A top analyst of the U.S. sports betting market for Kambi was keen to stress Wednesday that the industry’s progress in the past couple of years should be dwarfed in the years lying just ahead.
“There’s still a great deal of potential that remains, and we’re only into the infancy of this market right now,” Kevin Cunningham, a Philadelphia-based competitive intelligence analyst for the global company, told an online audience.
Kambi is not well-known to the public because it operates behind the scenes serving sportsbooks instead of consumers. Headquartered in Europe, it was quick to spread its operations into the U.S. the past three years to become a leading provider of odds-making and risk management services to top sportsbook operators such as DraftKings, Rush Street Interactive, and Penn National Gaming. This week, it is conducting a series of betting industry web seminars it calls the Kambi Festival of Sportsbook.
Cunningham’s one-man presentation focused on the trends that have been seen in the U.S. since the May 2018 fall of PASPA — which opened legal sports betting to states wanting it outside of just Nevada — and what the patterns suggest about the near future.
While noting 2020 was a tough year for retail operators due to the effect of the COVID-19 pandemic, Cunningham emphasized various grounds for optimism across the industry: the example of Michigan’s strong start of 11 operators simultaneously this year; the jump in betting handle Iowa saw when it dropped in-person registration requirements for mobile accounts; the most serious talk yet in some of the nation’s biggest states about sports betting expansion.
While there’s nothing guaranteed about New York adding mobile betting or Texas authorizing sports wagering, the nature of discussions indicates progress in those states, and California and Florida may not be far behind, Cunningham suggested.
“Each one is its own gold mine for sports betting,” he said, referring to the four biggest states as billion-dollar annual revenue markets. “The idea of these states going live isn’t really a foreign idea anymore. It’s not the longshot it once was.”
More records will be broken before long
Even without those big states and their billions, Cunningham noted a 225% growth in legal betting handle took place nationally between 2018 to 2020, reaching $21.5 billion last year. States regularly broke their monthly records for betting volume in the last half of 2020.
“This held true in just about every state, new and old,” he observed. While February numbers aren’t matching prior months, due to a short month with a lack of football and a post-Super Bowl lull, Cunningham sees a return soon to the highs of late 2020 — and beyond.
“There’s no real reason this trend is going to stop anytime soon,” he said. “March has the potential to continue these record-breaking numbers thanks to the NCAA tournament.”
He sees states that are still relatively new to the industry — such as Michigan, Colorado, and Tennessee — putting up strong handle numbers from the get-go, offering optimism about future revenue for them and for states that want to emulate them.
Operators have become more experienced launching in various states and adjusting to regulations in each, Cunningham said. That made it possible for a double-digit number to be prepared to start on the first day it was permissible in Michigan, a scenario he suggested wouldn’t have been feasible a year or two ago when operators were still learning their way.
“You’re going to see this trend of many operators trying to get into market early and get the first grasp of customers,” the Kambi analyst said. “You’ve got to strike while the iron’s hot, and make sure you’re getting that first swing at customers.”
The race for initial customers can be costly
Cunningham added in his Michigan analysis, however, that having all those competitors jumping in at once can produce negative financial effects. Major industry leaders such as FanDuel and DraftKings actually showed a net loss in revenue in the early weeks of launch due to their promotional giveaways exceeding what they took from bettors.
With sign-up bonuses and odds boosts and can’t-lose bets to attract the first customers, he said, “certain operators were willing to sacrifice profits now in the name of building out customer data base and playing the long game of customer retention.”
The exception, Cunningham noted, was Penn National’s Barstool Sportsbook, which showed the best revenue on the plus side out of the gate in January. Its marketing was more driven by a natural reach with fans of the brashly popular Barstool Sports media site and a charitable appeal by Barstool leader Dave Portnoy to help local businesses struggling during the pandemic.
Cunningham, whose company contracts as a partner of Penn National and Barstool Sportsbook, said they are particularly well-positioned to profit from the industry in the future. That’s because Penn National is only operating the online sportsbook thus far in a few of the 18 states in which it has legal market access, so it will be on a huge growth trajectory compared to companies like FanDuel and DraftKings that already established broad presence.
At the same time, everyone will be growing handle and revenue, he noted, due to new states coming aboard and maturation of existing states.
“Even the most established brands and sportsbooks are only a fraction of the way into their product rollout,” Cunningham stressed.
He referred to estimates from the Eilers & Krejcik consulting firm that national revenue could grow to $11 billion by 2025, a seven-fold increase over 2020. Beyond that, he said, estimates for a decade from now have ranged from $20-$30 billion. He saw no reason to doubt those, while noting the pandemic’s effects on state budgets could only accelerate the trend by speeding the pace of additional legalization.
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