2020 has been a year defined by the pandemic. But how has it been for the US sports betting and online gaming sectors? Who has performed, and what has disappointed? How has the impact been for these promising sectors, and which issues still lie ahead?
There’s a lot to unpack but from December 2019 onwards, online gaming’s performance in the two largest states that currently permit it, New Jersey and Pennsylvania, has been impressive as the combined gross win has grown every month since, and is currently producing an annualised gross win of around $1.7bn. That’s more than double the run-rate seen at the start of the year, and there’s every chance a $2bn annual market will be seen by 2021. With the arrival of new online states like Virginia and Michigan, plus others slated to adopt online gaming soon, a multi-state online gaming market of $3bn gross win seems highly achievable by the end of next year.
“Currently, industry observers see a significant and growing gap between demand for experienced and proven operational, trading, marketing and leadership roles, and the supply of such people within the US market.”
This level of growth, and player adoption, bodes well for those operators – and suppliers – with proven form on both sides of the digital coin of online gaming and sports betting. Sports betting will be the growth engine for the new, giant combination of Caesars/William Hill, with Roar Digital (MGM/GVC) and online global market-leader bet365 springing to mind too. Playtech has also recently announced deals in NJ with both of the latter, so we can expect their US B2B market share to grow in 2021 as well.
But it’s not just Tier 1 operators, or their suppliers, who are benefitting.
A London AIM-listed games provider since 2013, Gaming Realms remains small by industry standards but nonetheless, it has quadrupled its market cap since February 2020, primarily through success overseas. The success of its IP-protected Slingo family of products has enabled it to gain a valuable share in the fast-growing US online gaming market, with a host of Tier 1 clients ranging from Golden Nugget to Rush Street Interactive, respective market leaders in NJ and PA.
However, one possible drag on the current growth trajectory of both the sports betting and online gaming sector is the increasing evidence of a talent gap. Currently, industry observers see a significant and growing gap between demand for experienced and proven operational, trading, marketing and leadership roles, and the supply of such people within the US market.
During a September 2020 Big Betting Balagan industry podcast on this topic, guest speaker Rob Dowling, CEO of the Conexus Group, who owns Pentasia, a leading industry recruiter, agreed that the talent gap is an issue. “Supply isn’t meeting demand,” he said. “The demand for talent into the online gaming industry has never been higher and the war for technical skills is as fierce as ever… It’s a shame we can’t move more talent into the US.”
The pandemic’s effect on gaming has, predictably, seen a retreat from retail, which looks set to continue for the foreseeable future. This shift will have different outcomes for different supplier and operator profiles within the sector. For example, a sports-betting study undertaken pre-Covid 19 within one major US state (which has an economy about the same size as Sweden) indicated likely demand for up to 5,000 self-service betting terminals (SSBTs). These would have been potentially located within thousands of lottery outlets to enable a sports betting option to be available for retail lottery customers, as well as reach new customers through new bar, restaurant and hospitality settings too.
In a post-pandemic world, that level of demand now looks less likely, with a resultant push for purely digital non-retail sports-betting solutions instead at the expense of those SSBT providers. As ever, there will be winners and losers on the supply side.
And in a recent, and largely unexpected, development, Costa Rica-based offshore sportsbook 5Dimes agreed a $46.8m settlement with the US Department of Justice apparently designed to enable a future, legal sports betting licence application. Remember, the entire US sportsbook market remains dominated by the offshore sector, with the American Gaming Association believing it still retains an 80% market share two-and-a-half-years after PASPA allowed the legal market to launch beyond Nevada. With this development, Gaming Economics believes other offshore operators may follow suit, leading to the legal sector accelerating its share of the total sportsbook market in 2021.
“The pandemic’s effect on gaming has, predictably, seen a retreat from retail, which looks set to continue for the foreseeable future. This shift will have different outcomes for different supplier and operator profiles within the sector.”
This development alone may well lead to even more interest in the sector from the capital markets. After a year full of unprecedented falls and rises in gaming company values, we’ve also seen record levels of M&A activity and new fund-raising via SPACs (Special Purpose Acquisition Company), a term I freely admit not to have heard of this time last year.
Encouragingly, this tumultuous year is ending seemingly full of opportunity, for both operators and suppliers from fresh capital sources, more regulated states, a faster-growing legal sports betting and online gaming sector and, perhaps, a smaller offshore market. Set all that alongside a growing industry talent gap and the continuing retreat from retail likely means that 2021 will be just as challenging and equally dynamic as the previous, rather crazy, dozen months have been.
