Eyes on the prize: the household names plotting to gate-crash gambling

As online gambling operators continue to move towards an entertainment-style business model while eyeing opportunities in esports, it should come as no surprise that non-gambling brands like Disney, Fanatics and SEGA are vying for a piece of the action.

Last summer, global digital and retail sports platform Fanatics, backed by investor and rapper Jay-Z, made the headlines after applying for a mobile sports betting licence in New York, which was later denied. Reports also emerged that the sports merchandise giant was in talks with Rush Street Interactive, PointsBet and Betsson about a potential acquisition.

What’s Possible Group’s SVP of global new business Richard Downey, who is based in Los Angeles and currently does some work with Fanatics, says the sports retailer brings a significant database and customer list that is unmatched outside of DraftKings and FanDuel in terms of potential acquisition.

In November 2021, a Forbes article covered Walt Disney Company’s intention to expand into sports betting through its ESPN brand. “We’re also moving towards a greater presence in online sports betting, and given our reach and scale, we have the potential to partner with third-parties in this space in a very meaningful way,” remarked CEO Bob Chapek.

Japanese video gaming company SEGA has also hinted it may pursue opportunities in online gambling. During its Q2 2021 financial results, SEGA Sammy (a Japanese holding company formed from the merger of SEGA and Sammy Corporation in 2004) announced plans to invest ¥100bn (£640m) to improve the overall business. CEO Haruki Satomi stated that within the next three years, opportunities may emerge in the domestic integrated resort business that could interest the company. Satomi said: “If there are opportunities to invest heavily in other areas, such as online betting, which is gaining force overseas, there is the chance we prioritise them.”

These three companies are not the only ones, however, to find the lucrative online gambling space so appealing. Social media platform Twitter has also expressed its interest in betting as NFT and college football engagement grows, while online retailer Amazon is hiring a production manager for its live sports broadcasts with the job post mentioning projects related to fantasy sports and legalised sports betting. Even sports streaming platform DAZN, with ex-Entain CEO Shay Segev at the helm, plans to add recreational betting, gaming, e-commerce and NFTs to its offering.

So, interest in sports betting and online gambling is clearly rife outside of the sector, but why now? Marc Thomas of Marc Thomas Consulting believes the repeal of PASPA has changed the game completely, and while there is certainly money to be made in the betting sector, the appetite from the US sports betting public is voracious.

“I think the American betting public are interacting with betting in a different way than we’ve seen in the UK and Europe, because the history in the US hasn’t been hundreds of years of betting shops. You’ve got groups who would have been betting potentially offshore. Then you’ve got guys who frequented the sports betting parlours and casinos previously and those guys are probably doing the same, but also using the online sportsbooks that are now available through those venues,” he points out.

Thomas also highlights comparisons between the UK and other European territories which have faced tough regulation such as restrictions on bonuses and ad bans while the US has largely escaped unscathed. “One of the reasons is it’s highly regulated. But as an industry, I think we’ve probably got to pat ourselves on the back as we’ve done a good job. If everybody plays by the rules, then sports betting in the US is going to become more acceptable,” he comments.

And this acceptance is what will help convince the likes of Disney, parent company of ESPN, to make a play for sports betting as the potential revenue gains and ability to engage with its customers in new and interesting ways could eclipse those risks.

There is also a marked difference in the approach of US-facing betting firms compared to those in Europe. While bookies here provide more of a traditional betting experience, in the US betting is viewed as an extension of sports entertainment as the US punter tends to be particularly sports-mad. “So, it’s something you do as an adjunct to watching the game or visiting the stadium rather than placing lots of bets against lots of events,” says Thomas. “And because of that, if you put it forward as legal and licensed entertainment, then why wouldn’t the huge entertainment companies including Disney want to get involved in that?”

Leap of faith

One concern for companies like Disney, which is well known for its fairy-tale movies and Mickey Mouse mascot, is that it could be exposing itself to brand dilution or reputational damage by becoming associated with gambling. So far, Disney has steered clear of ‘sin’ industries, but could launching an ESPN sportsbook or licensing the brand to betting companies for as much as $3bn, if media reports last year are to be believed, tarnish its clean-cut image?

