A land of opportunity? Navigating the gambling space as a start-up

I have worked with early-stage sports betting companies for more than 10 years across the globe, yet it is always hard to disrupt and change the rules in a highly regulated industry. Also, 90% of all start-ups fail. It must be even higher in the gambling industry.

For gambling start-ups globally, the challenges have always been getting live with your first customer, raising money with an unproven product in an ‘adult’ product category, and how you protect your IP.

While the US as a whole is very start-up friendly and tech and entrepreneurship is understood historically, taking sports betting start-ups to Silicon Valley was a challenge. However, there has been a shift in the attitudes to innovation in sports betting ever since the repeal of PASPA and the super-fast opening up of the US to legal sports wagering.

While legal sports betting is new and the unique, customer behavior is just being understood, investors and VCs are no longer scared of sports betting and are happy to write checks.

What is emerging in the US is a sports betting market that is truly unique globally. Operators are heavily focused on securing market access state by state, and just getting live nationwide. They are rolling out first-generation products and learning what players are engaging in.

They are paying heavily for acquisition as they try to find those eyeballs for the first time and educate consumers on a new product category. And they are often poor in resource, experience, (and sometimes specialist knowledge) as they scale their organizations from scratch.

The unique set of challenges present a very different opportunity for early stage companies. And these operators are fighting for market share and fighting for survival. Thus, any company that can provide tools, products or services that shift the needle can make a real difference.

Ticking boxes

I break the opportunities in the industry down into several buckets and these are where I tend to invest:

• Acquisition: companies that convert and drive down CPA.
• Product: the scale and depth of US sports product is evolving but any company that can increase the efficiency and scale of product is needed.
• Content: there is a demand for content and product that extends the content window into a 24/7 entertainment experience.

Meanwhile, geo-location, KYC, compliance, and payments are all challenges to overcome. A start-up that can meet any of these challenges without draining limited internal resources can do the job at scale, and one that can do this cost-effectively is definitely going to be in demand.

With a newly emerging sector it is not always obvious to US-based start-ups that some ideas have been tried before. Legal sports betting is not new globally. This is most evident in the fact that the same ideas keep hitting my mailbox over and over.

This doesn’t necessarily mean the core idea is wrong, but failed predecessors can provide valuable lessons. I want to know why a start-up will succeed when others have failed, and just because it hasn’t been done before on American soil isn’t enough of a factor for success.

Covid-19 has also presented new opportunities. Smaller companies can pivot quickly, and remote suppliers are no longer such an issue as everyone became used to working from home.

And then there is the new sports betting trend of SPACs. This group of investment vehicles has several billion dollars to invest into the sports and betting industries. That has to be good news for new ideas and innovation. It almost makes me want to start something new.

[Bio] David Sargeant is a leading sports betting consultant with almost 20 years’ experience globally. He now focuses on the US, helping tracks, tribes, casinos, media companies, teams, and leagues. He has worked on more than 25 projects in over 15 states. He is an advisor and investor with startups focused on evolving the US sports betting market.