27 September, 2022

The consultant’s viewpoint

Ron Mendelson of iGaming consultancy Fast Offshore outlines how European operators have fared to date in the US market; in particular, zoning in on industry giants Flutter, bet365 and Entain

How European online gambling companies are faring in the US For many years, online gambling in the US has been complex, ill-defined and prone to change, leaving many operators fearful of making significant investments. That said, the vast potential and size of the sector has left many on the sidelines looking in and waiting for an opportunity. That opportunity has grown over the last few years. While the industry is heavily regulated and varies wildly from state to state, we see more certainty than ever before.

The basics are as follows: There have been a number of changes in federal law, which has made it a lot easier for online gambling operators to set up their businesses. For example, a 2018 Supreme Court ruling paved the way for many states to allow operators to provide online gambling services. Now, each state can decide whether to allow or ban online gambling and, if they permit it, how it will be legislated. As a result, many states have created frameworks for online sports betting, while the number is far less when it comes to casinos and slots. However, this could change in the future as legislators see the benefits of legalising and regulating online gambling for their economies.

As for states that are yet to make any laws, a number of them are looking at various ways to pass new laws and create frameworks that will allow online gambling while protecting consumers and other stakeholders. Some, however, are still vehemently opposed to the idea and have no plans to consider it soon.

Those that have favourable environments for online gambling include New Jersey, Pennsylvania, Michigan, Delaware, West Virginia, and Nevada. Those in the process of creating new or additional legislation include New York, Indiana and Illinois, and those who are entirely against it are Utah and Hawaii.

The main reason behind the growing number of states embracing online gambling is benefitting from taxes levied against operators. Tax revenue from online gambling is a massive boost for states, providing them with much-needed funds that can be reinvested back into essential services. Other reasons include wanting to tackle illegal online gambling by offering regulated alternatives that provide players with higher levels of protection. Lastly, it is due to wanting to attract businesses to their state, creating direct and indirect employment, and driving investment in sectors that provide services to online gambling operators.

At the end of 2020, the US online gambling sector was worth some &dollar 2.18bn and was estimated to grow at around 17% between 2022 and 2027. Of this growth, sports betting holds the most significant segment, followed by poker and then lotteries. On a state level, betting revenue is increasing rapidly, providing opportunities for operators while topping up state coffers.

Those That Have Made The Change
Since 2018, we have seen a number of big, established European names make the transition to the US. Each approach has been different and has yielded different results, but all show promise and profitability.

Flutter Entertainment
The first example is that of the Irish mega-corporation Flutter Entertainment. The holding company was created through the merger of Paddy Power and Betfair with the acquisition of The Stars Group. It is also known for brands like PokerStars, FanDuel, BetEasy and Sky Bet. The company started operating some brands in the US where FanDuel, in particular, is a market leader. In fact, revenues reported at the end of 2021 showed an increase of 113% to &dollar 1.9bn and just under 1.5 million monthly users.Its most recent Q2 and H1 figures saw further growth.

The operator reported that its US market is its second-largest division, ahead of the International one, with CEO Peter Jackson stating: "In the US, we delivered over $1.9bn in revenue, leveraging our differentiated product proposition to remain the number one sportsbook in the market with a 40% share." The company has launched a number of new products and features in the sports betting sector and expects accelerated growth during the rest of the year in the US market. "Overall, I am pleased with the progress we have made during 2021 and believe Flutter is exceptionally well positioned for future growth," Jackson concluded.

Founded in the UK in 2000, bet365 has gone on to become one of the leading names in the online betting industry. Shortly after the US Supreme Court ruling on sports betting, the company launched in New Jersey, Colorado and New York. Then in July 2022, the company applied for an Ohio online sports betting license in a step toward what can be perceived as a bigger US expansion. The company still has a lot of work to do to catch up with Flutter companies and US-brands like BetMGM and Caesars, but it is laying the foundations for more operations in more locations. While it is yet to be established in other states, experts believe Ohio could be the catalyst.

It has also branched out into Ontario, Canada, and has been labelled as a potential market share leader in the region`s fledgeling industry. There are no official figures yet, but the number of app downloads (it was second in the Canadian iOS store) shows promise. The scheduled launch for bet365`s Ohio debut is 1 January 2023, but it has quite a challenge ahead of it to claw back some clients from more well-established names.

Owner of Coral and Ladbrokes, in 2018, Entain announced a 50/50 joint venture with MGM Resorts International and created the brand BetMGM. One of the largest iGaming companies in the world and previously known as GVC Holdings, Entain includes other names like PartyPoker and Sportingbet, and is headquartered in the Isle of Man. The company also operates in Ontario, where it handles more than 70 million monthly transactions. But it is in the US where the company has set its sights on the highest levels of growth. In February of this year, the operator was first in the country for sports betting and market share across states it is active in.

The launch of BetMGM, comprising Entain`s knowhow and MGM`s established name and reputation in the US, was a smart move. It allowed the brand to enter the market in pole position, building off the success of MGM Resorts` online and offline ventures. Entain came in with its expertise in terms of back-end platforms, to create a winning combination."I am very, very pleased with where we are today," Entain CEO Jette Nygaard-Andersen said on the final day of May. "The team here is doing a magnificent job in really understanding the markets." The company also has its eye on various acquisitions in the region and beyond, including more European expansion and more development in North America.

On a smaller scale, you also have Malta-based Tipico, which provides sports betting and casino games. Already active throughout Europe and with branches in Germany, Austria, Croatia and Gibraltar, it has recently moved into the Colombian and US market. At the end of 2021, it launched an online casino in New Jersey in partnership with Ocean Casino Resort. The plan is to expand to more states over the coming years as more legislation is rolled out. This is an example of the fact that even smaller companies, when compared to the huge multinationals, can make it in the US. The American dream of iGaming.

What Does the Future Hold?
We expect to see the US online gambling sector continue to grow. Based on current trends among states that have legalised iGaming, the projections are good. These will improve as more states legislate in favour and seek to lessen their existing rules. In addition, growth into other areas such as casino games, slots, esports and fantasy sports will further fuel the sector, creating more possibilities and revenue. Stakeholders that have expanded in the US do not expect any roadblocks in terms of legislation in the future; describing investment, there is relatively low risk. The big area to watch, however, is whether states will move to legalise card games and slots - key drivers of revenue for many operators.

We expect to see many other brands decide to set up shop in the US in the coming years. This will come hand in hand with interest in Canada, Central America and South America as their respective markets continue to evolve. Europe and Asia will remain the big players, so to speak, but ignoring these American markets is not something operators can afford to do.

For over 24 years, Fast Offshore has worked with countless online gambling operators. We have assisted startups and existing brands in acquiring licenses, and helping them branch out into new markets. Our portfolio of services includes licensing, advice, company incorporation, payments, structuring and compliance. We can also take care of all ongoing maintenance for you as and when required.Contact us to take your gambling company to the next level!