The U.S. igaming market is the only game in town when it comes to growth prospects and potential currently. The headlines and figures are noteworthy in these early days, but the daily grind and detail of operators’ activities will define the market.
The rate at which the U.S. online gaming and betting market is developing has made it the only game in town in terms of industry interest and, if one is being blunt about it, what gets executives looking for serious growth excited when they wake up in the morning.
This is not to be overly critical of the European sector; it’s more that scale, consumer interest and media exposure are there for all to see in the U.S. Of course, such rapid expansion also brings risks – to consumers and the industry’s reputation in relation to social responsibility. But there is still a natural enthusiasm that comes from seeing states like Michigan open up.
The Great Lakes State went live with regulated online gaming and betting on 22 January and in its first 10 days of activity operators generated revenues of $42.7m.
Of that total, $29.4m came from online gaming and $13.3m from online sports betting, with 77% of all wagers placed made via mobile phones, according to analysts at Deutsche Bank.
Things are by no means perfect in the U.S., but if we look at the UK, the biggest and most liberalized market in terms of European igaming, it feels like night and day. The UK industry is attacked on a near-daily basis in the mainstream media and by politicians (sometimes with good reason, it must be said).
The government is carrying out a wholesale review of gambling legislation which most industry observers expect will lead to highly restrictive regulatory changes in the next couple of years.
Corporate gravity
At corporate level, the gravitational pull of the U.S. industry is also clear. William Hill was recently acquired by Caesars, Entain is likely to follow suit eventually, and Genius Sports and others have listed via special purpose vehicles. In terms of personnel, the departure of Entain CEO Shay Segev to the streaming specialist DAZN was also a telling moment.
Segev’s move implied that Entain could not compete with the offer from DAZN, and along with a rumoured $3bn float planned for later this year and the prospect of a highly exciting and new(ish) vertical. In terms of wages and options, Entain cancelled Segev’s unvested shares which were worth a potential £9.6m, which gives an idea of how much DAZN must be offering.
For all the talk of U.S. growth however, there are substantial barriers to entry; two of the most obvious ones are licensing fees and marketing costs.
A quick scan at the data from the regulated also shows a major concentration of market share around between three or four brands currently: DraftKings, FanDuel, Bartstool and BetMGM; with little sign so far of any of the other operators upsetting those standings.
Good for those companies. But for all the talk of product innovation, it would not be surprising if we were to soon hear complaints of product commoditisation, as was the case in EU markets not that long ago.
And that’s not even counting all the U.S. sharps and pros complaining of being closed down or turned away by every book in town. ‘Welcome to our world,’ many UK pro punters will tell them.
Still, with the potential size of the market being what it is, and the biggest states like New York or California yet to regulate, there is all to play for.
Strategy and discipline
For operators chasing the U.S. dream, there are also key strategic decisions to take. Do they go big and launch in as many states as possible or, as one industry contact told CDC last month: “Smaller operators can thrive; for example, they might generate less in handle but more in revenues or will have agreements with strong local casinos. Where there is a risk is when brands spread themselves too thinly by launching in too many states and burn through their cash instead of focusing on a number of key jurisdictions.”
Indeed – and already there are off-the-record tales of operators draining their balance sheets in regulated states for minimal returns.
Stephen Crystal, founder and CEO of gambling consultancy SCCG Management, says: “The U.S. igaming and sports betting market will exceed all expectations. Those who can weather the competition will either create a vibrant business or be snapped up in acquisition by a U.S.-facing company that can navigate the complex regulatory market and achieve synergies.
“But to be successful you need to be focused on a strategy and consistent and not try to be all things to all people. Discipline is the key. Make sure you are getting the right return on investment.”
When it comes to recruitment and staffing, the scale and size of the U.S. market means that wages start from a higher basis than in Europe. And while there may have been a mini-exodus of European expertise in the immediate aftermath of the post-PASPA repeal, that is largely over now.
M&A ultimate aim
“U.S. companies have been hiring people who don’t have that much experience in igaming, so mistakes are being made that could be avoided. With the expertise not being as widespread as one would like, things can take longer than you would expect. It’s understandable in some ways, but it can also be frustrating to observe,” David Copeland, managing director of recruitment specialist Bettingjobs, says.
Stephen Crystal echoes those comments. “There are huge opportunities in recruitment and employment in the U.S igaming industry currently and the focus is on finding U.S.-based talent. Therefore, there is a need to take people from other e-commerce verticals and teach them sports betting and gaming, which is not ideal of course, but is part of the industry evolving.”
When it comes to brand awareness, there was a revealing nugget in MGM boss Bill Hornbuckle’s recent claim that the group’s customer acquisition costs were below $200 in Michigan. If true, that compares with $700-$1000 CPA costs for most other operators.
But as Crystal commented earlier, M&A is the ultimate aim for many – the DFS tie ups of recent weeks show how this is happening in real time. As Copeland concludes: “In the U.S. there is a rule of three. In any major sector there will be (two or) three main companies: Coke and Pepsi, MacDonalds and Burger King, and so on.
“In igaming you can go regional, but nationally you’ll always have DraftKings, FanDuel, BetMGM and most likely Barstool. Some smaller groups will focus on strong regional growth and look to get acquired.”
