Industry predictions for 2023: Strategic M&A on the cards and the evolution of bet builders

Matt Davey, chairman of Tekkorp Capital Advisors   

Overarching optimism will return to bolster the US in the mid-term  

The pandemic reminded us that there are always some event horizons which you simply can’t see past. However, we like to start with the framework of what we know and understand and work forward from there. With that in mind, the year ahead promises to be another exciting one for a great and resilient industry, particularly amid the evolving US landscape.  

While the US has obviously lost its untouched greenfield status, huge opportunities are still abound stateside, with the outlook remaining very positive over the mid- to long-term for online sports betting and gaming. The ongoing migration of consumer behaviour from land-based retail to online and digital will carry on regardless. Naturally, that tide is only rolling one way. Ultimately, nowadays, the demand that’s driving everything hinges on frictionless and convenient access to entertainment where the digital channels offer increasingly compelling value.  

Market withdrawals will continue  

Short-term headwinds are undeniable, especially in a US market that has generated a level of hyper-competition whose crucible is proving too hot to handle for most. To wit, we’ve already witnessed 40-plus businesses all competing to capture market share. And a lot of those businesses were funded under a low cost of capital model that’s been prevalent in the industry over the past two to three years, when access to money was comparatively easy and cheap.  

The capital markets, both private and public, have, of course, altered dramatically – and in the last six to 12 months in particular. There will be enormous pressure on the management of loss-making businesses to cut costs and show a clear and believable path to profitability. As a result, and in our view at Tekkorp Capital Advisors, there’s a large number of companies in the US that will either withdraw operations from the US or close shop completely. “De-prioritising the US” may soon be the new conscious uncoupling for many. 

Strategic M&A will step in  

In addition, and in response to this shorter term shuttering, selective strategic M&A will be the next travelling show to pass through town in 2023. And it should stay for a while. This trend in activity will be driven by companies with strong balance sheets and positive free-cash flow, backed by solid operating assets. These companies will be looking for strategic bolt-on opportunities and be largely funded by cash on the balance sheet (which will limit the size of deals) and at single to low double-digit multiples.  

Valuation and routes to profitability are still the ultimate pressing questions for many. Nevertheless, we’re in the early skirmishes and there’s so much scope for growth from both foreseeable and unimagined sources. It’s also worth remembering that neither online sports betting nor igaming is currently legal in the three biggest states by population in the country. In short, many cards, not to mention bettors, have yet to show their hands. What we do know is that there will be fewer, more profitable, competitors in the US over the next 24 months and these companies will reap the rewards of the fastest growing large-scale market in the world. 

Matt Howard, partner at Propus Partners  

The industry will build on previous success of in-game accas  

Bet builders, or same-game parlays, have revitalised pre-match betting over recent years, somewhat reversing the trend of live betting taking an ever-growing share of turnover. Their importance as a product will continue to grow in 2023, with a focus on product quality and improved user experience. 

We can see a bet builder product that is offered with an ultra-simplified bet placement process having a lot of success. Users could be presented with a set of questions instead of being asked to navigate through hundreds of markets to build their bets on featured games. Alternatively, a slight change in the order of navigation may be seen, where the user picks a player, and then can choose outcomes related to that player as opposed to picking the outcome, and then finding the player. 

A very simple, very accessible, very quick bet placement process for casual users is key. We also expect to see a gradual reduction in the margin taken by operators on bet builders as products improve and users shop around. Should this happen, the pressure will be on operators and their suppliers to ensure that models are sufficiently accurate, and bets are properly traded.  

Operators will look for suppliers that can provide modular control  

The sports betting sector has been led by turnkey-driven operators for a number of years. While we don’t envisage an evacuation from these suppliers in 2023, there is an increasing trend away from turnkey platforms from operators in larger regulated markets – those who have grown to see value in having control of their own products. 

This is likely to play out in two ways for operators and suppliers, as we see it: operators will seek out suppliers that can provide technology with modular control and a choice of tertiary suppliers, such as odds feeds. Meanwhile, suppliers of full turnkey sportsbooks will refocus on smaller and/or emerging markets, or even attempt to break up their technology in an attempt to remodel their businesses. 

We also expect to see a continuation of challenger sportsbooks deciding to leave mature competitive markets where the lack of control and differentiation that they get from their turnkey supplier makes it very difficult to survive against the world’s largest brands. 

The need for innovation will force change  

We’ve spoken before about the lack of innovation that has emerged within the sector over recent years. This isn’t meant as a criticism to the product teams in the industry, though, as there have been plenty of good ideas that have never made it to market, either due to lack of backing, or more regularly, having to contend for room on incredibly long development/integration roadmaps.  

We do however think that the need for innovation is beginning to force change, and we expect to see progress made in 2023. We have worked with many businesses within the industry, of all types and geographies, yet over the last year we have noticed a small change in the approach to innovation, with dedicated R&D teams becoming more common, and their internal influence becoming greater than ever. We have also seen some of the exciting projects that are being worked on, some of which we assume will launch at some point in the coming year.