The US sports betting market has not been kind recently to top-tier sportsbook suppliers.
Over the last couple of years, operators have increasingly found ways to bring technology in-house rather than paying for a third party.
We have seen:
- Penn National buying theScore with a view to moving away from Kambi.
- DraftKings buying SBTech to move off Kambi.
- Caesars buying William Hill to move off Scientific Games.
- FanDuel bringing more of its tech stack in-house from GAN, IGT and Scientific Games.
- Bally’s buying Bet.Works.
Trend towards in-house tech
The logic for operators is simple: better profit margins and more control over product.
But on the flip side, providers have paid the price. Kambi’s share price has been cut by 40% since the Penn/theScore deal.
Elsewhere, Scientific Games sold off OpenBet to focus on its core business.
Buy buy buy
Of course, for every seller, there is a buyer. But the fact Scientific Games was willing to sell its exposure to US sports betting is telling.
As analyst firm Regulus Partners put it:
“If a company with the reach and resources of Scientific Games cannot make OpenBet too strategically important to sell post-PASPA, then [buyer] Endeavour’s voyage of discovery might be a painful one.”
However, at least one provider is calling for a reversal of this trend.
Playtech sees brighter future for sportsbook suppliers
Playtech CEO Mor Weizer said in late September that Playtech had a $3 billion B2B opportunity in US online gambling. Within that, he argued that a third of the US sports betting market would be powered by third-party suppliers.
Naturally, analysts on Playtech’s H1 earnings call pushed back on that number, given the recent trend.
“I do believe that the market will become more fragmented over time as we’ve seen in other markets. A lot more states will regulate and a lot more casino groups and other operators will penetrate the market. On top of that, I believe a lot of existing operators that focused on a limited number of states will extend to other states.”
In other words, Weizer predicts an expansion of operators in the long tail. Those smaller operators will rely on third-party sports betting technology over doing it themselves.
Of course, Playtech has since sold up to Australian slots operator Aristocrat. So did key shareholders really believe in the US growth story?
Is US sports betting fragmenting?
Fragmentation is indeed a feature in mature gambling markets. In UK sports betting, even the largest operators struggle to get much above a 20% market share.
The US has been a different story to date. Pennsylvania is perhaps helpful to look at, as a mature market with multiple regional players.
The data suggest the three largest sportsbooks account for around 75% of the market, and have done so for nearly a year now. Much of the remaining 25% comes from operators with in-house tech like BetMGM and Caesars.
Michigan is equally top-heavy, with the top three taking close to 80% of the market.
Is the US different?
Indeed, some experts have argued the US will not fragment like other markets.
Former FanDuel CEO Nigel Eccles said last year the US would always be consolidated within a handful of operators thanks to the sheer scale of the market. Current FanDuel CEO Amy Howe said similar recently as well.
In that light, it is hard to see regional operators ever reaching one third of overall revenues.
What share do you need?
That’s not to say even 15% or 20% of the US market is less than a massive opportunity, especially as B2B competition dwindles thanks to M&A.
SBTech, for example, has lost several B2B contracts since being acquired by DraftKings.
So, the pie may have shrunk for sportsbook suppliers, but the slices are potentially larger.
Will the trend reverse?
There’s another reason for optimism for suppliers, too.
Those heading in-house may reverse course when they realize just how difficult it is.
Kambi CEO Kristian Nylen said last week: “What we do is highly complex and is not easy to replicate. Many have tried in Europe and failed before.”
Rivers going against the trend
That sentiment was echoed by Rush Street Interactive CEO Richard Schwartz, who said owning technology was pointless if the product was just average.
“There is a lot of pressure on sportsbooks to buy sportsbook tech,” Schwartz told GGB Magazine. “But I don’t think that’s the right approach. I would not be surprised to see that trend switch back in five years time.”
Schwartz has proven with BetRivers that you can build a top-tier app on third-party technology.
How Rivers fares compared to a vertically-integrating operator like Penn could have a major impact on the future of the sector.