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May 9, 2023

Sports Betting to Focus on ‘Fun’, Become More Sophisticated Over Next 5 Years

The Supreme Court struck down the Professional and Amateur Sports Protection Act (PASPA), which restricted the ability for states to authorize intrastate sports betting, five years ago this week.

29 jurisdictions are now operational and Eilers and Krejcik Gaming estimate $9 billion in revenue will be generated by licensed operators this year.

“The regulated market in the U.S. is absolutely growing,” Frank Frigo (VP U.S. commercial, Metric Gaming) said. “But it not necessarily maturing in [terms] of sophistication” and as a result, “there’s a lot of sports betting handle [still] not getting captured.”

Billions of dollars’ worth.  

Legalized sports betting in all 50 states is believed to be an $18-20 billion market.

Some operators will look to mine those uncaptured wagers –and the corresponding revenues– over the next half decade.

The expectation is they’ll do it by engaging recreational sports bettors with ‘fun’, new products, and by beginning to serve select cohorts of customers still betting outside of regulated channels.

The first five years post-PASPA have been nothing short of an aggressive land grab.

“All the emphasis has been on customer acquisition, getting market share as quickly as possible,” Frigo said.

FanDuel, DraftKing, BetMGM and Caesars have done the best job of it to date capturing a big chunk of the market. 

While FanDuel and DraftKings enjoyed the benefit of having large DFS databases to start with, all four have spent heavily on marketing to recreational sports bettors (think: bonusing, advertising).

That makes sense considering ‘casuals’ are the deepest pool of potential players.

Look for the industry to remain focused on acquiring those individuals in the years ahead. It has not come close to capturing them all to date.

“Less than 10 million Americans bet for real money at a regulated site in the last 12 months,” Chris Grove (co-founding partner, Acies Investments) said. “That’s a fraction of sports fans, even when you adjust for states without legalized sports betting.”

However, the approach to attracting them may change.

“When the UK deregulated gaming, it quickly became a public health crisis causing regulators to enact rules that hurt the customer experience and leaving sports betting in a less entertaining and appealing place because of it,” Roger Ehrenberg (owner, IA Sports Ventures) said. “Several companies, including our portfolio company

Betr

, have put responsible gaming at the center of their consumer offering [and are working to] bridge the game from 'degen' betting to betting-as-a-form-of-entertainment.”

Grove agreed and sees a large chunk of product resources going towards building games that are ‘fun’.

The venture capitalist also anticipates operators placing an increased emphasis on retaining recreational bettors in the years ahead.

“Operators will start to think about how they move a customer through a journey of products that gives them new things to do, allows them to level up the depth or complexity of the things they do, and [then] ratchet back down when they don’t want to be as involved,” Grove said. “The sportsbooks that succeed are going to be the ones that put the greatest array of products in front of customers.”

Recreational bettors are bonus shoppers. But they’re not price sensitive. In many cases, they may not even be aware of what the fair market value of the event they are wagering on is.

So, U.S. operators have not had to compete on price to date.

That has kept some bettors, who believe it is too difficult to make money stateside, offshore.

Their thinking is, “Why bet [-110] when they can go offshore and get -104, -105s,” Frigo said.

Expect that to change as the market continues to mature.

“When you have a lot of competition, [operator] bid ask spreads are eventually going to get tighter and [they're] going to offer tighter markets,” Frigo said.

Sharper lines should draw a portion of unregulated bettors back (albeit at slimmer margins). Of course, they will benefit existing players too–whether they know it or not.

The price sensitive aren’t the only cohort currently being underserved.

“There are some huge sports bettors that aren’t going up to the sportsbook window, that aren’t using online apps, that are betting [large amounts]

peer to peer

,” Frigo said.

They believe their odds of winning are greater and few sportsbooks in the U.S. offer the option.

Others are restricted in terms of how much money they can get down.

"Bettors are [often] unfairly labeled as sharps and limited when they have had a bit of success, which isn't an ideal way to treat a market that you are trying to grow,” Frigo said.

And betting syndicates haven’t found the liquidity needed in the regulated market, so they have largely stayed offshore too.

Legalized operators should turn their attention to some of those cohorts over the next five years as they look to grow the pie.

Peer-to-peer

is expected to become more readily available; some sportsbooks will serve up higher limits and a secondary market seems likely to emerge.

“Sportsbooks are designed to make cash-out hard in order to keep assets on the platform, but this is not a long-term strategy for building customer goodwill or long-term retention,” Ehrenberg said. “The betting markets will [eventually] come to resemble the stock markets in terms of liquidity, the ability to [lay off risk and] achieve partial cash out at fair prices.”

But that doesn’t mean all the uncaptured handle will port over to regulated books.

“There are some elements of offshore [an operator] can just never match,” Grove said (think: the taxation environment, privacy and lack of regulatory scrutiny).

Regulated operators could one day provide bettors with credit.

To offer tighter spreads and higher limits sportsbooks will need to become more sophisticated than they are today (at least if they are going to do so without giving the house away). They will also need to gain a better understanding for who their players are.

Some may be +EV players. That does not mean operators should shy away from them.

“It is foolish to just turn a customer away whole cloth, as even more sophisticated customers can prove beneficial to an operator that truly understands what comprises the different cohorts,” Frigo said.

FWIW, the Metric executive estimates the number of true long-term +EV players in the market is less than 2%.

Grove agreed that operators would likely make efforts to appeal to the cohorts of bettors cited. But he said that is “not going to be the prime mover of the trajectory of the future of sports betting.”

New product innovation, like Sky’s BuildABet, is.

“That’s where [an operator] can open up new markets, new customers, as opposed to just transferring demand from other betting channels,” he said.

Some industry insiders believe institutional investors will be among those new customers.  

“Once the liquidity [and ability to put on major positions, and hedge] is there, this could become a new desk for some of the financial firms,” Frigo said.

But Grove isn't so sure.

“There are many hurdles in getting that done, including the willingness for the leagues to get on board and the fact that it is not actually an asset class, unlike everything else finance bets on no matter how abstract it may be,” he said.

Two things are certain, the sports betting environment will look drastically different in the U.S. come May 2028 and JWS be here to look at that the next five will bring.

Building an independent media brand is a heavy lift. We use this space to shine a spotlight on some of our favorite sports, media and finance content creators. We hope you will check them out. 

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