Shutdowns Signal Trouble For US Startups
Legal Sports Report

Will Coronavirus Shutdowns Bring ‘Death Blow’ For US Sports Betting Startups?

US sports betting

It was brutal being a US sports betting startup, even before the coronavirus pandemic shut down most of the world.

But turn off major sports, add a nationwide economic recession, and it might just be near impossible to survive the COVID-19 shutdowns, right? Broadly speaking, yes.

“The reality is this will be a death blow for many sports startups,” says Scott San Emeterio, the founder of free-to-play sports marketplace BallStreet Trading. “Many companies are already dead — they just don’t know it yet.” 

San Emeterio, who worked at Credit Suisse and Bear Stearns before BallStreet, says mid-size companies are likely to be worst affected. They have fixed costs to pay and were relying on some form of revenue.

Funding dried up for US sports betting startups

Lloyd Danzig, the founder of the early-stage advisory firm Sharp Alpha Advisors, confirms that funding and revenue for sports betting startups have become “much scarcer” in recent weeks.

“Startups who had product launches or plans to prove product-market fit surrounding March Madness or The Masters have had to quickly pivot or consider new strategies,” Danzig said. “There have been some awesome innovations around simulated NCAA Tournament games and other things, but it’s very tough to raise funds if this is the case.”

FanVest, the so-called stock market for sports, is one of those companies that saw March Madness as an “audition” for potential investment partners after a successful NFL season. However, it was ultimately forced to offer contests on a simulated version instead.

“Those conversations with angel (investors) and VCs are still happening, but it’s hard for anyone to make investment decisions amid so much uncertainty,” says Fern Murias, the FanVest co-founder.

Smaller companies can adapt

On the other hand, the sports hiatus could even represent an opportunity for smaller companies. As Danzig explains:

For the small subset of startups that were relying on neither revenue nor additional funding to sustain operations in 2020, this is actually a great time. They are able to innovate and enhance their product offering while the rest of the world is on pause and/or in survival mode.”

Investors are also bored at home. As such, they are more than willing to jump on Zoom and chat with people pitching ideas.

“There has been a never-ending stream of potential exploratory early-stage calls,” Danzig said. “A lot of people are happy to get on a casual call to just chat, but that’s obviously far from writing a check.”

BallStreet a good example of this

BallStreet is lucky it fits into this category, and is treating the sports hiatus as an opportunity; a chance to show it can grow even without sports.

That means it is offering novel markets like where the Dow Jones will open and what sports will resume first, as well as new esports markets. San Emeterio sees an opportunity, referring to land-based giants that might want to speed up their transition to online betting and gaming in a socially distanced world:

“We hope the bigger players will see what we’re doing and want to work with us. But brands wanting to speak to sports fans, you can’t do that through ads at Madison Square Garden now. More games than not this year will likely be played without fans, so digital platforms will be very important.”

Optimism for greatest sports swing ever

The outlook for many startups, however, is beyond their control. It depends on how well the wider economy recovers and how soon sport returns. Unfortunately, no one really knows the answer to those questions.

But there is some upside here. Under plans being discussed by sports leagues at present, the second half of the year could essentially see nine months of sports crammed into six.

The second week of September, for instance, could feasibly see the Preakness Stakes, golf’s US Open, tennis’ French Open, college football and NFL betting on one weekend.

“It could be the greatest period in sports history and we get a V-shaped recovery in the space,” San Emeterio said. “Or the NFL plays an eight-game season in front of empty stadiums, and we’re all in trouble. No one really knows.”

It might not sound like ideal conditions for young businesses, but the total disruption of the US sports betting industry could also create opportunities.

The likes of Amazon and eBay flourished in 2001 in the aftermath of the dot-com crash. It’s not out of the question to see a US sports betting success story emerge from the chaos of the coronavirus.

Brad Allen
- Brad has been covering the online gambling industry in Europe and the US for more than four years, most recently as the news editor at EGR Global.
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