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Big Bets

As more U.S. states launch legal sports betting, operators and suppliers are flooding the field in search of some action

Big Bets

For decades, U.S. lawmakers and sports leagues resisted legal sports betting for fear it would be a corrupting influence on leagues and players. Blocking the action was New Jersey Senator and former NBA star Bill Bradley, who claimed legal bets would turn each athlete into “a roulette chip.”

Bradley’s 1992 Professional and Amateur Sports Protection Act (PASPA) made the activity a nonstarter for state legislatures, but the wagers kept rolling thanks to neighborhood bookies and offshore black marketers. In 1999, the National Gambling Impact Study Commission estimated that illegal betting generated $80 billion to $380 billion a year.

In May 2018, the U.S. Supreme Court nullified PASPA, opening the door to legal sportsbooks on a state-by-state basis. And the big game was on. In the first full year of New Jersey’s legal market, bettors placed more than $2.9 billion in wagers, of which $22.6 million went to the state. Since then, the industry has skyrocketed, in spite of the pandemic, which shut down major sports and reduced U.S. fans to betting on darts and table tennis. In August, with pro sports back in full swing, Garden State gamblers set a record for the most money bet on sports in a single month—$668 million, up 56.7 percent over August 2019.

“New Jersey was the first domino,” says Brian Wyman, senior vice president of operations and data analytics for The Innovation Group. “And given the results there, I’m not surprised that we’re in the place that we are now.”

‘Pure Economics’

So, what happened to change the perception of sports betting in the U.S.?

Dave McDowell, CEO of FSB Technology, a London-based gaming software company, says it came down to “education across sports leagues, political parties and even retail gaming operators. Sports leagues, while condemning the industry for decades, didn’t understand the benefits that working with the betting industry could bring.”

The light began to dawn in 2014, when NBA Commissioner Adam Silver wrote an op-ed in The New York Times calling for sports betting to be “brought out of the underground and into the sunlight, where it can be monitored and regulated.”

“This article got the conversation started,” says McDowell, “and it was pure economics that took over from there.”

Among the first providers in New Jersey was iGaming supplier GAN, which originated in Europe but had been scoping the landscape since 2013, when state lawmakers OK’d online casinos.

“The Supreme Court decision … had been building for a while, and equally importantly, there was a groundswell of alignment and a pretty big shift in the mindset from the leagues, the general population and all the stakeholders within the industry,” says GAN Chief Commercial Officer Jeff Berman. “We saw it coming, and as a company made the very conscious decision to focus exclusively on the United States in anticipation of legal sports and casino betting.”

Today, 20 U.S. states offer legal sports betting, and eight more have legislation that would introduce the activity.

Keeping Score

In New Jersey alone, more than two dozen mobile and retail sportsbook operators have staked a claim, with European sportsbooks and suppliers Americanizing their models to serve the exploding U.S. market. Plenty of upstarts are challenging the bricks-and-mortar casinos and market leaders like FanDuel and DraftKings.

“I see DraftKings commercials in Nevada, where DraftKings doesn’t even operate yet,” says Berman. “Their marketing spend is astronomical, and we’re seeing that reflected in their top line. Over time, as it focuses more on profitability, its competitors will become better capitalized, form better media partnerships and be able to better compete in the advertising space.”

Nowadays, it’s hard to keep track of the overlapping partnerships among leagues, media outlets and sportsbooks: DraftKings’ dance card includes the New York Giants, the Denver Broncos, the PGA Tour, Major League Baseball, the NFL, ESPN and Wrigley Field. BetMGM is allied with the Broncos, the Detroit Lions and NASCAR, among others. Australian comer PointsBet has compiled an impressive list, joining with NBC Sports, the PGA, the NBA, the Denver Nuggets, the Colorado Avalanche, the Indiana Pacers, the Detroit Tigers… and the list goes on.

The pending acquisition of William Hill by casino giant Caesars Entertainment suggests a trend of mergers and acquisitions that will make the big fish even bigger (Caesars owns or manages 54 casinos in 16 states, and William Hill owns sportsbooks in 10 states plus the District of Columbia).

“The companies that control the brick-and-mortar assets have balance sheets that allow them to accumulate and grow vertically and horizontally—really, they have the ability to shape their future,” says Michael Soll, president and founding member of The Innovation Group. “I expect to see more absorption and more control by a smaller number of larger companies in the long run, but there will always be a diversity of other companies in the fray who aren’t so tied to bricks-and-mortar who will keep it interesting and competitive.

“In a pure gaming revenue sense, sportsbooks don’t provide a mind-bending contribution,” Soll points out, “but it’s going to be well-received, it’s going to be a lasting part of the industry, and the numbers will be meaningful.”

In January, Penn National Gaming bought a piece of sports media player Barstool Sports, a transaction Wyman calls “a play on customer acquisition. With these kinds of mergers, a lot of times it’s about looking at databases and understanding whether you can cross-monetize them to make the transaction price attractive.”

While that matchup may have been a head-scratcher to some—buttoned-down Penn allying itself with wild and woolly Barstool—there’s no question the latter has a fiercely loyal audience of young, engaged sports fans. Rather than investing heavily in customer acquisition, Penn “found a creative way to compete that didn’t turn this into an arms race in the media space,” says Wyman. “That’s what we’re seeing with the Penn-Barstool deal, and what we’ll see with other partnerships down the road.”

The User Experience

So, what are bettors looking for in a sportsbook?

Richard Schwartz, president of Rush Street Interactive, owner of the BetRivers and PlaySugarhouse brands, says reliability and simplicity are essential, plus a user interface that’s “clean and easy to follow.