Downey doesn’t think so as ESPN has been featuring betting content through its Daily Wager show since it first aired in March 2019. “Pretty much every single sports betting piece of content quotes a price and a market. So again, we’re not talking about Mickey Mouse Bet, we’re talking about ESPN and properties of theirs that are extremely well aligned.”

Last November, Chapek said Disney has found a broader acceptance of sports betting among the general public and that people see ESPN and Disney as separate brands. He had previously said offering sports betting through ESPN could be a way to attract younger audiences and create new revenue streams. With ESPN promoting sporting leagues and content, real-money gaming could act as a bridge between a younger demographic and the leagues. “Currently, those people who do like to bet and are in regulated states are watching ESPN and betting on FanDuel or DraftKings so they will see that as leaving money on the table,” Downey points out.

Credit: Disney Media & Entertainment Distribution

Jeffrey Schoonover, managing partner at CloudTree Ventures – an interactive technology and entertainment fund – believes businesses like Disney need to look at unique ways to present their offerings and establish meaningful engagement with a younger audience. “Companies like Disney have the foresight from the tech side to see the application of what’s happening in web3, blockchain and a closed-loop gaming redemption-type of model,” he explains.

What Schoonover means by a closed-loop model is that Disney could execute a similar strategy to using blockchain to capture data in a unique way that doesn’t necessarily look or feel like gambling. “The better you are, you earn rewards and it could go towards redemption of merchandise. Is that gambling? When you’re playing a game, you’re playing the game because you enjoy it. And a lot of times it’s a way to interact with your friends. If they open up the ESPN sportsbook and put a $100 wager that a certain team will win, that’s gambling,” he says.

Schoonover goes on to say that those companies developing technologies and platforms as well as different ways of engaging with fans and metaverse are in a great position to pull off a betting proposition. With Fanatics, he says: “It would be super, super interesting to see how the company could grow in a merger and acquisition model and by embracing the hub of the community, like creators.

“The company could do really, really well, and they could acquire other companies. They could just really be a standout in the industry if they execute it properly. It’s exciting to watch,” he adds.

During the coronavirus lockdowns and hiatus of live sport, esports really took off and this is an area that SEGA could reap the benefits from with its background in video gaming. A report from Market Insights found that the global esports betting market is projected to reach $207bn by 2027, so there is a large opportunity to capitalise on here.

CloudTree Ventures’ managing partner, who is a shareholder in esports and entertainment firm Misfits Gaming Group, believes the vertical offers a natural trajectory for growth “because of the amount of consumer spending, potentially on the esports and gambling side, and that larger amount of capital to be spent in that sector”.

Go it alone or tag team time

Whether non-gambling entities will be able to break into the sector on their own rather than through tie-ups with established operators is a tall task. Either option is going to involve a lot of money to make it work. Schoonover comments: “There’s a high barrier of entry. So, if you’re a start-up or founder or even a mid-good-sized company, you’re going to have to invest significant dollars to properly figure out how to integrate. You’re going to have to spend a ton of dollars in finding the right venture relationship if you do align with a professional gaming organisation or a DraftKings or something along those lines.”

How Schoonover sees it playing out is that companies will develop unique platforms and integrations to make for a compelling user experience. These companies will then be snapped up through acquisition or will license the tech to the likes of FanDuel, DraftKings or Barstool. “I think, over the next six years, you’re going to see a lot of interesting sales, developments and merger and acquisitions of companies by the bigger players. The shark normally wins.”

To really challenge the established operators (or kings of the castle, as Downey refers to them), you need money and patience in abundance. For newcomers, it takes time to build expertise, teams, personnel, infrastructure and partnerships. Downey remarks: “So, if I were them, I would definitely be looking for companies to acquire simply because it gets you to where you need to be quicker. With new states opening up like New York, you can’t wait 12 months to be ready.”

