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IN-DEPTH 24 September 2018
The US supplier race: Jostling for early position
David Cook assesses the early movements made in the US by sports betting suppliers, and how the market is likely to shape up for them
By David Cook

The initial steps in the newly regulated sports betting supplier markets in the US are currently similar to the first few laps of a game of monopoly. One of the reasons why that ageless board game creates such excitement is because there is no set way of playing it. Some players are desperate to purchase anything they land on; maybe even Old Kent Road. Some bide their time and hold out for the more esteemed and expensive properties, while some prefer not to adopt a set strategy and make decisions with each roll of the dice.

In a similar sense, some suppliers have been chomping at the bit to make their way into the US since the Professional and Amateur Sports Protection Act (PASPA) was repealed by the Supreme Court in May, while others are flirting with the idea, and some may just be loitering with intent.

To summarise the stream of stories to have surfaced about suppliers agreeing deals in the US of late, the most significant moves at the time of writing, at least on the supplier side, have been made by Kambi, IGT, Scientific Games and SBTech.

In August, Kambi became the first sportsbook to take a legal online wager on sports betting in the US outside Nevada through its partner DraftKings in New Jersey. Kambi is also partnered with Rush Street Gaming. IGT, in a similar move to Kambi, has moved to collaborate with an operator that has made its name in the US daily fantasy sports space, by pairing up with FanDuel Group, owned by Paddy Power Betfair.

Scientific Games has utilised its OpenBet sports betting platform by partnering with operator Caesars Entertainment. Scientific Games will provide sportsbook services to Caesars’ Atlantic City, Gulf Coast and Tunica properties.

SBTech has agreed deals with operator Golden Nugget, which will allow SBTech to power Golden Nugget properties in Atlantic City, New Jersey and Biloxi, Mississippi, as well as Resorts Casino Hotel, covering land-based, online and mobile, in New Jersey.

With New Jersey, Delaware and Mississippi currently being the only three states to have fully activated sports betting regulation since the PASPA repeal, there is still much to be decided, but there can be little doubt that the tier-one suppliers are feeling the need to set themselves up for regulated US markets without hesitation, perhaps in contrast to the operator space, where implementing a US strategy seems to have been much further down the to-do list.

Have the actions of some of the suppliers been reactionary at all, or is this the result of a much broader plan that could have been in place long before the state of New Jersey’s monumental victory in the Supreme Court?

Charles Cohen, IGT’s Vice President, Mobile, North America Sports Betting, told Gambling Insider: “IGT made a strategic decision four years ago to adapt our proven global platform for the US market – primarily Nevada. We recognised that this market was underserved by dedicated B2B technology providers and represented a growth opportunity, particularly if we could bring in product innovations and leverage our expertise in casino equipment and operations.”

IS IT BETTER TO OBSERVE FOR NOW?

Currently watching from the sidelines with interest is Gaming Innovation Group (GiG). GiG has targeted the US as one of its areas for growth, along with several European markets, and has an online casino partnership in place with operator Hard Rock International. Endre Nesset, GiG’s Director of Sports, thinks suppliers should be wary of the differences in the challenge the US presents when compared with Europe.

Speaking with Gambling Insider, Nesset said: “We’re monitoring the market, we’re looking it and taking it day by day.

“Don’t underestimate the American market – there are many, many sharp punters who know what they’re doing. One of the biggest mistakes that European companies moving into the US can make is to think what is working for them in Europe today is going to work in the US. It is a very different market. They have a different approach and the bet types are different. Local knowledge and localisation is key, as it is with any market you’re entering.”

This is an issue that would particularly need addressing from the likes of Kambi and Scientifc Games, as the Kambi and OpenBet platforms are renowned for their partnerships with operators in Europe.

When asked by Gambling Insider about the alterations that need to be made to a US platform, Keith O’Loughlin, SVP, Sportsbook and Platforms at SG Digital, said: “We are working hard to ensure that the everyday US bettor will understand what each bet means, how it pays, and how to place it. It has to be easy and intuitive. Sports betting should be fun, not feel like a puzzle you have to work out. Most US players are completely new to the industry, and our product must adapt accordingly.

