26 September, 2022

Beware the shake out

Stephen Crystal, Head of North America Development for Betfred, speaks to Gambling Insider about the operator’s migration from Europe to the US, and how the brand hopes to achieve long-term success there.

How did Betfred’s migration from Europe and other world markets to the US come about?  

Betfred is a well-established brand in the UK. This has never been in doubt. Its strategy in the UK has to use five decades of experience to focus on leveraging a retail experience into a mobile business. It was retail-first in the UK when the brand was made. It was built with professional sports team partnerships and sports events across what is now 1,500 betting shops. Then, Betfred migrated online and was able to capture its fair share of the mobile market by leveraging its retail brand.  

It was in 2019 at G2E, which is coming up in October this year, when Betfred approached me asking to bring its brand to the US. The guys at Betfred asked what I thought about the ability of Betfred to achieve market access. The initial thought from Betfred was to link up with an existing US partner – a US brand – and bring what they know best, which is bookmaking, to a US-facing brand. The first six to eight months of my partnership with them focused on trying to find a US brand looking for a partnership.

So we went through a series of discussions, isolating a dozen potential candidates. We got close but, in the end, it wasn’t a natural enough thing for a brand to partner with a sportsbook – or recognise that a company such as Betfred has expertise a US-founded brand doesn’t have. The feeling in the US is that if a business needs expertise, it will go out and acquire it – it would not feel the need to merge
or partner with somebody. So after 9 months with no success, despite several conversations, Betfred changed its mind. It was part of the second or third wave of activity in the US if you compare Betfred to William Hill, which first appeared on the US scene between five to seven years before Betfred. The question was could Betfred still establish its brand in the US state by state, without a partnership? 

And how did Betfred fare when it chose to go down this path?

There were clearly difficulties finding partnerships, so I came up with a strategy to strike agreements with American tribes. Tribal agreements are incredibly hard; it’s a difficult market to penetrate. Deals with tribes were thought out and approached on a state-by-state basis, a process we started in 2020. At present, Betfred has several tribal partnerships and is live in six markets today, with 15 more set to go live. The company is continuing to answer the question of whether it can establish a state-by-state operating roadmap, in 20+ states. 

However, this is only half of the equation. The second half of the equation is to ask: Can you then go on to utilise the same approach used in the UK in the US? This includes leveraging retail into mobile and brand development. These are issues that have proven to be very expensive with the way the US market is rolling out.

So far, broadly speaking, the US has been less about brand and more about the willingness of an operator to spend thousands and thousands of dollars to acquire a customer worth a fraction of what the operators are spending on that customer. This is where the market, in general, has evolved. It doesn’t play into the strengths of Betfred as a nuts-and-bolts operator, but more so the big hitters: DraftKings, MGM Resorts and Caesars, which can use their balance sheet to spend money without regard to making a profit. This is the short answer of where we started and where we are now with Betfred US. 

To be clear, Betfred in the US operates mobile and land-based businesses. It has six mobile operations with an agreement to launch 15 more in other states. Obviously, in some states gaming is retail only, but almost every state either has mobile live today or has mobile expected to be live very soon. Furthermore, Betfred has reserved the right to use iGaming in all of these states in the future. So, overall, the footprint will see Betfred go ahead with retail sports, mobile sports and iGaming.

Comparing European and US customers, how different are the sports betting cultures? Has Betfred had to adapt its offerings to a market where the idea of wagering is “newer?” 

I think many from a European perspective don’t fully appreciate just how intense and rapid the rollout has been in the US. We’ve seen multiple markets go live at the same time; new challenges arise with respect to technology. Putting aside the product, just to be up and operational in a retail context, in a mobile context, just to be able to confirm your platform to the state-by-state regulatory approach, taxation approach and compliance approach, is a huge challenge.  

What we’re seeing now is the race for operators to get up and running with a functional platform and then to go after customers they consider to be low-hanging fruit; those they believe to be accustomed to betting or to come up with strategies to cast a wider net and get more customers in. The reality is that the market today shows its potential of what the market could look like once the platform and products are up to speed. In my view, it’s almost irrelevant to talk about the customer-facing metrics now, because the numbers of people, bets and revenue we see is a result of a number of markets opening simultaneously. In the future, you will see companies judged much more on the profitability of operations, the success of investments in customers and retention, and the return that they’re getting in these investments. What people had been rewarded for was their topline handle month-to-month, even though most of that growth was being fuelled by the investment of operators in bonuses and free play.  

