An intro to sports betting in the US
Opinion Piece on one of the fastest growing industries in the US...
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In May 2018, the SCOTUS struck down the Professional & Amateur Sports Protection Act (PASPA), stating that sports betting limited to one state (NV) was unconstitutional. The ruling opened the door for states to decide whether or not to allow sportsbooks to operate within their borders. Sports betting growth since the ruling has been exponential, driven by macro tailwinds such as expansion in digital connectivity and the COVID-19 pandemic.
Gen Z smartphone penetration in the US is 96%, while Millennials are not far behind at 94%. Despite Gen Z still having a long way to go in terms of traditional sports adoption, the remaining population is easily accessible thanks to digital distribution platforms such as App Store and Google Play.
How does COVID-19 affect legalization?
State economies will be sluggish coming out of the pandemic and many will look to the legalization of gambling to help backfill millions in lost revenues. This is equally applicable to our neighbors up north as Canada works to legalize betting at the province level this year.
Similar to cannabis pre-legalization, sports betting has enjoyed a robust underground following long before legality paved the way for corporate groups to get involved. In other words, sports betting is going to continue whether it’s legalized or not. Given other developed countries have proven that legalized sports betting can function in a responsible manner, states and provinces may as well consider monetizing the activity.
How many bets could be placed each year in the US?
The AGA has long communicated a $150B figure to represent total US handle. However, this figure is difficult to predict with accuracy given the significant amount of illicit wagers placed in US every year and given that only 25 states currently support legalized sports betting. Referencing a recent Goldman Sachs Equity Research report, we can use the figures observed in legalized states thus far to extrapolate US handle five years out (in a fully legalized scenario):
GS Assumptions:
2025 sports betting GGR / US Consumer Spend: 8 bps (blended average)
Personal Assumptions:
GGR/Total Handle (Hold): 7.1%
Source: Historical legalized Hold figures since PASPA repeal
So how does this affect sportsbook operators looking to win market share?
Given the hypergrowth nature of the industry and subsequent customer land grab, operators, media entities and startups are racing to provide innovative solutions to acquire new customers. Operators are currently realizing organic CACs in the neighborhood of $600-$900 on depositing customers. Recent strategic media conglomerate + operator consolidations have occurred as operators look to purchase or partner with content providers to lower CACs and to create a stronger user experiences, i.e. higher retention.
So that leaves us with one of my core investment theses within the space:
What startups or companies can operators strategically acquire or partner with to optimize UA and UX?
Stay tuned! I'll cover this core question in more detail in a future newsletter.