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Gaming executives and investors believe there is still a significant amount of turnover coming in the years ahead for those not currently leading the pack in U.S. sports betting.
During a panel discussion at the SBC Summit North America conference, the consensus was that although established brands such as FanDuel, DraftKings and BetMGM hold a commanding position now, the arrival of new brands and a shift away from heavy marketing spend could lead to a different picture in the coming years.
“If you look at other mature markets, people who are winning at the start weren't necessarily the winners ten years later, right?” said Adi Dhandhania, COO North America for Bally’s Interactive. “It’s very possible, because people who are leading the chart today are struggling with cash flows … so at some point, you need to get to a business that is sustainable and can be grown in a responsible manner.
“So that would be one to indicate that there is a possibility that others that are doing it in methodical way could lead the path in the next three to five years.”
Matt Davey, CEO of Tekkorp Capital, said that the U.S. market suffered from “asset price inflation” in the years following the U.S. Supreme Court's overturning of the Professional and Amateur Sports Protection Act in 2018, with partnerships for market access or media deals being priced based on the inevitable stock improvement that would follow.
“That game has changed, but that impacted the entire ecosystem,” Davey said. “Market access deals got ridiculously expensive, licensing deals got expensive, media buying got incredibly expensive.”
“Now we’ve got asset price deflation,” he continued, saying that “market access and brand deals are now far cheaper.”
“It does lend itself to the cashflow positive businesses that can ride through this without having to change the business plan,” Davey said. “I also think it's beneficial for the scaled operators that even aren’t profitable. Their life gets a lot cheaper now, so the runway to profitability gets a lot more visible than what it was beforehand.
“The area where it's going to hurt the most, sub-scale operators that are unprofitable, that's going to hurt a lot, and then business models that were dependent upon this asset price inflation program, they're over as well,” he said.
“So it's going to be interesting to watch. I think the next couple of years we'll see some changes in the market participants.”
Rick Arpin, a partner with KPMG, said that moving forward, U.S. operators need to avoid effectively being middle-of-the-road when it comes to their sports-betting operations.
“I think we've started to see it in this industry, which is, particularly in an industry that's digital and scalable, there's going to be some players that are really big, and there's going to be a lot of players that are called small, I hate to say niche, because they could be broad, but they're going to be smaller, and sort of more focused,” Arpin said.
“I think the place not to be is in the middle,” he said.
Arpin pointed to strategic moves like WynnBET pulling back on advertising or Churchill Downs halting its TwinSpires sports-betting operations as examples of the perils of being caught between a large scalable approach and a smaller, more targeted, approach.
“The middle sucks, right?” Arpin said. “You got to either be big, or you gotta be focused, and so I think we'll continue to see some level of consolidation.”