The speed of developments since the PASPA repeal may have surprised some, but for Max Meltzer, Kambi’s Chief Commercial Officer, this did not come as a shock, and the early movements from some may be causinga domino effect.

Meltzer told Gambling Insider: “When a market like this opens up, there is an obligation to shareholders to explore the market. In doing so, some operators have been highly aggressive in partnering with the multi-state operators, which could strike fear into the operators that were taking a more strategic approach, but everyone is now having to move quicker.”

O’Loughlin has been slightly more taken aback. He said: “I am absolutely surprised at the speed the market is developing. Our Caesars deal is a great example. In previous deals of similar size, we had long delivery times. With Caesars, we delivered a fully-fledged sportsbook solution in 90 days. Considering all the technology and labor involved, that’s a remarkably short lead-time.

“At a higher legislative level, states are progressing at lightning speed as they see the value of sports betting exemplified by their peers. Nevada, New Jersey, and others have seen great success, so other states are keen to get in on the action.”

WHAT ARE THE FORECASTS?

The issue of what exact impact US sports betting will eventually have on a supplier’s bottom-line revenue seems unclear. While the suppliers are likely to keep their internal estimates closeto their chests, and there is no exact guideline on when each state will regulate sports betting and how they will tax licensees, one supplier did say it expects its addressable market to double in the next five to ten years.

O’Loughlin did not provide information on how the PASPA repeal could specifically improve Scientific Games’ financial reports, but did offer this: “A recent study by Goldman Sachs estimates that the market could be worth up to $60.8bn in GGR, so the potential impact is absolutely massive. It’s why we’re working to secure as many long-term partners as we can.”

WHAT WILL ALL THIS LEAD TO?

While the suppliers can claim small victories at this point, what insight is there as to how the market will appear once the noise has quietened and the market has settled?

Nesset says: “I think the American bettor will slowly be introduced to the sports that we see in Europe today, and then I think, long term, it will be more like we know it today. But I think it will take many, many years before we reach the sportsbooks looking the same.”

The point at which a majority of the properties on the board are taken are currently unclear, but should a large selection of states legalise sports betting, the key players already seem set to capitalise on the new ground as quickly as possible.
DISCUSS THIS ARTICLE
IN-DEPTH 16 August 2019
Roundtable: David vs Goliath – Can startups really disrupt the industry?

(AL) Alexander Levchenko – CEO, Evoplay Entertainment

Alexander Levchenko is CEO of innovative game development studio Evoplay Entertainment. He has overseen the rapid expansion of the company since it was founded in early 2017 with the vision of revolutionising the player experience.

(RL) Ruben Loeches – CMO, R Franco

Rubén Loeches is CMO at R. Franco Group, Spain’s most established multinational gaming supplier and solutions provider. With over 10 years working in the gambling, betting and online gaming industries, he is skilled in operations management and marketing strategy.

(JB) Julian Buhagiar – Co-Founder, RB Capital:

Julian Buhagiar is an investor, CEO & board director to multiple ventures in gaming, fintech & media markets. He has lead investments, M & As and exits to date in excess of $370m.

(DM) Dominic Mansour – CEO, Bragg Gaming Group:

Dominic Mansour has an extensive background of nearly 20 years in the gaming and lottery industry. He has a deep understanding of the lottery secto,r having been CEO at the UK-based Health Lottery, as well as building bingos.com from scratch, which he sold to NetPlay TV plc.

What does it take for a startup to make waves in gaming?

DM: On the one hand, it’s a bit like brand marketing; you build an identity, a reputation and a strategy. When you know what you stand for, you then do your best to get heard. That doesn’t necessarily require a TV commercial but ensuring whatever you do stands out from the crowd. Then you have to get out there and talk to people about it. 

AL: Being better than the competition is no longer enough; if you’re small, new and want to make a difference – you have to turn the industry on its head. Those looking to make waves need to come up with a new concept or a ground-breaking solution. Take Elon Musk, he didn’t found Tesla to improve the existing electric cars on the market, he founded it to create the industry’s first mass-market electric sports car. It’s the same for online gaming; if you want to make waves as a startup, you have to bring something revolutionary to the table.

