Partnerships seen as best route to US betting market as Silicon Valley watches
By Simon Ward
European betting companies wishing to take advantage of the newly liberated US market are being advised to team up with existing gambling operators in the country, whose major digital companies are expected to join the fray in due course.
Last May’s US Supreme Court ruling that effectively gave states the right to legalise sports betting in their jurisdictions has prompted firms in established betting markets such as the UK to assess ways in which they can expand their business in a potentially lucrative new territory.
In addition to Nevada, where betting was already legal, seven states (Delaware, Mississippi, New Jersey, New Mexico, Pennsylvania, Rhode Island and West Virginia) have now lifted restrictions on the activity to a greater or lesser extent, while others are in the process of doing so. A November report from H2 Gambling Capital forecast that the US market will be generating $8 billion in revenue per year by 2030.
However, given their lack of infrastructure and familiarity with and in USA, most European betting operators have so far looked to enter partnerships with casino operators instead of striking out on their own stateside.
This has benefits in terms of cost per acquisition, the revenue-share system under which commission is paid to affiliate websites that promote betting companies.
In the last year, GVC, which now owns UK bookmaker Ladbrokes Coral, has entered a $200-million joint venture with major player MGM Resorts covering land-based and online sports betting, while William Hill, another UK brand, has signed a similar long-term partnership with Nevada-based Eldorado Resorts.
Speaking on a panel at the Betting on Football conference at Stamford Bridge in London, Paris Smith, the US chief executive of offshore betting company Pinnacle, said: “I don’t think people have an option at this stage. You have to partner with someone who’s already put the investment in, and this is the opportunity for the casinos that invest millions of dollars in our country. This is now the chance for them to be able to get something back for that, which is why I think they’re doing that model.”
Mark Blandford, the founder of UK online betting pioneer Sportingbet, now owned by GVC, added: “If you’re a European operator and you’re partnering with somebody else, it depends a lot on what your partner’s approach to that market is. If you are going in directly looking to recruit customers, then you’ve got to have a fair balance sheet to be able to penetrate the market. Some of these states like New Jersey… are going to be very competitive markets, and if you haven’t got the brand and the knowhow, it’s going to be a very expensive learning curve.”
He added: “If you’re going in with a US brand, then I think if it’s a recognisable brand, then your cost per acquisition, because you don’t have to educate the public with regard to the brand, should be lower, and that’s probably the preferred route from my point of view.”
Paddy Power Betfair, the prominent Irish-UK bookmaker, has gone in a somewhat different direction in looking to make an impact in USA and attract new betting customers with the acquisition last May of fantasy sports provider FanDuel, and claims this is already bearing fruit.
Joe Lee, head of SAS at the company, said: “Traditionally the casinos stateside wouldn’t have made the bulk of their revenue from sports betting so I think from that standpoint they’ve got a little bit to learn. They may not necessarily be first out of the gate on that front so that might be where the likes of a European business would have some degree of advantage.
“The initial indications that we’re observing are pretty strong. Cost per acquisition for clients coming across [from fantasy sports] for sports betting is obviously going to be much lower because they have a degree of exposure to something like that already and are investing money on a weekly or daily basis looking at players doing x, y or z.”
However, Lee believes there are still large hurdles for new entrants to USA, saying: “It’s expensive. You’ve got to buy into the various different states. You’ve got to invest ahead of scale. You’ve got to know what you’re doing.
“I think one in 10 sportsbooks in a regulated market is successful. Ultimately, in the US, you’ll need to be someone who goes in and executes month-in, month-out along your strategy and ultimately perform as you would want a sportsbook to perform. To use sporting parlance I don’t think it’s going to be a lay-up with people thinking they can just turn on the lights and here we go it’s the great gold rush all over again.”
California dreaming? The potential of the US betting market is shown by the results of a recent survey commissioned by the American Gaming Association showing that 47 million adults will legally bet $8.5 billion on college basketball’s March Madness this year, including over 4 million who will do so for the first time via a casino sportsbook or app.
However, given the relatively small size of the industry prior to last year’s repeal of the Professional and Amateur Sports Protection Act of 1992, which largely prohibited sports betting outside Nevada, and the differing rules on online activity, Blandford believes it is approximately where the UK was 15 years ago in terms of product development and options for customers, and that European operators can bring their experience to bear.
Nonetheless, he thinks it is just a matter of time before US companies catch up, with California’s Silicon Valley technology giants having the wealth and infrastructure to help the betting market realise its potential there.