“They want a wide range of content. They want in-game and pre-match content and live streaming so they can bet while they watch, along with strong loyalty programs, prompt payouts and good customer service. Early cash-out is a valuable feature for players who have an edge and want to guarantee a win. The live-odds offering appeals to a wide audience, because it creates an extra dimension and excitement while watching games.”

He says RSI emphasizes the basics: “things like being trustworthy, offering a great user experience, being efficient with players’ time when they reach out to our customer service team, and removing friction from the user experience wherever we can. We create loyalty by doing the little things right and making a difference to players.”

The company’s key to success is “having a foundationally strong business, and not simply chasing what others do in the industry. Our focus has been on doing the things that matter most: increasing our conversion and retention rates. We do that by marketing smartly and efficiently to acquire the right players, and once we acquire them, doing everything we can to differentiate the user experience and provide a high-quality service.”

Max Meltzer, chief commercial officer for U.K.-based sports betting provider Kambi, now expanding into the U.S., says a high-performance sportsbook “requires a supply chain capable of delivering on all levels, beginning with the integration of official data partners and proven algorithms that process the data, followed by excellence in trading and risk, which must all be supplied through a fast and intuitive front end.”

Beyond that, he adds, “Giving bettors the opportunity to drive their own experience is a trend sports betting must continue to embrace. The technology exponentially increases the size of the menu, offering odds on demand and lifting the limitations on player freedom to a far greater extent than the traditional bet-builder.”

Movies vs. Netflix

For obvious reasons, the emphasis this year has been on mobile sports betting, but Schwartz says retail can and will endure if operators “create experiences that are unique to the land-based physical experience, and give players something they can’t replicate at home.

“If you look at the movie industry, there’s still ample interest in going to theaters. It’s going to cost you more, but you get a bigger-than-life experience, and that’s what casinos can create in a sportsbook. There’s nothing more exciting than the thrill of a big game, experiencing that massive enthusiasm among other bettors, with everybody cheering together at the outcome.

“But there’s also the Netflix equivalent, with convenience and a lower price versus the bigger-than-life experience out on the town. I think there’s room for both. Rush Street has a heritage in land-based, so we focus on ways to converge online and land-based casinos, motivating a player online to visit the land-based casino more often.”

Wyman agrees that retail sportsbooks provide a communal experience that players can’t get from their man caves and La-Z-Boys. “If you’ve ever been in a sportsbook during a game-changing touchdown or home run, the whole place erupts.” He points out that even before the pandemic, “80 percent of bets in New Jersey were on the mobile platform. Mobile was always the winner here, but retail sportsbooks won’t go away, even if the way we use them changes.”

Will fallout from Covid-19 get more states in the game and push mobile permanently to the fore?

“We’ve already seen Michigan look to expedite its online sports betting regulation, and wouldn’t be surprised to see others follow suit,” says Meltzer. “I also think that U.S. states that have already passed regulation could now be looking to advance discussions regarding iCasino, creating a full ecosystem for iGaming.”

Covid-19 may cause holdout states to reconsider, especially when it comes to mobile and online betting, agrees Berman.

“It’s no secret that states’ revenues from casino tax revenues have dried up. They’re looking at alternative revenue sources online. We think the vast majority of states will have sports betting and online casino within five years.”

Out of the Shadows

Will legal U.S. sportsbooks ever put their biggest competitors—offshore, unregulated operators—out of business?

“Over time, it will be more difficult for these black-market sites,” says Schwartz. “The illegal sites may initially be attractive because they can offer credit and better pricing, since they’re not paying taxes, gaming fees and leagues. But they’re certainly not as reliable and trustworthy as legal, regulated operations. They can’t offer the same variety of content in most cases. And when players win, it takes a long time to be paid.”

In a telling move, in September Costa Rican sportsbook 5Dimes reached a $46.8 million settlement with the U.S. Department of Justice, part of a rumored bid to re-enter the market as a legal operator. The firm has already incorporated a U.S. arm, 5D Americas LLC in Delaware.

When a onetime illegal operator is willing to pay to go straight—with no guarantees the gambit will work—that says something about the value of the legal market.

Do the Right Things
Dave McDowell, CEO, FSB Technology

GGB: You said last fall that the U.S. will have one of the largest regulated sports betting markets in the next five years. Is that still true?

Dave McDowell: Without a doubt, the U.S. will become one of the largest regulated sports betting markets, provided that sports betting is rolled out responsibly and intelligently.

Ignoring social responsibility and causing harm to consumers is the single biggest threat to continued expansion, and can reverse the gains we’ve made to date. Over-taxation, which includes monopoly pricing on official league data, is the single biggest threat to consumer adoption and will keep the underground markets thriving. But if we move forward responsibly, both consumers and operators will come out as winners.

Regulated sports betting and online gaming in general is long overdue. It’s a pretty simple argument—the black market offers no player protections, there are no jobs created and there’s no tax revenue. I think everyone finally agrees that prohibition and turning a blind eye to it doesn’t work.

Do you see sports betting becoming truly global as a result of technology, or will it remain a hometown, “home team” thing?

The sports betting industry is already global; the real question is if U.S. consumers will ever take a serious interest in anything other than domestic competitions. That isn’t something I’d bet on in the short term.

But consider soccer, the most popular betting sport. Live data feeds are collected from hundreds of countries and distributed to the industry in near-real time. Hundreds of billions of dollars are wagered in the Asian, European, African, Latin American and Middle Eastern markets, where the largest global operators are closely monitored for price movements that can shift odds across the globe.

Companies like FSB use all this data as inputs into our own real-time odds models to create hundreds of betting markets on a single game, then distribute data into sports betting platforms to take wagers across the globe.

In just a few seconds, a goal scored in one country affects data that’s transmitted to almost every other country on the planet. The same happens for every NBA game. The league has a massive following in China and across many European countries.