JB: Unique IP is key, particularly in emerging (non-EU) markets. As does the ability to release products on time, with minimal downtime and/or turnaround time when issues inevitably occur. A good salesforce capable of rapidly striking partnerships with the right players is vital, as is not getting bogged down too early on in legal, operational and admin red tape.

How easy it for startups to bring their ideas to life? How do they attract capital?

AL: It depends on the people and ideas behind the startup. Of course – the wave of ‘unicorns’ is not what it used to be. Some time ago the hype was a lot greater in terms of investing in startups, but that’s changed now. Investors now want more detail – and even more importantly, to evaluate whether the startup has the capacity (as well as the vision) to solve the problem it set out to address. That’s not to say investors are no longer interested in startups – they certainly are – but now more than ever, it’s important for startups to understand their audience as well as dreaming big.

JB: To get to market quickly, you need a great but small, team. If slots or sportsbook, the mathematical engine and UX/UI are crucial. Having a lean, agile dev team that can rapidly turn wire framing and mathematical logic into product is essential. Paying more for the right team is sometimes necessary, especially when good resources are scarce (here’s looking at you, Malta and Gibraltar).

Building capital is a different beast altogether. You won’t be able to secure any funding until you have a working proof of concept and, even then, capital is likely to be drip fed. Be prepared to get a family and friends round early on to deliver a ‘kick-ass’ demo, then start looking at early-stage VCs that specialise in growth-stage assets.

How do you react when you see startups coming in with their plan for disruption?

RL: We welcome the innovation and fresh thinking startups bring. This is particularly the case in Latin America, with a market still in its infancy. One area we’d especially like to see startups making waves is in the slot development sector. Latin America is a young market that needs local innovation suited to its unique conditions – especially in regard to mobile gaming.

Operators eyeing the market have Europe‐focused core products, which creates a struggle to work to the requirements of players and regulators. To succeed there, it has become more important than ever to work with those with a knowhow of the local area to adapt products and games to besuitable from the off; we welcome the chance for local talent to develop and grow.

Do you think it’s easier for established companies to innovate and establish new ideas? 

AL: From a financial perspective, yes. It is without a doubt easier for incumbent companies to establish a pipeline of innovation via their R & D departments, as well as having the tools to hand for data gathering and analysis.

But it stops there. Startups hold court in every other way. Not only are they flexible, they can easily switch from one idea to another, change strategy instantly as the market demands and easily move team members around. Established companies know this – and this is why we’re seeing an emerging trend for established companies to acquire small, innovative online gaming start-ups. They have the right resources and unique ideas, as well as the ability to bring a fresh approach to businesses’ thinking.

RL: For me, it’s always going to be established companies. Only with the resources, industry experience and know‐how can a company apply technology and services that truly make a difference. Of course there are exceptions. But when it comes to providing a platform that can be approved by regulators across multiple markets – as well as suiting an operators’ multiple jurisdictions – it is simply impossible for a couple of young bright minds with a few million behind them to get this done.

DM: I actually think it’s harder for established companies. It’s key to differentiate between having a good idea and executing one. That’s where the big corporates struggle most. They’re full of amazing people with all sorts of great ideas but getting them through systems and processes is nearly impossible.

Is it essential to patent-protect innovative products?

AL: It’s a very interesting subject. If we take IT for example – patents can actually become a block to the evolutionary process within the industry. Of course, getting a patent future proofs yourself from the competition copying your concept but, having said that, if you’re looking to protect yourself from someone more creative, smarter and agile, you’ve probably lost the battle already!

In our industry everything is moving faster and research takes less time than the development itself. No matter how good you are at copy pasting, you can’t copy Google or Netflix. The most important thing is not the tech itself but rather its ‘use-case’ – or in other words, does it solve what it’s meant to solve? Competition is healthy and the key to innovation. If you spend your whole time looking behind you, you’ll never be able move forwards.

JB: Tricky question, and one that depends on what and where you launch this IP. It can be difficult to patent mathematical engines and logic, mostly because they’re re-treading prior art. Branding, artwork and UX is more important and can easily be copied, but the territories you launch will determine how protectable your IP will be once patented. US/EU/Japan is easy but expensive to protect in. But China/South East Asia is a nightmare to cover adequately. Specialised patent lawyers with experience in software, and ideally gaming, can help you better.

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