US Sports Betting & iGaming: Reasons Morgan Stanley are Confident on Legalization in 2021

We expect 12 states to legalize sports betting in ’21, NY to legalize OSB, 2-3 states to legalize iGaming, & Ontario to legalize both. With legislative session dates largely set, this will mostly happen in 1H21. Almost all states are proposing <20% tax rates, countering the tax rate bear thesis.

As we outlined in our recent Outlook, we expect a lot of states to legalize sports betting and iGaming in 2021, driving stocks like DKNG higher. We forecast 12 states to legalize sport betting in 2021 (vs. 23 are legal today), 2-3 to legalize iGaming (vs. 6 legal today), NY to legalize online sports betting (OSB), and Ontario to legalize both sports betting and iGaming. As we outline in 1, we base each forecast on the knowledge that there is significant momentum behind legalization in that state. Notably, there are 6 Governors who have publicly asked their legislatures to pass laws, 3 states whose citizens have passed referenda, and in the remaining states bills that have already been filed. With states facing larger budget deficits than in years past b/c of COVID-19, governments are increasingly looking at sports betting and online gambling as a way to plug the gaps (which we analyzed in this report).

Not an exhaustive list. While 12 states legalizing sports betting this year is well ahead of what we have seen others predict (AGA for example highlighting 6+, recent panel most said 3-5), there are other states with momentum that we don’t include in our forecasts. For example, FL, GA, MN, and MS (OSB) all have bills already filed, but we see obstacles stopping any of them from legalizing.

Expect most legislatures to legalize in 1H21. As we also outline in 1, most state legislatures finish their sessions by the middle of the year, with a few even ending in March. While there are always opportunities for states to host special sessions in the fall, many will look to pass bills and budgets earlier, moving forward the catalyst. NY for example has the option to run its legislature through the year, but the current scheduled Assembly calendar ends June 10 and the finalized budget is due April 1.

Tax rates proposed generally in the 6-20% range. While much fanfare has been made of NY Gov Cuomo proposing a single operator model (although his budget director appears to be also considering other options) at a high tax rate (most think ~50%), the other states’ proposals counter the concern NY is setting a precedent. Of the 17 states where tax rates are being discussed, only Gov Cuomo’s proposal is at a ~50% tax rate (note NY legislature proposals are at 12%), while the remaining 16 states are proposing btw 6-20%. Notably AZ, MO, OH, TX, and MN all have proposed legislation with tax rates in the 6-7% range.