Postcard from America – the early days of a revolution

Walking the halls of the US gambling industry’s annual G2E event in Vegas it seemed there was only one thing anyone wanted to talk about. It was best summed up by one delegate who asked plaintively: “Does anybody know if there is a panel that isn’t about sports betting?”. It was perhaps a little early for ennui to begin creeping in, but even in the main exhibition hall, thronged with towering curved screen slots cabinets, it felt like sports betting was taking over this casino-dominated world.

For a market that only gave the green light to regulated sports betting a few months ago it was quite the shift. If last year was a lot of optimistic chatter then 2018 was full of earnest discussion over the new opportunities that apparently abound for all and the key issues that need to be solved. As with any new regulated market there was an overriding need to reinvent the wheel. Many discussions seem to exist in a vacuum that ignored decades of activity elsewhere in the world, but there is no doubting the appetite that exists in the US now for sports betting.

The US market doesn’t feel like any emerging market we’ve seen before in the regulated gambling space. Although many of the discussions and panels were still focused on some fairly rudimentary issues, this is a market that already acts like it’s ready to move well beyond phase 1 with talk of complex betting products, integrated media deals and the types of things only just now being discussed in the likes of the UK and the Nordics. And yet, to-date, there are only two active markets of note, and only a handful more on the immediate horizon.

The market opportunity

There is a reasonable pipeline of states waiting in the wings, but even with those it’s unclear exactly what the online market will be or how they will deal with licensing for operators not active in the land-based sector. The opportunities then are still very limited and for now market access remains key, which makes the deals struck by GVC and William Hill in the very early stages of this sector very valuable at this point. But the bigger question is how much is this pay-to-play access really worth at this stage?

Well if New Jersey is anything to go by then perhaps a bit more than we thought. The September numbers are through from New Jersey and give us the first real glimpse at the latent potential in the US sports betting sector, with total revenues of $24m for the month from a turnover of $184m. Some US observers have described the numbers as underwhelming considering the relatively small leap from August, which is a traditionally a very slow month for US sports betting, but this possibly misses the bigger picture.

While the US market is heavily weighted towards the NFL betting season, this still suggests a nine-figure annual market even without further growth from a state with a population of roughly 9 million. Assuming reasonable levels of continued growth then it could quickly become a market of scale to rival European markets on a per capita basis. Denmark, for comparison, with its near 6 million population generated around $180m from betting in its first year of regulated operation (2012) and around $350m in 2017. It’s not inconceivable New Jersey could reach something like those levels in a relatively short timeframe and if you add in a few more populous states you quickly get to a market worth talking about.

The patchwork of potential

But while this may increase the gold-rush fervour some caution is called for. For all the talk, all the optimism and all the deals struck so far this is still a very early stage market, and it’s arguable it’s barely even in phase 1 yet. Many of the discussions among executives, investors and regulators are still on fundamental basic issues, and the legislative framework is still some way off yet. Eilers & Krejcik estimates have a big wave of states coming through from 2020-2022 with around 33% of the US population covered by legal sports betting by the end of 2022.

Until the big breakthrough in the next decade it will be patchwork rollout with the timing of key states such as New York and Illinois going live making a huge difference to the shape and size of the opportunity. For now this is a market comprised of very early-life brands, business models and partnerships and everything should be looked at as subject to change and major adjustments to market dynamics. The land-based sector, which will be the heart of the short-term rollout, may be more predictable due to limited market access opportunities, but online is sure to have a number of surprises to come.

The US is a mature gambling market, but the regulated mass-market sports betting market is not a part of it yet. For now it remains one where opportunities are limited, the big casino brands hold most of the cards and online is still a very nascent prospect. There is still so much to come in this market. It’s possible that by the end of the year we are properly into phase 1 and then we can begin to consider what comes next and consider just how big an opportunity this could be by phase 2 alone.