Sportsbook operator exit stampede in Colorado continues

Smaller sportsbooks continue to shut down in Colorado as the sports betting giants gain even larger market share

Would the last second-tier sports betting operator to depart Colorado please remember to turn out the lights?

Well, it hasn’t quite reached that point just yet – but might it get there in another year or two?

In the past 12 months, Betfred, Betsafe, ClutchBet, Novig, SuperBook and WynnBet all exited from or are exiting the state. SI Sportsbook is the fourth Colorado platform in just the past month to announce it is shuttering – joining Betfred, ClutchBet and Betsafe. 

That leaves the number of active sportsbooks in the state at 13 – still more than are available in all but a few U.S. states.

Colorado’s appeal to sportsbooks rapid growth

Initially, there seemed to be good reason for smaller sportsbook operators to gravitate toward Colorado. While it is merely 21st in population, of the states west of the Mississippi River, only Nevada produces larger monthly sportsbook industry revenues. The state’s 10% tax rate also is below the U.S. average in the 38 that offer gambling.

So while only FanDuel, DraftKings, BetMGM and BetRivers launched their sportsbooks on the first possible day (May 1, 2020), within a year, almost two dozen operators had joined the party.

Overall sportsbook revenue in the state has climbed from $103.6 million in 2021 to $260.6 million in 2023, and four months of college and pro football ahead have the industry on track to set another record by the time 2024 is over.

So what’s the problem in Colorado?

The issue of smaller sportsbooks shuttering is not unique to Colorado, although the extent of the recent exodus is unmatched.

Colorado regulators don’t break down monthly revenue by operator, but so many states do so that it is not difficult to determine the typical pecking order.

That is, daily fantasy sports giants DraftKings and FanDuel routinely combine – almost evenly in some states – for about 65% to 75% of the market share. Caesars and BetMGM, the iconic brick-and-mortar casino brands, often claim a two-member second tier. Then BetRivers, Fanatics Sportsbook and ESPN Bet grab their slivers of the remaining market – leaving only crumbs for anyone else.

Michigan, a state fairly similar to Colorado with a reasonable tax rate and gaming regulators known in the industry to be receptive to wagering innovations suggested by operators, has reported $16.5 billion in sportsbook total handle since 2021. That figure is led by $5.3 billion wagered at FanDuel and $4.2 billion at DraftKings – again, a combined majority share of the state marketplace.

BetMGM is third at $3.3 billion, and ESPN Bet’s $1.5 billion revenue gives it a larger market share than in most or all of its other states of operation. Caesars settles for fifth in Michigan at $1 billion, well ahead of Fanatics ($479 million) and BetRivers ($352 million). ESPN Bet and Fanatics are relative late-comers to the competition in U.S. states, but the depth of the financial strength of their brands can at least give them hope of significant growth.

Still, seven operators in Michigan all do three-to-50 times the volume of any sportsbooks in the next tier – and the state’s eight smaller sportsbooks combined don’t even match No. 6 Fanatics’ historical betting handle totals in that state.

That no doubt illustrates the daunting challenge for surviving smaller Colorado operators Bally Bet, BetMonarch, bet365, Circa and Smarkets – and the reason why the competitive landscape in the state has shrunk from more than two dozen rivals to barely one dozen.

Even casino giants Caesars and BetMGM, in retrospect, don’t seem to have anticipated both the tremendous value for DraftKings and FanDuel from their daily fantasy sports databases, which each contained millions of possible-to-likely sign-up candidates for sportsbooks as well.

Aggressive marketing campaigns that typically begin even before state regulators open the floodgates for the first wagers have produced instantly robust market shares. Large casino companies also have massive databases, but their customer demographics skew significantly older – with a portion of those loyalty-club members only interested in gambling while visiting retail casinos.

And with the majority of casual gamblers typically not being all that “price sensitive” to sometimes poor odds being offered by the larger sportsbooks, it is difficult to foresee how smaller newcomers can ever gain a significant foothold in state sportsbook industries.

Philadelphia-based Sporttrade, which arrived in Colorado just over a year ago, at least has come up with a potentially “better mousetrap.” Sporttrade is offering consumer-friendly odds and advanced technology on its sportsbook that can lead to more dynamic in-game wagering, which is appealing to more sophisticated bettors. Executives at Sporttrade, which until this month had only operated in New Jersey – another low-tax state, have suggested that their platform is similar to how financial market traders operate.