The Seminole Tribe is the only legal and regulated online sports betting operator in the Sunshine State.
The 2021 Florida gaming compact gave the tribe exclusivity over the Florida online sports betting market. Consequently, Hard Rock Bet became one of the largest sports betting brands in the nation.
However, some analysts believe they could make more money by allowing commercial operators into the market.
Analysts from Regulus Partners told the Earnings + More newsletter that a strategic partnership with one or two of the larger commercial sportsbooks would increase the total addressable market of Florida sports betting.
In other words, Hard Rock would still take the lion’s share of the Florida sports betting market. But the addition of FanDuel and/or DraftKings could make it a larger pie to take from.
“If Hard Rock can clip the revenue of a competitor at the right amount to grow the regulated market to its own benefit, then this is a shrewd move,” the Regulus team told Earnings + More.
Analysis comes on heels of comments from Hard Rock CEO
Regulus Partners gave their insight to the newsletter shortly after Hard Rock International CEO Jim Allen appeared open to the possibility of a partnership with commercial operators.
While at the G2E conference in Las Vegas, Allen told CNBC he discussed the idea with DraftKings and FanDuel. But the comments were vague and didn’t specify what a possible deal would include.
“Whether it’s FanDuel or whether it’s DraftKings, we’ve actually developed a great relationship with them,” Allen told CNBC last week. “Frankly, (we had) meetings with them yesterday and today.”
Allen made similar comments last spring while the gaming compact was still under legal review. The DC Court of Appeals overturned a district court ruling invalidating the deal, but the plaintiffs appealed the ruling to the Supreme Court.
Allen said if the court upholds the compact, the tribe will try expanding the compact to include Florida online casinos. Additionally, he hinted the tribe would entertain commercial sportsbook entry if online casinos were legalized.
Eventually, the Supreme Court declined to hear the case. Thus, the tribe might try to expand the industry soon.
Compact forces partial revenue payments to the tribe
Under the current legal landscape, the tribe is the only online sports betting option, but pari-mutuels can open brick-and-mortar operations. Then, the pari-mutuel must give the tribe 40% of its net revenue, and it can keep the remaining 60% tax-free.
It puts the tribe at the center of the sports betting market, which is why the compact called it a “hub-and-spoke” model.
As a result, there’s very little chance a commercially owned online sportsbook could enter Florida without a similar deal. Regulus Partners believes this part makes the margins thin on both sides, but likely worth it.
“Of course there’s a limit, but it’s probably right on the edge of economic viability, which makes Hard Rock’s position so strong.”
Future landscape could affect value of the deal
Regulus said the deal hinges on how much the additional operators can grow the total market.
In this situation, the Seminole Tribe functions as a state government with a high tax rate. Assuming they get the same deal as a pari-mutuel brick-and-mortar facility, a commercial entity will pay the tribe a 40% “tax.”
Executives at FanDuel and DraftKings were skeptical of the long-term profitability of betting in high-tax environments. DraftKings even briefly considered implementing a surcharge on bettors in such states, but it has since abandoned the idea.
On the Seminole side of the equation, they need to see an increase in betting from Floridians who currently don’t use the Hard Rock Bet app. If commercial operators simply take from Hard Rock’s existing customer base, it doesn’t work for them.
“The problem is that all that hope means economics often takes a back seat to winning.”