New Entrants Seek To Disrupt U.S. Sports Betting Market

September 13, 2022
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As sports-betting brands with origins in fantasy sports or the casino industry continue to dominate the U.S. landscape, a series of new players are entering the field this football season seeking to disrupt the market.

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As sports-betting brands with origins in fantasy sports or the casino industry continue to dominate the U.S. landscape, a series of new players are entering the field this football season seeking to disrupt the market.

Operators offering exchange betting, esports, “stock trading” based on athletes or other differentiated products all have either launched in New Jersey and other states or will do soon, as they look to carve out a niche amid the dominance of FanDuel, DraftKings and BetMGM.

Those three operators plus Caesars accounted for more than 89 percent of the U.S. online betting market in the second quarter of 2022, according to VIXIO GamblingCompliance estimates.

But entrepreneurs, investors and industry executives are confident that new entrants can gain a foothold by introducing something different to a U.S. sports betting market beginning its fifth football season of the post-PASPA era.

“Because of the speed of the country opening up market-by-market the incumbents have been focused on deployment instead of innovation. In addition, the strict regulatory framework has pushed brands into a responsible route meaning there is not a huge difference in brand voice. So this creates a void that others can create a niche in,” said David Sargeant, a seasoned sports-betting industry consultant with iGaming Ideas.

“Huge marketing spends by the big guns also means differential is probably the only way to stand out ⁠— newcomers have to be truly different.”

Lloyd Danzig, partner with Sharp Alpha Advisors and sports-betting investor, agreed there is a demand for new and innovative experiences among bettors.

“The current product landscape is largely undifferentiated and archaic. The Gen Z audience, in particular, has a strong preference for community, authenticity, and instant gratification. That said, bettors will only enjoy new experiences at scale if they are underpinned by top-quality technological infrastructure and robust market access,” Danzig told VIXIO.

Betting Exchange Era Begins

Two of four new entrants to the New Jersey market this football season are betting exchanges — the first to launch in the U.S. in a bid to replicate the success of Betfair, owned by FanDuel parent Flutter, in the UK.

Prophet Exchange announced its launch last week, with Sporttrade having begun a soft-play test period and expecting to go live very soon.

Although Sporttrade operates as a betting exchange, it has been built to replicate the simplicity of stock trading app Robinhood, rather than Betfair, said Alex Kane, Sporttrade’s founder and CEO.

The platform allows players to build a portfolio of bets acquired at certain prices and then choose to hold or sell them as the price moves based on on-field events and the activity of other bettors.

In-play trades made in real-time with zero delay offer “a totally different way to think about sports betting,” said Kane, who expects Sporttrade to appeal to stock traders who do not currently bet on sports.

“I think we’re going to both bring new customers to the market but also become a super viable option for customers of FanDuel and DraftKings,” who may use those platforms for certain betting activities and Sporttrade for others.

Prophet Exchange, in turn, expects its betting exchange to find a strong audience among sharper bettors, in large part because the exchange can offer better prices than other sportsbooks.

“As the market matures, people are starting to explore different ways to bet, and people are becoming more sensitive to price,” said Dean Sisun, Prophet’s CEO.

Sisun told VIXIO there was a “huge gap in the U.S. market” in terms of product.

“In the UK and Asia, there are betting exchanges and other products. Here in the U.S., we’re still in the early days, and we only have [fixed-odds] sportsbooks.”

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The two exchanges are set to be joined in the New Jersey market by Mojo, a betting platform backed by investors including baseball’s Alex “A-Rod” Rodriguez that describes itself as “the sports stock market”.

Mojo players will be able to create a portfolio of pro athletes and then buy and sell those players whose valuation will rise or fall based on their real-world performance.

Mojo began soft-play testing of its app late last month, according to New Jersey Division of Gaming Enforcement records, meaning a full launch is expected in the near future.

Sporttrade, Prophet and Mojo all follow the launch earlier this year in New Jersey of Esports Entertainment’s VIE.gg, the first regulated U.S. betting platform exclusively geared towards esports.

Meanwhile, yet another new entrant in the U.S. market — although not targeting New Jersey as a first port of call — is Betr.

The company, backed by social media personality turned celebrity boxer Jake Paul, claims to be the industry’s first “micro-betting” platform focused on offering bets on each and every play of games rather than the moneyline, point-spread, final outcome or other more traditional wagers.

Betr launched a free-to-play product earlier this month but has applied for licensing in Ohio and other states.

In a statement, CEO Joe Levy said Betr’s free-to-play app “provides a glimpse into the future of sports betting in the U.S. — an instant gratification focus to betting delivered in a simple, intuitive user experience that anyone can enjoy, even if they have not bet on sports before.”

It should be noted that this year’s wave of new entrants are not the first to offer a differentiated product in the U.S. market — social betting platform Wagr in Tennessee is an earlier example — and it is also not the case that all newcomers to the U.S. sports betting scene this year are disruptive startups.

For example, the coming months will see the eagerly awaited launch of Fanatics’ betting platform that will attempt to integrate a sportsbook into the company’s existing sportswear and memorabilia empire.

Caliente Interactive, the runaway leader in Mexico’s online betting market, is also preparing to enter the U.S. to target an underserved Hispanic demographic.

Competing In A Crowded Field

Few observers expect an easy ride for any of the new operators chasing FanDuel, DraftKings and others with a headstart of several years and many millions of dollars in capital committed to maintaining or extending their market share.

Although Betfair was able to become a dominant player in the UK market, the leading betting platforms in the UK and elsewhere have typically been traditional sportsbooks offering more incremental innovations, rather than a fully differentiated product.

Meanwhile, one high-profile effort to disrupt the U.S. betting market has already reversed course in recognition of costs involved in state-by-state expansion and changing investor sentiment regarding the sector.

Fubo, the sports and entertainment streaming platform, also launched an online sportsbook in New Jersey this month, having earlier gone live in Iowa and Arizona.

The company’s product involves enabling bettors to fully sync their sports betting activities with the games they are watching via fuboTV.

Last month, however, CEO David Gandler announced fubo was evaluating strategic alternatives for its sports betting business, indicating it would now be seeking a partner or acquirer due to the costs involved in scaling the operation on a multistate basis.

Danzig of Sharp Alpha Partners said he ultimately expects market share will continue to consolidate around the main operators in the U.S., but also for those leaders to move toward multi-brand strategies where more successful new entrants with niche offerings may fit well.

The strategy for newer operators to offer differentiated products is also a logical one, provided their niche is not too narrow to generate sufficient revenues, Danzig said.

“It will be very difficult for an early-stage startup to compete for market share with FanDuel and DraftKings by offering an interchangeable product. Economies of scale, regulatory burden, constraints on market access, and operational complexities make it nearly impossible,” Danzig told VIXIO.

“There seem to be a few sweet spots composed by untapped audiences and unmet consumer preferences which are large enough to support scalable businesses but out of reach for incumbents because of technological or resource allocation constraints.”

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