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The Big Gamble: Is Sports Betting Really a $7 Billion Media Windfall?

Updated. The Supreme Court’s decision to effectively legalize sports betting could be a big boon for media companies, according to a forecast from Evercore ISI analyst Anthony DiClemente. “Sports betting could drive $7bn incremental US ad spend in 2019,” DiClemente wrote in a note to investors this weekend, estimating that about half of that money would go to digital advertising.

DiClemente isn’t alone with his assessment. Barclays analyst Ross Sandler told investors in a research note last week that he “wouldn’t be surprised if the online and offline casino and betting brands ‘scorch the earth’ with marketing spend right out of the gate.” Sandler estimated that sports betting ads could contribute as much as 4% to Google’s 2019 revenue and 7% to Facebook’s alone.

These forecasts come on the heels of the last week’s U.S. Supreme Court decision to strike down The Professional and Amateur Sports Protection Act (PASPA), a 1992 law that banned such wagers.

With that decision, the judges paved the way for States to institute their own local laws to regulate sports betting — and the chips have been falling quickly ever since the court published the ruling early last week. A mere week later, Ireland-based bookmaker Paddy Power Betfair confirmed that it is acquiring fantasy sports giant FanDuel to get a foothold in the U.S. sports betting market.

FanDuel was valued at $1.2 billion in 2017, and generated revenues of $124 million that year. Together, the two companies now want to get ready to take on the U.S. sports betting market. “The Group has leading sports betting operating capabilities globally and strong operations on the ground in the US,” said Paddy Power Betfair CEO Peter Jackson Wednesday. “Together with our substantial financial firepower, we believe we are now well placed to target the prospective US sports betting opportunity.”

FanDuel has made no secret of its desire to get in on the action once states legalize online gambling. “We have the product design, we have the tech team working on it and we are gonna be ready to go,” FanDuel CEO Nigel Eccles said on CNBC last week.

The fantasy sports start-up isn’t the only media company excited about the future of wagering. Competitor DraftKings is also preparing a sports betting product to launch in time for the NFL season, and a number of media companies are hoping to cash in on the opportunity as well.

These include The Action Network, a Chernin Group-backed subscription-based online service that gives sports fans tools to track betting odds alongside other data and analysis. The company clocked record downloads for its mobile apps the day the Supreme Court decision came down, said CEO Noah Szubski. “This validates our mission.”

To prepare for the new interest in wagering, The Action Network has been hiring seasoned sports commentators like veteran golf journalist Jason Sobel and former MLB catcher Paul Lo Duca. “It is an entire culture,” said Szubski about sports betting. “No one is doing what we are doing.”

The benefits of the court decision will extend beyond dedicated sports betting sites, argued The Action Network head of media Chad Millman, who was previously editor in chief of ESPN The Magazine. “Fans who have money on a game watch more sports,” he said.

This could also lead to the emergence of online video services dedicated to streaming niche sports events, said Jim O’Neill, principal analyst at video platform provider Ooyala. “It could be a collection of sports leagues in the U.S., or international plays, but there’s a strong likelihood that we’ll see a burst of new events,” he said.

And then there is the ad windfall, which could benefit the entire industry, if recent history is any indication. Back in 2015, DraftKings and FanDuel were battling for the No. 1 spot in fantasy sports. Together, the two companies bought $305.5 million worth of TV advertising that year, according to estimates from iSpot.tv. Ads from both brands aired more than 80,000 times in 2015.

The fantasy sports ad revenue came to a near standstill in 2016, as the two companies came under regulatory scrutiny and explored an ultimately failed merger. FanDuel ads have been virtually absent from TV since early 2017. DraftKings continues to run spots, but at a very low level. Many are now waiting for the two, and other contenders, to turn on the ad spigot again.

But not everyone is as optimistic about the size of the U.S. sports gambling market as DiClemente, who estimated that sports betting operators could net $13 billion in 2019.

One reason to be cautions: It may take time for the court decision to have a material impact, as legislators will have to come up with legal frameworks for sports betting on a state-by-state basis. GamblingCompliance, a company that tracks the activity across the U.S. and Europe, estimates that in addition to Nevada, five states will have legalized sports gambling before the end of the year. In five years, the number could grow to as many as 38.

GamblingCompliance has a more conservative revenue estimate than DiClemente and others, forecasting that sports betting will generate about $1 billion this year and between $2 billion and $6 billion per year in five years. As a comparison: Traditional casinos bring in $40 billion per year. “It’s quite a low-margin business,” cautioned GamblingCompliance analyst James Kilsby.

How much the industry will ultimately bring in also depends on coming legislation. Some states may only allow sports betting at casinos or race tracks. Others may offer online wagering as well, which is estimated to bring in much more revenue. “There are many moving parts,” said Kilsby. “This is early in the game.”

Update: 10:10 a.m. PT: This post was updated with details on Paddy Power Betfair’s FanDuel acquisition.

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