Pretty soon we’ll see a shake out, a consolidation of the market because there’s only so long you can operate and lose money. What will happen as we advance will more resemble the experience of mature markets. That means innovation and differentiation in products; you’ll see a rise in the ability to segment customers, and the appropriate investment in different segments of customers. None of this, though, gets to the heart of the issue – which is first and foremost to be a brand. An operator either needs to have a well-working brand or be willing to invest in it. The second thing is a platform, operators need to have a platform in which it controls their destiny, one which is differentiated from competitors. Staffing is an issue too; there aren’t enough qualified experts locally in gaming and iGaming. Companies are having to take people from other e-commerce businesses and train them in gaming – this has opportunity but also peril. This is why William Hill merged with Caesars, why Entain is partnered with MGM Resorts and why Flutter (then Paddy Power Betfair) acquired FanDuel. A company like Betfred has to be nimbler and more strategic. The US market is not one size fits all, a company like Betfred can find its way into a market as big as America. But it has to leverage its assets, which is a process Betfred has been undergoing for four years.   

Honing in on somewhere like New York, where only the “big hitters” operate, is this a market Betfred would ever look to enter, given its high tax rate? 

Only eight operators are live in New York. Betfred had a chance to join them, but the state’s 51% tax rate on all gaming activity made market entry there a non-starter. Even though handle numbers would be significant, the fact the state government would be a 51% partner on day one was a bit of a disincentive.

How much of a challenge is it in general when going live in multiple different states, given the vastly different regulations in all of them?  

Betfred has managed to navigate dozens of jurisdictions. What we’ve found is you end up having more compliance staff than the number of staff in your product team. When your compliance team is larger than your product team, that tells you about the lengths operators need to go to in America.

The UK prides itself on having, quote unquote, “tough regulations." But I think most operators that have migrated to the US have realised some states are even more rigorous than the UK. It’s always surprising to them, even for Betfred. Some of the questions posed by operators are: “Why do regulators need to know about non-gaming business?” “Why do the regulators care about everywhere else we do business?” These are the requirements of some states that create tough issues for operators to navigate.

In my 30 years experience as a gaming lawyer, as long as you’re an above-board business operation, which Betfred is, where there is a will there is a way to navigate the regulatory process. It just takes time, resources and some adaptation to the mode of doing business. Regulators in the US care about the entirety of the people they’re doing business with and how they approach corporate culture. You have to take a much more holistic view and, in the US, you almost have to be proactive in terms of self-regulation. In the UK, you wait for the Government to tell you: “You can no longer do this or that”. But in the US, regulators expect you to, in essence, self-regulate and go the extra mile to do the things that regulators feel responsible, ethical businesses should do. This is something that’s a little different culturally from what we see in the UK and across Europe.  

Ontario has adopted more of a European regulatory model. Can you see the approach of Ontario impacting US regulations in the future? 

I would say Ontario is much more similar to what Europeans are used to. I do not feel by any stretch that Ontario regulations are anywhere near as strict as those in the US. I’m finding that a lot of European operators are using Canada as a jumping-off point to the US. I think operators doing this are mistaken; the US and Canada are completely different ballparks altogether.  

Coming back to Betfred, what’s the next goal for the operator in the US? What’s the mission going forward? 

Betfred is live in states like Arizona, Iowa, Colorado and Louisiana. The next states the operator will go live in are Indiana, Virginia, Ohio, where Betfred announced a partnership with the Cincinnati Bengals, and Nevada. Other states in the pipeline include Illinois, Wisconsin, Minnesota, Kansas and Missouri. So there’s more to come in terms of market access for Betfred: the operation has grown from zero a year and a half ago to there being close to 150 personnel in Las Vegas. The operation and the platform partnership with OpenBet is growing state by state. As these relationships get larger, Betfred will get more control over the platform and the types of upgrades to its online site. Furthermore, the company is continuing to pursue media and sports team partnerships for branding – making investments there – all while seeing how the market is evolving.  

Obviously, Betfred wants to be one of those companies that survive the shake out of the US market, and get its fair share of the market. All Betfred has to do is manage between 3% and 5% profit per market and it will have a hugely successful business in the US. If it does this, it will have revenue and cash flow that will far surpass that of its existing operation everywhere else. The potential is huge. All Betfred has to do is what it has already done in another heavily competitive market, the UK, where it has
20% of the retail market space and 5% of the mobile space. The UK has over 300 operators. However, in the US we’ll have fewer than 25 real operators when all is said and done. This is for a country that’s over four times the size of the UK in terms of the market. That’s how Betfred has got to look at it to make sure it is one of the remaining operators in the US. If Betfred can get to 5% of the mobile space in every market it is present in, that would represent a huge success. The company needs to make wise investments, and rely on 50 years of operating history and industry nous, to succeed in a highly competitive US market.