Sportsbook risk: Capitalising on shifting regulatory landscapes

When the UK implemented a Point of Consumption regime in 2014 it heralded the start of a more stringent global regulatory environment. Changes to the operating requirements in Australia, numerous European states and, of course, the US have followed, and forced sportsbook operators to be more cognisant of their responsibilities with respect to compliance, the law and social responsibility.  The message for sports betting operators is clear: compliance is not static, and nor is it a factor that can be overlooked any longer.

What is less clear to many operators (and suppliers) is how they should be adjusting their business model in the face of stronger regulatory headwinds. Some have sought scale through consolidation or cost cutting at the expense of quality and differentiation. Others use their minimal presence in white, regulated markets as a marketing front while relying on milking the grey (or black) markets to fund operations there.

Sportsbooks generally rely on the same model of business today that’s been evidenced over the last 10 years – commoditised content, homogenous pricing, bonus-boost campaigns and heavy customer restriction on all but the most “recreational” of customers. This is a business model that may work in a world where margins are more generous, data is cheap, treating customers fairly is optional and the tax burden is low (or the ability to mitigate it is high). However, today’s harsher environment is presenting operators with a more difficult dilemma – how to grow profit in the face of increased cost while still exceeding customer expectations and adhering to all necessary regulatory requirements.

Winning a game of fine margins

The answer lies in innovating how the sports betting function works, and rebuilding what has become a missing part of the operator value chain – differentiation through pricing and risk management.

While the drivers of in-play and online have created an industry unrecognisable from 20 years ago, the way risk is managed hasn’t evolved at all. In-play has led to an explosion of new markets (and an outsourced supply chain to deliver them) but it has been largely based on copying prices and scraping data. Laying a sheet of tracing paper over bet365 means that price differentiation and having the confidence in that price to manage exposure effectively has largely disappeared. Risk processes have remained almost completely manual, even when outsourced to a Managed Trading Services (MTS) or turnkey provider, which generally only achieves a shift in cost from one manual head to another.

This lack of evolution in such a core part of the industry value chain has elicited a systemic issue for sportsbooks, as the current techniques MTS deploy are outdated and no longer fit to service the needs of the modern sports-betting market landscape.

Utilising a fully automated, dynamic risk function that complements a premium pricing and trading service would overcome these current problems. Embracing trends in big data, artificial intelligence and behavioural economics delivers a solution that isn’t possible via a Manual Trading Service.  Automated Risk Adjusted Pricing generates bespoke prices based on the operator’s own exposure and risk preference. Making the solution highly configurable means that operators have the confidence to offer prices that maximise margin on turnover, while at the same time removing non-scalable manual operating costs. In the face of “minimum bet guarantees”, operators have the confidence to lay prices that are expertly compiled rather than copied.

Tomorrow’s market leaders will be putting compliance and social responsibility at the heart of their business, while finding new solutions to maximise profit. That journey needs to start today.

Simon Trim is CEO at the Sporting Group, overseeing its market-leading spread betting operation, and B2B trading services division Sporting Solutions where he previously served as MD.