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Thursday marks two years since the repeal of PASPA (Professional and Amateur Sports Protection Act) and the official start of the regulated US sports betting market.
Fourteen states now allow some form of sports betting, while another six are still setting up after the Supreme Court decision in May 2018.
Nearly $22 billion has been wagered with US regulated books in that time, generating some $1.5 billion in sports betting revenue.
These are huge numbers from a mostly standing start, but plenty of mistakes have been made as well. Here’s what we’ve learned from two years of regulated US sports betting:
As one gaming exec put it to LSR recently: “It’s America. Bring cash.”
There is a huge cost in establishing operations in multiple states, acquiring new customers and running marketing campaigns. TheScore was a notable recent example. The company pegged sports betting for the majority of a $13.4 million H1 EBITDA loss.
But it’s unfair to single out theScore. Just about every operator is in a similar boat.
Even market leaders FanDuel and DraftKings are posting heavy losses now as they look to build market share. DraftKings, for instance, is only scheduled to turn a profit in 2023, according to Morgan Stanley.
Luckily, the company has the public market to back it until then. Not every company can say the same.
This is a familiar grumble from operators, who must navigate a labyrinth of state regulatory frameworks. These can range from the sensible in New Jersey and Colorado to the legally uncertain in Washington and the downright anti-competitive in Illinois and Tennessee.
It’s undoubtedly a dampener on the overall US sports betting market. It’s very well to talk of 40 states being live by 2025. But if five of them cap payouts like Tennessee, then the bloom comes off the rose somewhat.
However, the issue doesn’t look to be going away anytime soon. Federal legislation looks as unlikely as ever and brings significant downside risk as well.
States will continue to be pressured by a variety of vested interests. Operators will just have to hope there are more Colorados than Montanas.
The fragmented market can be positive, however. While the scale is important if you want to compete nationally, the state-by-state structure means there is scope for operators to succeed without it.
Consider Rush Street Interactive (RSI), which operates Rivers Philadelphia and Rivers Pittsburgh in PA. Between those two properties, RSI accounted for 18% of the PA sports betting market in March. That was worth around $24.3 million in handle.
The company could generate equivalent numbers in Illinois, where it has a similar land-based presence. And suddenly, RSI has a very healthy sports betting business without overstretching itself.
Maybe because of the restrictions in so many states, the black market is still going strong.
Offshore sites deal with much lower overhead that can translate into pricing, as well as a much wider menu of bets not subject to regulation. To pick one example while during lockdown, a pushup challenge that grabbed the interest of the gambling community was quickly priced up by the likes of offshore BetOnline.
That sort of market is out of the question for regulated operators at present. It’s a similar story on most esports events, political betting, and other novelty events.
Until there’s something closer to parity in this area, bettors will continue to head offshore. Similarly, operators and their media partners need to do a better job of educating customers exactly who is regulated and who isn’t.
Analyst Chris Krafcik pointed out recently, Colorado search volume for the offshore book Bovada was significantly higher than BetMGM and BetRivers when the market launched. That’s a leak in the market that needs to be plugged.
The pro sports leagues were, of course, the original opposition in the PASPA case. Despite losing the argument, they have made millions of dollars from official league data deals and marketing agreements.
It’s obvious the leagues and the betting sector see commercial benefits from working closely together. And yet, the leagues still want that relationship to be legally enforced through official data clauses in state legislation.
In-play betting is the future and operators around the world have shown they will pay up for good, quality data. Leagues should focus on delivering that through commercial agreement rather than lobbying state legislatures for mandates.
The success of FanDuel and DraftKings has demonstrated the power of a ready-made customer database. And in the absence of their own DFS base, other operators have been turning to media partners.
The media model underpins books like Fox Bet and theScore and has driven deals between William Hill/CBS and Penn/Barstool. However, it’s yet to be seen that it actually works.
In fact, the media model still only has one true success story in the form of Sky Bet in the UK. And even Sky Bet has yet to replicate that success in other countries.
We’ll need a couple of more years yet to determine whether the media model can really deliver low-cost customers in the US.
When PASPA was repealed, there was a sense of optimism around innovation in the US. The sector had a blank slate of sorts: a chance to reimagine a sports betting app for a market of new customers more used to Netflix than bet365.
However, to date, there has been no radical overhaul of the betting experience.
As Boom Sports CEO Stephen Murphy put it recently: “Frankly, I’ve been disappointed in the lack of innovation in the US, so far. Gambling is fun, but the gambling apps are dismal. It’s just 90s web browser pages plastered onto your phone.”
Boom is one of the companies pledging to deliver something completely new, along with a host of startups and even heavy-hitters like Penn National. While US sports betting is yet to have its Netflix moment, don’t rule it out just yet.