Blandford said: “I think long term the US brands are going to win out. I don’t think it’s just casino brands. I’m sure that most people, if not everyone in this room knows, it’s going to be regulated on a state-by-state basis. Some states are going to be retail only, and therefore the casino brands will have an advantage, but in other states you can just imagine a ‘Googlebet.com’.”
He added: “It’s interesting that Paddy Power are quick out of the gate, and they’re going to be a frontrunner for a while. Who are going to be the winners in the long run is a different question. I guess Paddy Power have got to go hard and get big quick in the US because who is not to say that the winners are not currently sat in Silicon Valley with a ton of money and a ton of technical capability, but no industry or product knowledge? Who is not to say that in a five-to-10-year time horizon that they’re not going to emerge?
“The [betting] product at the moment is fairly simplistic, but it’s definitely going to evolve, and what this side of the Atlantic brings to the table is the technology and the knowhow, both in risk management and product development, and [online] payment, which is absolutely something you’ve got to think about. That’s the advantage that the European operators have right now but it is going to be fascinating to see how it plays out.”
Smith also expects a challenge from Silicon Valley, having had various betting-related meetings with firms in the region. She said: “Historically there were a number of companies that went offshore eventually that were from California. There has been a lot of interest and developments… They’re going to sit back, but they’re already looking.”
Lee, for his part, is well aware of the potential competition without seeing it as imminent, saying: “At the moment they’re probably happy to sit and have a watching brief, and let others who have a little bit of relevant experience in the industry do the heavy lifting and the hard work. Ultimately, does the capability sit within Silicon Valley to solve problems like personalisation and limitless betting? Absolutely it does, and it would probably be remiss of me to say that they won’t potentially get involved in the future.
“I think for the time being they’ll be more focused on their core business because if you look at their pie it’s much bigger for the time being anyway. If you’re looking at projections and numbers, they’re not in the business of betting so they don’t want to take a bet themselves at the minute, but I would suggest that in time it’s definitely possible.”
Media and sponsorship As in other markets, the media can be expected to help drive the growth of US sports betting, and Blandford sees three primary ways in which they will contribute, notably through the development of equivalents of the UK’s Racing Post publication and website, which offers editorial aimed at punters.
He said: “The media in the US needs to evolve, and provide that type of content. I think that will happen as the market over there transitions. The second thing I’m thinking about with the media is what role do they want to play? Could there be a brand out there that wants to become an operator or at least leverage its brand? I guess there’s a small third part as well in that do they want to play at being affiliates or not?”
Lee believes that the media is already on board to some extent, saying: “If we were sitting here last year and someone told me that ESPN who are owned by Disney, a nice wholesome brand, were about to do a one-hour daily slot on sports betting, you would be quite surprised. I think that tells you all you need to know as a starter for ten from a media standpoint that there is an appetite there.”
However, he added that the level of betting advertising will depend on the US regulatory authorities, which may take note of the television restrictions being adopted in the UK and the outright ban on advertising, including shirt sponsorship, set to take effect in Italy in July.
Lee said: “It will be interesting to see how that influences the regulators stateside. Are they actually looking at these moves that are happening in Europe and the UK, and actually proposing something similar themselves over there?”
On the sponsorship front, North America’s major leagues have looked to capitalise on the opening up of the US betting market by partnering with the major casino groups.
Major League Soccer this week joined MLB, the NBA and NHL in teaming up with MGM Resorts, while the NFL is now aligned with Caesars Entertainment Corp. in an agreement reported to be worth close to $30 million a year.
However, exposure will be limited to some extent by continued resistance to corporate branding on team kits, with only the NBA and MLS having so far permitted shirt sponsorship similar to that prevalent in Europe and other parts of the world.
Asked whether betting companies will be embraced as major sponsors, Lee told Sportcal: “It goes back to my earlier point of the TV advertising and the media relationship and whether they will be currently looking at what is happening in the rest of the world and how there is something of a sentiment against that kind of thing.”
However, Smith thinks market forces will ultimately prevail, saying: “On the responsible gaming side it has to start right in order to permeate and allow people to get comfortable with it. It’s going to be years as you say. But eventually, it’s America, money talks, other things walk.”
Blandford concurs, and believes that deals in the less regulated market north of the border could prove to be a test case.
He said: “It will take time. However, this industry is nothing if not entrepreneurial so if it were me I’d be talking to some of the Canadian franchises that are perhaps already in the mainstream sports in the US. Can you imagine a Canadian team playing at home, and not being allowed to wear its sponsored shirt? There’s two ways to skin a cat and all that.”