Why Is Sports Betting So Hard
- How Profitable Is Sports Betting
- Why Is Sports Betting So Hardware
- Is Sports Betting Bad
- Why Is Sports Betting So Hard
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There’s no doubting the investment interest in the US sports betting industry.
We’ve seen a flurry of major deals in recent months between the likes of Penn National Gaming and Barstool Sports, Spotify and The Ringer, and William Hill and CBS Sports.
However, that interest does not currently extend to the smaller players.
Since the repeal of PASPA in 2018, several brilliant, motivated entrepreneurs have been trying to capitalize on this opportunity. One would think that a flood of talented entrepreneurs who are insanely passionate about their work would be attracting a nearly unlimited amount of investment interest.
Many people I speak with seem to be under the impression that there is more money trying to get into the sports gaming and tech industry than can currently be placed. However, this is simply not the case.
Only sure thing is uncertainty in US sports betting
One look at the legal sports betting landscape in the US reveals instant insight into its fragmented nature and a starting point for the discussion as to why startups in the space are facing such challenges.
Not only is the current regulatory landscape highly fractured, but its future is utterly uncertain. It is extremely difficult to predict with confidence:
- The rate at which future states will legalize sports betting
- The nature of legalization within each state (e.g., New York allows land-based sports wagering only, while Tennessee only offers mobile wagering)
- The regulatory burden of procuring a license in each state (e.g., It costs $10,000,000 to obtain a license in Pennsylvania, compared to $45,000 in Iowa)
- The effective tax rate in each state (e.g., Pennsylvania established an effective tax rate of 36% while Iowa levies a tax of only 6.75% on revenue)
Two of the most important components of any business plan’s financial projections are the size of the Total Addressable Market (TAM), from which the company hopes to gain market share and the tax rate that will be paid on expected revenues.
If neither of these figures can be predicted with a reasonable amount of certainty, how is a prospective investor expected to weigh the potential return against the perceived risk?
A steep learning curve
Even with more clarity as to the future of regulation, the uniquely nuanced nature of the sports betting ecosystem represents a large barrier to investment. I have discussed the matter in more detail in arecent Medium article, but the challenge boils down to the following:
- Terms like gross gaming revenue (GGR) and handle foreign to many investors. Furthermore, the procedures for calculating non-GAAP metrics as “hold-adjusted EBITDA” or moving from GGR to net gaming revenue (NGR) are convoluted and not entirely intuitive.
- While long-time sports fans and bettors might understand that a company like DraftKings generally makes money by paying out less than their customers’ deposit, very few are aware of the role of technology platforms, data/odds providers, affiliate marketers, or KYC/AML purveyors.
Imagine attempting to raise money for a new biotech company from investors who did not understand the relationships between health insurers, physicians, hospitals, and patients.
Then imagine that legislators were considering placing a cap on how much can be charged for medical procedures, limiting the number of locations in which medicine can be practiced, and requiring that doctors in different states undergo variably-burdensome and expensive licensing procedures.
It would surprise no one if you had a bit of trouble reaching a valuation and raising capital for such a venture.
The uncertainty of novelty
Uncertainty is one of the greatest enemies of investment, and the early, nascent status of the US industry only serves to compound the unpredictability of returns.
The market was virtually non-existent pre-2018. And, though sports betting has been legal in Nevada for many years, it has historically been a land-based business.
As such, there are no comparable companies to point to when pitching or evaluating a startup that uses digital functionalities to execute on its value proposition. There are no standard multiples to apply to revenue or EBITDA, few legal precedents to help quell fears of regulatory risk, and a paucity of homegrown intellectual capital to help navigate uncertain waters.
Lack of demonstrated growth
Not only is the industry new but, practically by definition, most of the startups seeking to raise capital and do business are new as well.
Demonstrable growth in Daily Active Users (DAU) and Monthly Recurring Revenue (MRR) are often the easiest ways to assuage investor concerns.
But the opportunity to establish such patterns has existed for a shorter period of time than the horizon over which investors typically view these metrics.
Fear of going first
There is also a fear of being the first money in, a phenomenon we see in virtually every industry. No one wants to be seen as having made a “bad” investment, and it is much harder for an investor to be seen as such if they were simply investing alongside an established player or institution.
Entrepreneurs in the space are often offered investment only in conjunction with an angel syndicate or boutique VC fund.
For example, Jordan Pascasio is the co-founder of TRNDS Sports, a Sportradar-powered mobile backtesting tool for betting strategies, currently available on iOS. His platform not only provides real value to sports bettors and on-air personalities, but could enable operators to dramatically decrease their cost of customer acquisition, at a time when doing so is absolutely critical.
Nonetheless, even he has not been immune to such challenges and recently told me that many colleagues and industry friends are reporting an underestimation of the need for customer education leading to difficulties in product design.
