U.S. Sports-Betting Start-Ups Face Regulatory Challenges

December 14, 2021
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Investors are split on whether new operators can disrupt a marketing-dominated sports-betting space, but many point out that companies need to understand the regulatory challenges they face in doing so and in setting their own valuations for potential acquisitions.

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Investors are split on whether new operators can disrupt a marketing-dominated sports-betting space, but many point out that companies need to understand the regulatory challenges they face in doing so and in setting their own valuations for potential acquisitions.

With the U.S. market currently being dominated by operators spending nine figures annually on customer acquisition, many have expressed skepticism that a new competitor can break through, or that a company can operate multiple successful brands with differentiated products.

One of the biggest issues skeptics point to is the lack of market access available in the United States compared with European markets.

State regulatory structures have often tied online licenses to casinos with a limited number of online skins, or have otherwise issued a scarce number of licenses, preventing smaller players from gaining access or larger players from operating multiple brands.

“As much as we would like to have endemic brands for different audiences and esports and all sorts of different things, it’s ultimately going to come down to how many skins you have and how expensive it is to use those skins,” Chris Lynch, director of corporate development for BetMGM, told delegates at this month's SBC Summit North America in New Jersey.

The other issue, argued Crispin Nieboer, a seasoned online gambling executive and currently partner at Orange Cap Ltd, is the allocation of marketing spend given the competitive market.

“In the online marketing space, a multi-brand strategy can work brilliantly, you can be very efficient, you can target well, but in the offline marketing sphere, having a multi-brand strategy can be risky,” Nieboer said.

“If you start diluting your marketing spend across multiple brands, then you have less share of voice and you have to think carefully about how you allocate your dollars,” he added.

Nieboer and Lynch participated in an SBC panel discussion on the race for mergers and acquisitions in the gaming industry and whether those companies are under pressure to find revenue and profits to sustain their growth story.

Chris Grove, CEO of American Affiliate, and Davis Catlin, senior managing director of Las Vegas Sands, also participated in the discussion.

Grove was more bullish on the potential for a multi-brand strategy if operators can “authentically reach an audience with a product set that is difficult for a legacy brand like Caesars, like MGM, and even like DraftKings and FanDuel to reach.”

“I think there is some room given the size and diversity of the U.S market to innovate on brand and in doing so to allow these larger brands to access and unlock the full total accessible market,” Grove said.

Nieboer, on the other hand, pointed to the supplier side as a more welcoming area for new market entrants.

“The area, which is very fertile, where I see lots of buyers looking for targets, is around that, whether you’re a marketing business doing something different, something in data, something around player engagement where you’re driving up player spend, reducing churn,” he said.

“These are the areas where innovation can be done by quite small companies with a really big impact.”

In any event, all companies looking to gain ground in the industry, whether that be on their own or as part of an acquisition, need to know what they are facing, said Catlin of Las Vegas Sands.

“The thing that concerns me over the next year is actually start-ups that don’t have a good perspective on regulatory requirements in this industry,” Catlin said. “That’s one risk that I see is sky-high valuations and a lack of understanding of relevant laws.”

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