Thomas agrees that there are huge opportunities for non-gambling firms to partner up with established operators if the money is there to back it. “If Disney is going to launch a Disney sportsbook or branded with one of their major sports, then there’ll absolutely be people queuing up to be a partner of theirs. So be that a big UK or US-based sports betting brand or operator, like the JVs that we’ve seen from BetMGM or Fox Bet, or indeed platform partners if they’re providing services into them.”

The industry has already seen significant deals on the table such as IMG Arena owner Endeavor’s $1.2bn bid for OpenBet, so a potential acquisition or partnership for Disney would be mere pennies for such a large corporation.

“For somebody the size of Disney who have almost unlimited resources in terms of buying power, investment in the magnitude of $1.2bn is unlikely to be an issue, particularly if it means that they have greater control in their betting and gaming ambitions going forward, and they may see it as a good long-term investment strategy, akin to their budgeting for film production,” highlights Thomas.

If Disney was to go down the acquisition route, it would mean the entertainment giant could do deals with the federations and teams directly, manage its own data rights contracts, control its marketing funnel and the way it interacts with customers. In comparison, B2B, JV or white-label arrangements with tier-one companies carry very little threat. However, if you select the wrong partner, it could increase the brand risk.

Reaching the masses

As well as entertainment, video gaming, retailers and social media businesses studying opportunities in gambling, crypto companies are also muscling in on the action. In August 2021, cryptocurrency exchange FTX began negotiations to buy sports betting app PlayUp for $450m, but this subsequently collapsed following a legal dispute with PlayUp’s US CEO, Laila Mintas.

Thomas is of the view that crypto is still very new and the rules around regulation are in their infancy. However, there are jurisdictions like the Isle of Man that have been spearheading the use of crypto for a while now. “It’s not a surprise that those crypto companies want to get involved in gambling because it broadens their scope. But there could be risks attached as crypto is deemed, wrongly or rightly, to be murkier than other sorts of financial transactions.”

Despite those concerns, Downey sees crypto becoming much more mainstream. His local arena in LA, which has been known as the Staples Center for 23 years, is now called the Crypto.com Arena, while Hollywood actor Matt Damon fronts Crypto.com’s global TV advertising campaign.

Role reversal

While non-endemic brands might be scouting for betting opportunities, it can work both ways. Downey shares a couple of examples of potential partnerships that could be big, untapped acquisition opportunities for operators. During the run up to the Super Bowl in the US, operators could approach companies like instant shopping delivery service Gopuff about adding new player offers and promos into shopping bags for customers ordering crisps or beer on the app. Similarly, UberEats could work with DraftKings where the operator leverages data on where a customer lives, their age and even what team they might support.

“That’s all valuable data, the kind of stuff people are now struggling to access via Facebook and Google because of the changes to app tracking. More and more people are looking for other ways to do that,” Downey points out.

Customer acquisition costs might not be as much of an issue for Disney, Fanatics and SEGA, which all have access to the right audience, be it via ESPN, a customer database or esports fans respectively, however, speed to market could be an obstacle. Downey explains: “There’s definitely divisions in the US real-money gaming space with a Premier League and then divisions below that. For people to come crashing into it from a standing start is going to be difficult, regardless of who you are.”

Credit: Fanatics Press Room

Although some US states like New Jersey are already saturated with established operators dominating the market, there could be opportunities for challenger brands to break into states that are yet to regulate, such as California. “It wouldn’t surprise me if somebody like Disney and ESPN would focus all of their energies in being ready for, let’s say, a California launch rather than trying to catch up in somewhere like New Jersey, which is absolutely drenched with advertising for real-money gaming.”

It appears the likes of Disney, Fanatics and SEGA certainly have the financial weight necessary to break into the betting arena, whether that be through their own vehicle, using in-house-developed technology or by a tie-up with an existing player.

However, what remains to be seen is whether taking a gamble on betting will pay off in the long term and if newcomers can find that secret formula to make it big in betting. Perhaps Mickey Mouse sums it up best: “All you need is a little bit of magic.”

Featured image credit: ESPN Press Room