The Jefferies Group held a gaming-industry digital summit last week, in order to provide “key support for our bullish view on the (igaming) subsector, which is still in its formative stages.”

Jefferies released a report this week saying it expects a market of $38.7 billion for online sports betting and igaming, up from $19 billion. Its North American online gaming model now includes igaming and “reflects more states legalizing faster than previously expected,” but has no immediate timeline.

The report said igaming makes up $19.2 billion of that total and cited state revenues as pointing to a growing market share for BetMGM and ongoing sports leadership for FanDuel.

“While igaming is still in the very early stages of market opening and growth, with only New Jersey, Pennsylvania, and Michigan having the complete igaming offering and Nevada, Delaware, and West Virginia allowing limited igaming products, we expect legalization to accelerate as states seek new sources of tax revenue,” Jefferies said. “We assume states that currently have both land-based casinos and (mobile sports betting) offerings will also develop igaming. While we assume fewer states will legalize igaming (24 states vs. 45 for sports betting), we expect igaming (marketshare) could reach at least $19 billion by maturity, although the timing is less certain.”

In its igaming report released this week, Deutsche Bank said the “bull case for the icasino has been one of a rolling wave of favorable legislation making icasino a driver of growth for years to come.” It was less optimistic about approvals in the short term.

Connecticut is expected to implement igaming later this year. Some 30 states and the District of Columbia, meanwhile, have approved sports betting in some form, even though all haven’t launched their platforms yet.

“Recall, other than Michigan, no state has legalized commercial icasino gaming in the aftermath of the pandemic, other than the two tribal licenses in Connecticut,” the Deutsche Bank report said. “Michigan was approved for icasino, though it hadn’t launched prior to the pandemic. We find the theme of the pandemic making icasino legalization a likely source of funds for states far less likely now, post (federal) bailouts, than perhaps was the case 6 to 12 months ago.”

The Deutsche Bank report cited the lack of progress by front-runner states Indiana and Illinois. Because of that, the rollout of the icasino is likely to be “more challenging than sports betting.”

Deutsche’s report continued, “Coming into 2021, Indiana and Illinois were the two larger states that were contemplating icasino legalization. While Indiana has already failed to act on icasino and won’t in 2021, we believe Illinois could also face challenges and we believe the prospects for an icasino have dimmed for the state of late.”

In terms of their forecast, however, Deutsche Bank said it expects Indiana and Illinois to legalize eventually and has a 2027 icasino market of $6 billion. That includes $1.9 billion from Indiana and Illinois, as well as $4.1 billion from states where it’s currently legal.

“Our $4.1 billion 2027 forecast for the currently legalized states is not without considerable risk, as it implies that the pandemic stimulus has had little to no impact on icasino spend; the extraction of promos over time will have little to no impact on gross gaming revenue results; and the existing state-run rate gross gaming revenue results expand by 18% from current run-rate levels, and 27%, inclusive of our Connecticut estimate,” Deutsche Bank said.

The gaming revenue reports following reopening suggest no cannibalization of land-based casinos, which most operators expect to continue, Jefferies said.

“Investors are highly focused on post-COVID behavior,” Jefferies said. “Elevated consumer activity through lockdowns in 2020 was driven by casino and poker, with sports as fixtures restarted. There’s broad evidence and agreement that the pandemic has driven an acceleration of the offline-to-online migration, which is evident in recent results.”

Jefferies said the legalization processes, technology offerings, and mergers and acquisitions “are far from determined at this time.” As a result, the winners and losers are still to be determined.

It said the buying opportunities are BetMGM, Rush Street Interactive, and Flutter, the UK-based mobile betting company that owns FanDuel.

“BetMGM increased long-term market-share targets at the April investor day,” Jefferies said. “Market-share progress is being made in two notable states and BetMGM is overall the leader in the recently launched Michigan. FanDuel continues to perform in New Jersey. We expect both operators to continue to build and maintain share as markets begin to mature.”
The performance of FanDuel’s and Draftkings’ apps matches closely and is “notably ahead” of the competition for both app rankings and daily users, Jefferies said.

“The BetMGM app is consistently closing the gap between the top two operators for daily users and is followed by William Hill,” Jefferies said.