Morgan Stanley Reaserch: New Jersey sports betting handle rose 128% y/y on a packed calendar vs. July +25% / declines March-June. iGaming revenue grew 114% but slowed from recent months. Sports betting revs will likely beat our 3Q est but lack of major sports in Nov/Dec suggest year in line. Casino revs fell (31)% vs. July (47)%.

NJ’s Division of Gaming Enforcement released Aug sports betting, online gambling, and casino (slot/table) revenue data today. Sports betting & iGaming revenue together increased 92% y/y to $127m from $66m last year, down slightly from 105/104% in July/June, but higher than March/April/May +10/43/78%. Including physical casino revenue that declined (31)% in Aug, all-in revenue was down (7.5)% to $326m, better than July down (21)%. As a reminder, most NJ casinos re-opened 7/2 with 25% gaming capacity/no F&B. We highlight CZR and WMH as our favored plays on the nascent US sports betting / iGaming opportunity, where we see more undiscovered value.

New record for sports betting volumes. NJ’s Aug sports betting handle increased 128% y/y to $668m, setting a new record vs. $563m in Nov ’19. Handle had increased only 25% in July (to $315m), while June was down (40)%/May (63)%/April (83)%/March (51)%. Aug handle increased 112% m/m, which was lower than IN’s up 140% (report), though NJ is more mature having launched online in Aug ’19 vs. IN Oct ’19. With NJ casino traffic still low, we highlight that online sports betting handle increased 142% y/y vs. July 39%/June down (27)%/May (55)%/April (79)%/March (45)%. While we generally view the amount wagered in Aug as positive, we highlight results benefitted from having NBA, MLB, and NHL playing vs. typically only MLB. We expect promos (free bets) were also high. Amounts wagered should remain strong in Sept given all 4 major leagues will be playing vs. just the NFL and MLB last year. However, we are cautious Nov-Dec could soften as it will see just 2 months of NFL and 1 month of NHL (potentially) vs. NBA, NFL, and NHL all playing last year. Net-net, there are 11 more cumulative months of the 4 major sports leagues playing through YE vs. 12 last year.

Sports betting revenue in line, with minor share movements. Aug revenue was $40m, growing 57% y/y, reflecting 6% hold (vs. Aug ’19 9%/historic avg 7%). Revenue was above July $30m (9% hold), June $13m (8% hold) and Aug ’19 $25m (9% hold). NJ sports betting revenue of $66m over the past two months suggests NJ will likely exceed our $101m 3Qe, but there’s risk 4Q underperforms our $164m estimate (+50% y/y) with fewer major sports in session. In Aug, FanDuel-Pointsbet-Meadowlands reported 54% market share, up from July 48%/June 48%/YTD 51%, while DraftKings-FOX Bet-Resorts posted 25% vs. July 28%/June 31%/May 38% /YTD 29%. It appears William Hill held its share at ~10%, though it operates across multiple shared licenses.

iGaming remained strong. NJ iGaming revenue was $88m in Aug, up slightly vs. July $87.5m/June $85m/May $86m, though growth was slightly lower at up 114% y/y vs. the prior 3 months each up 123-124%. Revenue is now run-rating $1.1B on an annualized basis vs. our 2020/2021 market estimates of $945m/$1.0B, and 3Q is now tracking to $263m (straight-line) vs. MSe $260m. We had expected strong growth from stay-at-home tailwinds but saw risk of more significant deceleration due to improving physical casino traffic driving churn of March-July sign-ups. NJ iGaming revenue is now $598M YTD, up 101% y/y, and $783m TTM, up 93% y/y. Market shares were relatively similar m/m, with the exception of Golden Nugget (incl. FanDuel) falling to 32% (from July 36%/June 34%). Resorts (incl. DKNG) had 20% share vs. July 21%/June 20%, Caesars 11% vs. July 11%/June 10%, Tropicana 7% (in line with July/June), and Hard Rock 7% vs. July 6%/June 7%. We continue to believe the economic impact of COVID-19 coupled with strong recent iGaming results in both NJ and PA should spur more states to legalize, though have seen more momentum for sports betting.

Still too early to read into casino results. Aug casino revenue declined (31)% y/y to $199m, was lower on an absolute basis vs. July $147m, though July was down (47)%. Casinos re-opened on 7/2 but some reopened later e.g. Borgata 7/26, and 25% capacity limits / lack of indoor dining remain significant headwinds. By comparison, Las Vegas Strip casino revenue declined (39)% y/y in July after falling (61)% in June after re-opening 6/4. Regional markets are performing much better, with MD July/Aug revenue down (6)/(3)% after re-opening 6/19, OH July/Aug revenue +12/5% after re-opening 6/19, and MO revenue down (9)/(13)% after re-opening 6/1, though IL July/Aug revenue declined (29)/(26)% after re-opening 7/1. In NJ, Ocean casino revenue notably outperformed with revenue up 1% y/y to $24m, while the other casinos saw double-digit y/y revenue declines.