Betting and gaming linked to sporting properties can help grow revenues and increase fan engagement if handled well, but can both damage a sport’s reputation and leave it out of pocket if handled badly.
In our capacity as an independent adviser on the opportunities and challenges facing sports, Oliver & Ohlbaum Associates (O&O) is increasingly involved in helping sports get this important relationship right.
Sports interact with the betting sector in five main ways:
- Betting brands are major and often high-profile sponsors of many sports from horse racing and snooker to soccer and boxing, paying a fixed fee related to exposure value and sometimes an additional new account activation/profitability ‘affiliate’ top-up fee.
- Betting companies buy online bet-to-watch and/or betting premises media rights in many territories, often complementing mainstream media deals with traditional TV platforms and channels.
- Betting companies pay for access to proprietary data streams from sports to enhance betting opportunities and develop new betting products, often around in-play and so-called ‘exotic’ bets.
- Sports and betting companies work together to spot unusual playing and betting patterns that might together suggest match- or spot-fixing behavior.
- Across some sports and territories, betting companies pay a mandatory levy to sports to help fund them, usually sports for which betting is a leading source of revenue, such as horse racing.
The deregulation of betting and gaming in important territories such as the US and the growth of economies in Asian territories with high propensities for betting have made this an increasingly important part of the commercial growth story for sports.
Most sports handle the sponsorship relationship directly while media rights and data feeds are often handled by third parties such as Sportradar, Stats Perform, and IMG Arena – all organizations that have attracted a great deal of investor attention and high valuations recently.
This arms-length relationship can lead sports to take little direct interest in the betting products, the drivers of value to betting companies, or the reputational challenges that might occur. That can be a big mistake.
A competitive, high-volume, low-margin business
Generally, betting is a high-volume, low-margin business, with global turnover of $490 billion for a gross gambling revenue of $74 billion in 2019 (a margin of 15%). Fierce competition in many markets means much of that margin for bookmakers is spent on marketing and special offers (including free bets) to win new accounts and encourage more betting activity.
With the costs of new technology to service global online betting and the costs of regulatory and financial compliance, many betting companies exist on quite low net margins – something that is driving consolidation trends across the sector.
Relationships a part of winning the competitive battle
In this context, relationships with sports brands and access to crucial proprietary data can drive much of the difference between a successful betting company and one that fails – one that wins the consolidation game in the next few years, and one that loses out and is swallowed up. So, these relationships with sports are very important to the betting industry.
A wide range of products and services are offered
Sports betting products offered range from fantasy sports leagues (which in some cases don’t even count as betting, so can be exploited in highly regulated markets), to traditional pre-match sports results-based betting (winning team, goal margin etc.), spot betting (number of fouls, red cards, corners etc.), and in-play betting (next goal, next scorer, in-match updated predicted results-based betting etc.), and exotic combination bets (a cumulative mixture of different pre-match and in match bets that can lead to very big wins with low stakes but, of course, at high odds).
It’s these last two types of sports betting that are growing fastest and that tend to attract the highest margins and need the most proprietary data – both to offer the bets and to provide the information the punter needs to place them.
Beyond sports betting, online versions of more traditional casino and bingo tend to be higher margin than sports betting in general. For example, online casinos generated gross margins of $19.2 billion on a turnover of $56 billion in 2019 – a margin of 34%.
Betting partners extract value in a variety of ways
In most cases, once a betting company gains an account, it tries to increase margins and share of betting by converting an occasional pre-match sports result betting fan or fantasy league enthusiast into a more regular in-play punter and then to a broadly based gambling enthusiast with a taste for high margin casino games or exotic bets.
They can also gain if they can create sports betting products with features that might attract the existing general gaming enthusiast, who may not even be a sports fan.
Overall, the value of a sport or sport event’s data rights to a betting company depends upon:
- Uniqueness – if data is easily copied by third parties or public sources, it loses a significant amount of value.
- Whether data can drive betting to higher margin in-play or exotic bets.
- Betting intensity – how many fixtures data is available for and how many betting opportunities there are per fixture.
- Appeal beyond just sports fans – can this sport draw in consumers that enjoy betting generally, rather than those who are specifically fans of the sport? This especially applies to those who also engage in casino gambling, which gives the highest margins
These factors may explain the high value of tennis data rights to betting companies. The existence of so many matches across the world, across all times of day, coupled with the frequency of outcomes to bet on (winner of the next game, or next set, or even the next point), not only encourages more betting volume from the tennis enthusiast but, perhaps more importantly, looks a lot like slot machine gambling to the general gaming enthusiast. This can be a particularly lucrative avenue to pursue given normal slot machine game returns are often regulated in many markets.
Sports that understand betting can gain a lot
A sport that understands how betting can enhance the fan experience and engagement and bring in extra revenue for betting companies and the sport without negatively impacting the sport or its reputation can gain much from the relationship.
But this implies taking an active interest in the betting products created and the types of behavior they might encourage, as well as understanding the value of its data in driving more accounts, more betting, and higher win margins. Much of this insight can be lost if the entire relationship is handed to middlemen.
A more judicious use of middlemen – to collect and deliver the data in a timely and user-friendly way – combined with more direct involvement in both setting the terms of any revenue share or buyout fee and the development of betting products that can be developed with the sport’s data might be a better approach.
Joint ventures to develop betting and gaming products with media partners might be a particularly fruitful option given the media partner’s interest in increasing fan engagement.
Reputations, fan relationships, and bottom lines are at risk
While getting it right might mean more direct involvement than currently, this may be more than worth it when considering the implications of getting it wrong. Much has been made of the integrity risks to sports as betting becomes a bigger industry globally, with the danger that more and more players are susceptible to inducements to fix results or events in a game.
But one can argue that the legalization of betting and the common interest of sports and betting companies in stamping out fixing make this the easiest problem to solve (even if it costs money and resources). The increasing financial rewards to many professional players across many sports can also help reduce the incentives to get involved in such activities.
The greater threat to a sport’s reputation and relationship with its fans might come from the products that are developed and the behaviors that they encourage. Fans who lose a lot of money on a sport might start to change their view of that sport. Sports whose data is used to increase areas of problem gambling might come to be associated with it. Sports that are seen to be pursuing betting and gaming revenues without regard for improving fan engagement and enjoyment may be seen as exploitative.
A judicious approach to both revenue maximization and reputation/relationship enhancement is required and probably means all sports need to take a more active interest in their relationship with betting, the economics of betting, and the products and services offered.
Oliver & Ohlbaum Associates offers expertise in understanding what betting and gaming partners look for, how they value the rights, and how the relationship can be optimized.
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