The time is right to invest in betting
For the limited population of private investors and funds with both the risk appetite and domain expertise needed to deploy capital in the space, everything discussed above actually represents an incredibly advantage and opportunity.
They have been able to obtain equity allocations at incomprehensibly low valuations, especially when compared to the potential upside.
For those readers who have a means and interest in investing – the time is now.
Editor’s note: this is a guest column representing the views of the author and not necessarily those of Legal Sports Report.
There is a new giant in the entertainment market, and many are surprised that it is online video gaming. The reputation and popularity of online games are steadily increasing for years now, and in the year 2020, with people forced to stay inside more than ever before, it is reaching its peak. People that are not familiar with this are usually surprised when they hear that competitive gaming is an influential industry with a lot of people watching them live.
With how popular some of the online events get, we can not be surprised they are drawing so much attention of people who enjoys a good bet. Are you new to this world? There are sites like Unikrn, which will help you find online games you need to have a good time. You wonder how and why did esports betting become so popular? There are several very valid reasons.
1. Diversity of opportunities
The number of opportunities to bet on is astounding. The first thing you will likely notice is that they are more competitive esports games then you thought there is. They vary in different ways, some of them will be more familiar to sports fans because they are literally sports games like basketball, football, or some other sport. But you also have fighting games, strategy games, racing games and maybe most popular are MOBA games like League of Legends or Dota 2.
2. Faster completion of bets
In regular sports betting, usually, you have to wait for so long before finding out the outcome. Esports tend to be much more fast-paced. For example, if you want to bet on who will win a semifinal of some series, let us compare NBA with LoL. In NBA, there are potentially seven games in the series, each game being a few days apart. In LoL, teams will play several matches in the row until the winner is known. That way, you have to wait much less in online gaming.
3. Less research required
Some people want to leave it all to lady luck. Others, those who tend to win more often, do thorough research before placing their bets. When it comes to Esport, there is less research required for you to make an educated bet. That is especially true if you are already familiar with the game you are watching. But even you know nothing of the game, you still need far less research. For one, you don’t have to keep in mind are there any notable players injured, since online athletes tend not to have a knee injury, and even if they do, it will not prevent them from hitting buttons on their keyboard.
4. Similarities exist
One type of connection you can draw is between real sports and their virtual counterparts. If you are already familiar with the game of football, it will not be any problem to watch virtual football. You will even find it quite intriguing. Other similarities you will see when you compare video games to each other. Moba games tend to be quite alike, even if they don’t like that fact. Shooting games, racing games, strategy games, while different from each other, are highly comparable to each other.
5. Go safe or go wild
Just like in traditional betting on sports, here you can also bet safe or create a scalable bet. Do you have a desire to make a small and safe bet on the favorite winning the match or tournament, you can. However, let us say you want to place some micro-stakes for additional excitement. That is also a possibility because of the large variety of options you have in online gaming.
6. Growth is not stopping yet
While online games used to be a niche thing, it is becoming mainstream entertainment. Tournaments are growing in numbers, live audience, streaming audience as well, and of course, sponsors. Now that so many people are considering themself fans of some particular online team, it is natural that they watch their favorite team regularly. When you watch your heroes so often, you will want to place some bets on the games you are watching anyway.
7. It is now widespread with bookmakers
How Profitable Is Sports Betting
It was not common before to have bookmakers include competitive video game gambling. But all of that is in the past now. Today, the majority of betting sites must have them as well, because if they don’t, they are falling behind their competition. In case you are interested in betting not just on the biggest games out there, but also on some more obscure ones, you should investigate bookmakers a bit more before making your choice.
8. Supplementary ways of having fun
There is one more reason for the expansion of video games and online gaming betting. While it is challenging to find the time and people to play, let us say basketball, it is much simpler with games. You could make a bet on who will win an online game, and then play that game on your computer as you wait for results. That is a way of having fun that is hardly attainable in real sports because of numerous reasons.
9. Heroes that are like you
Someone watching real sports athletes and comparing them with online athletes will notice a huge difference. Gaming Professionals can look just like a regular person. It doesn’t matter if they are short if they are not muscular, do they have asthma or some other condition. Anyone who puts in the work can become an online athlete. That makes them more like us, and consequently, it is easier to identify with them, and that makes betting on them more attractive.
10. Unpredictability
Why Is Sports Betting So Hardware
Since it is pretty new to most of us, the bookies will have a more difficult time analyzing everything to perfection. Bookies tend to offer small odds on favorites in real-life sports, but here it is different. There are not even so clear favorites in online gaming, so upsets and underdogs stories are more likely to happen. And that is not only more fun, but it can also be more profitable.
Is Sports Betting Bad
As we can see, betting on online games is an industry that is growing, and we still can not see their celling. In the future, it will be as normal to watch a Counter-Strike match as a tennis match. So it is the best idea to join this new and exiting business as it is growing, and not to be the last person that comes to the party.