- Caesars Sportsbook has announced a partnership deal with the New York Mets.
- The multi-year deal gives Caesars ‘Official Sports Betting Partner’ status.
- Despite blowout revenue numbers, New York facing sportsbooks are losing millions due to high taxes and burdensome regulations.
During their most recent earnings call, Caesars Entertainment CEO Tom Reeg indicated that the company was going to ‘dramatically curtail’ media spending to promote Caesars Sportsbook. Simply put, digital gaming in the United States is a mess. There’s a growing sense of unease that due to the horrible regulatory framework and high tax rates in most states that it might not be a profitable business long term. First, Reeg on Caesars ad spend:
And we know the trajectory that they’re going to — that the newly launched states are going to move down. And we are — you are going to see us dramatically curtail our traditional media spend effective immediately. We have accomplished what we set out to do. We set out to become a significant player, and it’s happened significantly quicker than we thought. And I think most of you know me as someone who’s not one to spend any money needlessly.
So, we’ve gotten to where we need to be. You’re going to see our commercials largely disappear from your screens. You’re going to see some that we couldn’t — there’s some media spend that we couldn’t get out of coming into March madness in a couple of states. But we will largely be off of traditional media other than in new launch states from here and launch dates in both iGaming and sports.
Reeg then talked about building the Caesars Sportsbook brand, but this is the money shot:
And so that leads me into Digital, where I know the market is struggling. Investors are struggling with. Can this be a profitable business? We’ve gone from kind of ever increasing bullishness to unlimited bearishness at this point.
I like Reeg and consider him one of the sharper of the big gaming corporation CEOs. He’s right on the money here but what’s hard to fathom is how a smart guy like him didn’t see this coming. Ditto for his competitors. New York is the epicenter of bad sports betting regulation. Once the state indicated that they would seriously be going with a 51% tax rate, that should have been a deal breaker for every gaming company on the planet. Sure, the population in New York is huge and the revenue has been insane. That doesn’t matter, however, if you don’t get to keep any of that revenue.
Reeg was talking specifically about ‘traditional media’ spending but it’s clear that Caesars hasn’t learned a lesson about burning money in the New York dumpster fire. They’ve announced a partnership deal with the New York Mets:
Caesars Entertainment, Inc. (NASDAQ: CZR) (“Caesars”) and the New York Mets today announced a multi-year partnership to make Caesars Sportsbook an Official Sports Betting Partner of the team. In addition to a variety of VIP experiences and hospitality assets for members of the industry-leading loyalty program, Caesars Rewards, this partnership features plans to open a new sportsbook lounge at Citi Field, Caesars Sportsbook at the Metro Grille.
Scheduled to open during the 2022 Major League Baseball season, the new upscale 13,000 square foot space for fans to enjoy the Caesars Sportsbook app together will come to life on the Excelsior Level at Citi Field with a multi-tiered dining room and outdoor patio seating complete with panoramic views overlooking left field.
Chris Holdren, Co-President of Caesars Digital, calls New York a ‘key state’ for his brand:
“New York is a key state for us following the successful launch of our Caesars Sportsbook app in January. The Mets’ fanbase is one of the most loyal in baseball and this partnership offers us the chance to treat those passionate fans like Caesars. We look forward to opening our space at Citi Field during an exciting time for the franchise.”
The Mets will no doubt be a great partner since they couldn’t even be bothered to come up with a quote for the press release.
This type of marketing might bring Caesars more ‘bang for the buck’ but given the structural issues in New York it doesn’t matter. The math just doesn’t work out. 51% of gaming revenues go to the state. Another 10% to 15% go to the legacy gaming industry ‘partners’ (though who knows what the numbers really are in New York’s convoluted and anti-competitive ‘consortium of operators’ scheme). 66% of money has gone out the door before bills are paid, employees are compensated, marketing is done, technology is upgraded, etc. Don’t forget that promotional bonuses aren’t tax deductible under New York’s regulations so that is another significant expense.
Bottom line–it doesn’t matter how much betting revenue is coming through the windows if all of the ‘hold’ is going to someone else. There’s been talk of New York legislators lowering the tax rate but basing your company’s financial success in the market on the whims of politicians is not a good idea. You also have to wonder how much of New York’s revenue numbers are ‘churn’ from the huge promotional bonuses being offered. There’s not a quick fix to the New York mess–the best thing they could do is to rip up the current regulations and start from scratch. There’s not a lot of motivation to make that happen as long as the tax revenue keeps streaming in.
