View from the City: Red flags around the business of sports betting
David Isaacson from Spectrum Gaming Capital on the root struggles in US igaming
Six months ago, I wrote an article about how the consolidation in sports betting has begun. Sports wagering firms MaximBet and FuboTV shuttered, and Churchill Downs exited its digital gaming business
in a partnership with FanDuel. Since then, the consolidation has continued with the recently announced sale of PointsBet USA to Fanatics or DraftKings and the sale of NeoGames to Aristocrat.
I am seeing other red flags that suggest there are some fundamental issues with the business of sports betting. In January it was announced that bet365, the gaming conglomerate based in Europe, would be withdrawing its application for a licence in Massachusetts. Prior to its announced sale to Fanatics, PointsBet made the same move as bet365.
For me, this raised a red flag because in an industry that is by all accounts ‘still in the early innings’, when a high value state like Massachusetts comes online and major operators are choosing not to participate, it suggests that there could be a flaw in the business.
These flaws exist for both B2C and B2B operators. The fundamental struggle for B2Cs is that despite a large total addressable market, sports betting is minimally profitable. B2Bs are more likely to transition to profitability quicker than B2Cs, but the total addressable market is small because a revenue-sharing model provides only around 10% of GGR.
Top B2C companies, such as DraftKings, BetMGM and FanDuel, will eventually turn profitable as the market matures – and continues its consolidation – similar to Europe, where top operators are then able to generate cash flow while lower-tier operators remain challenged.
Now that 37 states plus Washington DC have legalised sports betting, the industry is ever more focused on igaming legislation, which will take time. The struggle is real.