Colorado sports betting has made almost $900,000 for the State. Once October’s numbers come in–probably a week after this is published–we’ll see how close we got to $1 million. We interviewed Don Hartman, head of the Colorado Gaming Division about the sports betting tax revenue numbers.
In 2019, the Colorado Blue Book estimated that we could make over six times that amount in the 2019-2020 fiscal year. But the pandemic threw every projection off a cliff. Tax revenues are far below expectations, and there’s no way to set revenue expectations during a pandemic.
However Dan Hartman has some insight into the first five months of sports betting data. We reached out to him to ask questions about Colorado sportsbook performance. He also answered questions about sportsbook survival and whether the retail sportsbooks are heading toward another shutdown. Anyone who doesn’t understand the financial terms should peek at our sports betting tax revenue piece. Everyone else can dive right in.
This interview has been edited for clarity and brevity.
Colorado’s Sports Betting Industry After Five Months
Colorado Sharp: What’s your reaction to the five months of data that we have so far?
Dan Hartman: I think it shows that the market is certainly robust for a state our size with limited population outside of our borders. It’s not like we’re butted up to a state that doesn’t have it and has a lot of people. But within the state, the population we have, the numbers we’re seeing are very encouraging.
I think it’s encouraging that people are embracing sports betting and enjoying it as entertainment. And the ramp-up from no sports into sports [is encouraging]. And really just looking forward to the day when we get back to a normal sports schedule [is encouraging]. I think we’re going to have a really good traditional market for sports betting.
Why Gross Gaming Revenue Is Dropping
CS: We have a lot of really big profitable brands in Colorado. But gross gaming revenue has been decreasing as a percentage of total betting handle over the first five months. Is that because sportsbooks are relying so heavily on promotions right now?
DH: Are you talking about the [gross gaming revenue] to the net [gaming revenue]?
DH: I think you’re seeing a couple of different things. I think certainly the availability of deductions–you know excise tax and [sportsbooks’] promotional money–that certainly plays a big part in it. I think what you also see is like [September] where the taxes were not as robust as some of the other months. The GGR was bigger [and] the [betting] handle was bigger. [But] it was also a month where the fans did better, or the operators did worse on the win.
There were a lot of games, [too]. There were a couple of weekends in September where the oddsmakers didn’t do as well on their games as other [games]. So, when you start out with a GGR and a win that’s smaller–around 4% or one that’s higher, around 8%–you’re gonna start [with] lower [revenue], then add in all those deductions. Certainly, your net sports betting proceeds are gonna be smaller. I think we’re gonna see that fluctuation for a while.
And we don’t have a normal yet. We certainly don’t have a pattern. But I think the ability for the operators as they come on or try to get market share using those dollars probably helps the market in the long run. It gets a lot of people involved and trying [sports betting] out.
Big Sportsbook Brands Vs. Small Sportsbook Brands
CS: Do you think any of the bigger brands are intentionally offering higher promotions to try to ice out some of the less profitable players over time?
DH: I don’t really think so. I think everybody’s got to find their niche in the market, [like] what sports they focus on, what promotions they give. Certainly, the big [brands] want players and they want player share. But the way the market’s set up, I think a lot of people came in to understand that they’re gonna have a market share that they’re comfortable with. So I think it’ll settle out.
I think you’ll have some attrition at some point. I think most operators–since you’ve got so many that are using Colorado as their first entry to the United States–they’re in it for a while just to gain a footprint in the States. So, I think it’s good for our players to have that kind of competition and to be able to look at different operators, different apps that they like. And maybe different odds or promotions.
Alternative Marketing Strategies
CS: Some of those smaller homegrown apps are deciding not to use bonuses. Apps like BetMonarch seem to be doing fine without bonuses. Do you think that Colorado sportsbooks will continue to lean this heavily on sportsbook bonuses?
DH: No. I think everybody’s gonna have their own marketing strategy. That’s what’s good about business in general. But I think what you’ll see is maybe as they come on, they’ll make their own strategy. Whether it’s partnering with sports teams to build their brand, give out bonuses, or both. Or just rely on their own list of players like Monarch relying on players [loyal] to the brand here in Colorado.
So I think what you’re gonna see–certainly as new books come on–they’ll take whatever marketing strategy they want. But once you see it level out, it won’t be player acquisition. There might be some incentives down the road for player retention.
How Promotions Could Change
CS: How do you think the promotions would change when they’re trying to retain players instead of attracting them?
DH: Well I think you see it in every industry. You become a shopper at a store, or you become somebody that frequents a restaurant. Something got you there in the first place. But then you get coupons, you get other [promotions]. So, I think you’ll get incentives along the road to keep [bettors] coming back and looking at their app. Looking at how they’ve changed, what they’ve done. Just like a restaurant would say, “we’ve got a new menu, we’ve got something else.”
It’s a way to market to get people back in to use the coupon or whatever else just to keep them involved. I don’t think you can acquire a player and then ignore them. Certainly, just like a store doesn’t get a shopper then ignore them and hope they come back. You’ve got to keep your brand in front of them and that’s what you’ll see.
