakes customers.
A recent report from the UK Gambling Commission showed some operators were receiving more than 80% of deposits from less than 5% of customers. The figures were used by politicians and campaigners as evidence that gambling companies are benefiting from vulnerable customers.
“The US market is often incorrectly told it should slavishly take lessons from Europe,” says Eliers & Krejcik analyst Alun Bowden, “but on this point it would be wise to cast a glance at what is happening over the pond.”
“As the US regulated industry grows so will its visibility and the public’s dissatisfaction with high-profile marketing and the number of problem gamblers. The tipping point is harder to define but everything in the US market seems to be running on fast forward so it would be no surprise to see these issues coming to a head, or at least coming to media prominence in five years or less.”
There’s an inherent conflict of interest here.
Like NFL coaches, online gambling executives are thinking day-to-day rather than in half decades. And with the aforementioned land-grab underway, it’s a brave exec who turns away revenue.
The US might well be the market where high ARPU’s are sustainable given the levels of disposable income and a general libertarian attitude. But it also might follow the likes of the UK, Spain, Sweden, and Italy — where gambling advertising is becoming heavily restricted — mandatory deposit limits are imposed upon players, and operators are too often portrayed as predators rather than entertainment providers.
With a little foresight and focus on sustainability, US operators could go a long way to making sure the first option becomes the reality rather than the latter.