On the eve of the Final Four, the Connecticut Lottery Corporation (CLC) is searching for a new partner to run its sports betting operations by the second half of 2023.
Rush Street Interactive (RSI) and the CLC announced plans on Monday to wind down their online and in-person sports betting partnership later this year, according to a joint statement. Rush Street Interactive, the parent company of SugarHouse Sportsbook and BetRivers, maintains one of three online betting skins in the Connecticut market. The departure of RSI may trigger an intense bidding process for the right to power the lottery’s sports betting operations.
The CLC will begin the process of pursuing a new operator through a request for proposals in the coming days, according to the lottery. Rush Street signed a 10-year partnership with the CLC in 2021 to run the lottery’s sports betting operations, reportedly beating out competitors such as Unibet Sportsbook, BetMGM, and Caesars. FanDuel and DraftKings, the definitive market leaders across the nation, maintain the other two skins through partnerships with the state’s two big tribal casinos.
“…wind down their online and in-person sports betting partnership… The CLC will begin the process of pursing a new operator through a request for proposals”
Rush Street Interactive, Inc. and The Connecticut Lottery Corporation to Wind Down Partnershiphttps://t.co/wLtSBZ3CKi
— Alfonso Straffon 🇨🇷🇺🇸🇲🇽 (@astraffon) March 27, 2023
“We thank RSI for working closely with CLC to establish the foundation for CLC’s sports betting operation, both online and in retail,” said Gregory Smith, president of the CLC, in a statement.
The announcement comes as the University of Connecticut makes its first appearance in the national semifinals of the NCAA’s Men’s Division I Basketball tournament since 2014. UConn is the overwhelming favorite to cut the nets down in Houston, with odds of -134 at BetRivers as of Tuesday morning. None of the other three participants — Miami (Fla.), San Diego State, and Florida Atlantic — have odds below +380 to prevail.
Trailing market share
At the moment, the CLC operates nine retail sports betting locations, including Bobby V’s, a popular restaurant and sports bar in Stamford that’s owned by former New York Mets manager Bobby Valentine. The venue contains more than 200 HD TVs for sports fans, as well as a handful of sports betting kiosks on the second floor next to an off-track betting parlor.
The lottery also operates an in-person sportsbook at the XL Center in Hartford, which hosts several UConn men’s and women’s basketball games each year. The CLC initially planned to open up to 15 retail sportsbooks across the state, but it closed several locations due to subpar handle at the height of the COVID-19 pandemic.
Last year, the three sportsbook operators in Connecticut generated about $136 million in gross gaming revenue, with Rush Street commanding a market share of about 15%. In December, the state took in about $1.7 million in tax revenue from sports betting, filling state tax coffers with approximately $14.5 million on the year.
With news that Rush Street Interactive $RSI is going to wind down its partnership with Connecticut as the state seeks a new sports betting partner, we can see how the online and retail ops have performed: pic.twitter.com/cQxR2fXnTc
— M(et)atthew Kanterman, CFA (@theKantoarbot) March 28, 2023
Among the 29 U.S. states that reported sports betting tax revenue in January, Connecticut ranked 17th with proceeds of $1.92 million. The Nutmeg State ranked below fellow New England jurisdictions New Hampshire and Rhode Island, which took in $5.6 million and $2.63 million, respectively, according to figures compiled by Sports Handle. Connecticut, though, still outpaced Delaware, Michigan, and Iowa, three states that surpassed $1 million in tax revenue on the month.
In February, handle across the state fell 17.8% from the opening month of 2023 to $128.2 million with just one NFL game (the Super Bowl) on the schedule. While FanDuel and DraftKings each generated about $57 million in GGR from online sports betting, SugarHouse took in a sliver of that at $13.3 million. FanDuel gained its sports betting market access through a partnership with Mohegan Sun, while DraftKings received a sports betting license through a deal with Foxwoods Resorts Casino (operated by the Mashantucket Pequot Tribe).
Since the debut of online sports betting in Connecticut 17 months ago, FanDuel leads the market with an all-time win rate of 10.01%. The hold is slightly higher than the CLC’s win rate of 9.75% at its retail sportsbooks. From there, DraftKings and SugarHouse (online only) trail the leaders with holds of 7.07% and 6.78% respectively. With FanDuel being the first to market with the popular same-game parlay offering, it was able to create separation between itself and DraftKings along with SugarHouse when it came to generating a higher hold. As a result, FanDuel has posted higher gross revenues.
Rush Street, since its inception, has maintained cost discipline by spending less on marketing and promotions as a percentage of revenue, than the industry average, JMP Securities analyst Jordan Bender wrote in a research note. This year, JMP estimates that Rush Street will reduce advertising and promotions costs by 15%, before shaving off another 2% in 2024, according to its forecasting models.
Any wagers placed with SugarHouse and its nine retail locations in Connecticut will continue to be valid, Rush Street and the CLC said in the statement. As the operation winds down, all wins will “continue to be paid out appropriately,” according to RSI. During the transition, Rush Street is working closely with the CLC to minimize any potential disruptions to players or business partners, the company said.
“Through the transition we plan to continue to support all player wagers and ensure a positive player experience and expect the changeover will have an immaterial impact on our guidance for 2023,” said Rush Street Interactive CEO Richard Schwartz.
Rush Street’s departure from Connecticut’s online sports betting market could free the company up in the future to pursue an online casino license in the state. Previously, RSI was not allowed to offer online casino games in Connecticut due to its sports betting partnership with the lottery.
“In terms of the online casino, the industry is aligned in a way that I haven’t seen before and you’re starting to see a lot of investments being made and lobbying efforts to legalize online casino in a way that you haven’t seen over the last decade,” Schwartz said during the company’s quarterly earnings call in early March.
Connecticut online casino revenue fell slightly to $23.3 million in February, with DraftKings Casino bringing in $13.4 million (57% market share) and FanDuel Casino generating $9.9 million.
Richard Schwartz, who co-founded Rush Street Interactive, says popularity of online sports betting will help open the door for online casino gaming.https://t.co/bL6XWaS6WG
— pokerfuse (@pokerfuse) November 4, 2021
By departing the sports betting market, Rush Street will be able to allocate more time and resources to other states with better financial visibility, Bender explained. At the same time, RSI can establish a greater footprint in states with a potential to legalize iGaming, he added.
Overall, the departure could have a positive EBITDA (earnings before interest, taxes, depreciation, and amortization) impact for Rush Street as the company exits the unprofitable state, according to the analyst.
Rush Street traded around $3 a share at Tuesday’s open, down approximately 2%. Rush Street is still near its 52-week low of $2.89, down more than 60% from levels last March around $8.10 a share.
Chris Altruda contributed to this story