Colorado Bettors Vs. Colorado Sportsbooks
CS: I want to go back to bettor winnings for a second. Why are bettors winning so much of their money back from sportsbooks and why are sportsbooks having to pay so much more out in winnings?
DH: Well I think what you see is [betting handle] is not a set amount. So, if a weekend goes by in football where the underdogs are winning a lot of the games, you may have an imbalance of where that money was taken by the sportsbooks.
Whether it’s local teams or other teams, you’ve got favorites that people play and there might be an imbalance. And if you have a weekend where most of those favorites don’t win or don’t cover the spread, then certainly [operators are] going to have a bad weekend. So, the win’s gonna be smaller. There’s no set amount on how much you win.
CS: So the oddsmakers could just have done fairly poorly in a month like September.
DH: I mean it’s poorly on the side of where there the money landed. “Any given Sunday,” as they say. You don’t know who’s gonna win or lose. You probably know that when an undefeated team plays, they may be heavily favored. But they may have a bad week. They may lose a quarterback halfway through the game. All kinds of different things.
So it can just turn on you. And if it turns on you for the majority of games in a week or a weekend, you have a little bit of a turn on where you thought you were gonna be as a bookmaker.
How Futures Bets Could Affect Sportsbooks
CS: So, in a month like February with the Super Bowl or March with March Madness, would you expect to see lower sportsbook revenues because a bunch of futures bets would cash in during those months? Since the odds are so high?
DH: I think you’re gonna see a lot of futures bets filled up to those big events. Being closer to the Super Bowl [and] March Madness, you’re gonna see those futures bets fill up.
I think you’re gonna get that interest. As the field kind of trims down, you’ll see people–and these might be better questions to ask the bookmakers themselves–but you’ll probably see those trim down to the ones that people really think are actually going to be in those games. Or the 64 selected or whatever it is.
When Failing Sportsbooks Will Go Out Of Business
CS: You mentioned attrition in the industry briefly earlier. When do you think we’ll begin to see sportsbooks that aren’t gonna make it leave the industry in Colorado?
DH: I don’t think it’s gonna be for a while. I think a lot of people are in it because they believe in the market. They believe in their marketing idea.
And we haven’t gotten to normal. So I think when you get to normal, you get to normal seasons, and you see where [sportsbooks] settle in. If they’re comfortable with their market share and where they’re at, you may see them for a long time. The ones that aren’t happy, may go to a different market. I don’t know.
But I don’t think we’re gonna see it for a while. We’ve only been running for six or seven months now. And we’re still really in that infancy phase where marketing and good technology is what they’re pushing to gain market share. And it takes a while to do that for anybody. So I think they’re in it for a while. I think everybody’s in it for a while. I don’t think we’ll see attrition for a while.
What Normal Could Look Like
CS: How do you think the industry is going to change when we return to normal times? How are the numbers going to change when we’re back to normal?
DH: I think what the “normal” is gonna bring is those normal seasons. So you have this year. We had hockey, we had basketball, we had baseball, all of those things in August where you normally don’t have them. So August’s numbers were way up across the country from the historic markets that were there.
What you’re gonna see is [revenue] settle into a pattern and follow those sports as they go. As some of the sports gain interest, you might see [revenue] spikes in those seasons. But it’ll follow the traditional patterns that you saw in Vegas over the past 50 years. It’s just we haven’t been–and we probably won’t be for a while–getting into the normal seasons of sports. It’s gonna take us a while just like everything in society.
When Will We Meet Our Revenue Goals?
CS: So in 2019, the Colorado Blue Book that sports betting could make us about $6.5 million in tax revenue in its first year. Obviously, this was before COVID. But when do you think we’re gonna hit some of our tax projections?
DH: Well I think that there were a lot of projections out there. There were a lot of people that were very conservative, and there were a lot of people that weren’t. I think that we have always been fairly conservative in the numbers. But as you said, with the pandemic and closures and all the other things, all the projections that were made before have kind of gone out the window.
We’re in a new reality. As time goes by, we’ll see where those revenue numbers come up and [see] where we really see them. With spiking [COVID cases], who knows what the next few months even bring for real sports? So, it’s really hard to predict when any of our visions of revenue are gonna be realized. I think we just have to wait for the market to settle and mature. It will determine where that revenue is and that’ll be our reality.
Possible COVID Closures
DH: I don’t know. I mean, that’s not for me to say. Our casinos have done a great job following all the procedures, making sure the floor is being safe. But the numbers are county driven, and they’re driven by what’s going on [locally]. I can’t predict [casino shutdowns]. All we can do is hope that people follow the advice of the governor and the CDPHE. They take it seriously. They’re out following all the right steps and hopefully keeping it to a point where they can crunch those numbers.
But it’s not up to me and I certainly don’t have a crystal ball for where we go. If [shutdowns] come back and the casinos do the same thing they’ve been doing and really make sure that people are safe when they’re in there and enjoying that entertainment, [we may be okay.] But I really can’t tell you what is going to happen. All I can say is I wear a mask every time I go out.