The crypto factor: betting big on bitcoin

When Stake.com, a casino and sportsbook operator which allows its users to play with a range of popular cryptocurrencies, announced a headline sponsorship with Premier League football club Everton in June, it marked a watershed moment for gaming’s fastest-growing but perhaps most controversial corner. The deal – the largest in Everton’s history – was a coup for a brand founded just five years ago but already emerging as a major player. While Stake.com’s Everton partnership was not the first of its kind – 19 of the 20 Premier League teams now have some sort of cryptocurrency-focused sponsor – it did receive an unprecedented response. At the time of writing, more than 30,000 people have signed a petition calling on the club to ditch the sponsorship. The backlash was two-fold, combining increasing scepticism among UK football fans around gambling advertising in the sport with the fallout from a challenging few months for cryptocurrencies, which saw bitcoin’s value plummet from almost $70,000 in November to under $20,000, at the time of writing. Nonetheless, for Stake.com’s co-founder, Ed Craven, the Everton deal was a logical next step for a brand which has conquered the crypto space but now has greater ambitions. “Despite being the world’s fastest-growing and largest crypto betting operator, we still have a way to go in terms of establishing the Stake.com brand as a household name beyond crypto,” Craven tells EGR Intel. The operator has enlisted an impressive selection of partners alongside Everton in this quest, including the UFC and Canadian rapper Drake, who in May handed out more than $1m in bitcoin to fans as part of a Twitch live stream while playing on the site, with the story quickly going viral. To this point, Stake.com’s rise has been predominantly powered by crypto-savvy users; the brand says it accounts for more than 6% of total global bitcoin transactions. But Craven adds that it is now making fiat betting a major part of its business so it can push into regulated markets where crypto is not yet permitted. This includes operating a dedicated domain in the UK under a TGP Europe Limited licence issued by the UK Gambling Commission. But reaching these mainstream audiences is not always a smooth process, and others have already come unstuck. Former England footballer Michael Owen was asked to remove several tweets, including two promoting Curaçao-licensed, cryptocurrency-focused operator Punt Casino, by the UK’s Advertising Standards Authority in June.

Reaching a mainstream audience

The response to Stake.com’s Everton sponsorship and Michael Owen’s ill-judged tweets are unlikely to deter a sector that has enjoyed astronomical growth over the last five years and is now sitting on marketing budgets to match. While dedicated gambling-focused cryptocurrencies that launched in the wake of the sector’s 2017 boom failed to deliver upon their visions, those operators that offered products that looked more like traditional sportsbooks and online casinos, but which allowed customers to deposit and play with bitcoin and other cryptocurrencies, have prospered. Among the most successful alongside Stake.com have been Bitcasino, Sportsbet.io, Cloudbet, BitStarz, FortuneJack and 1xBit. The sector generates some extremely high player LTVs; one cryptocurrency-centric casino affiliate shared data with EGR Intel for this article that showed, in comparable markets, the average lifetime value of a crypto casino player is roughly three times that of a traditional online casino player using a debit card to deposit. Margins are notoriously high; a quick glance at OddsGecko.com, an odds comparison site focused on crypto-led sportsbooks, suggests the major players are not competing aggressively on price. Some of these businesses have grown so quickly they now sit alongside the biggest names in the industry. Yolo Group, which operates the Bitcasino and Sportsbet.io brands, was ranked 27th in the 2021 EGR Power 50 rankings. Yet despite these success stories, there is a sense of growing distrust among much of the general population when the subject of crypto is raised. One UK survey carried out by Droid Mobile Consultancy in May found 28% of consumers had no confidence in the technology, and a further 22% were concerned about scams. Only 31% said they either use or would use cryptocurrencies. This could cause issues for crypto gambling brands looking to go mainstream. Jeffrey Haas, an investor and entrepreneur in the gaming and blockchain sectors who previously spent more than 15 years as a senior exec at DraftKings, partypoker and PokerStars, says the reputation of crypto – covering everything from the speculation of digital assets to the collection of non-fungible tokens (NFTs) – is in a bad place at the moment. For Haas, market volatility, the high-profile collapse of Terra Luna (stablecoin terra and sister coin luna), hacks and general fraud have combined to undermine trust with the general public. “I don’t blame people for standing on the sidelines, even if they believe that Web3 and crypto are the future. Their capital is at risk,” he says. Haas compares current-day crypto to the internet during the 1990s. More encouragingly, he notes that while growth has stalled during the recent market crash, most existing users are not abandoning it, and major investment into the space continues. So, how can the sector as a whole clean up its future? Camilla Wright, a partner in boutique communications agency Red Knot, which has worked with several brands in the space, says some parts of the industry may be beyond saving. “We can see there are some businesses and brands built just on its speculative bubble, so the shakeout that will come with the current so-called ‘crypto winter’ should be good for the more solid, long-term crypto businesses, whose brands have been built on more solid foundations,” she says. A handful of crypto-focused gaming brands appear to have built such foundations. Several such operators told EGR Intel that a major collapse in the price of bitcoin and other cryptocurrencies, as we’ve seen over the past few months, does not tend to significantly impact betting volumes when denominated in dollars or euros. Indeed, many users are often more reluctant to use their cryptocurrencies to play when the price is high and rising. Many are using this relative stability to continue to build upon their products. Wright highlights Cloudbet, established in 2013 and which recently added a cash-out option, which is not common among crypto sportsbooks, to its offering. “I think it’s things like this which maintains trust in the eyes of the market and customer base,” Wright adds.

A regulated future?

Leveraging high-profile sponsorships won’t count for much if regulators in major jurisdictions decide to close the door on cryptocurrency gambling. Craven at Stake.com says he expects that most major regulators will embrace crypto “sooner or later” due to the “overwhelming demand from customers, along with the benefits and savings”. But it could be a lengthy process as these regulators get to grips with exactly what they are regulating. Being a ‘crypto’ gaming operator can mean many things, from accepting cryptocurrencies as a payment method, to denominating the play itself in these currencies, to offering an experience which takes place fully on the blockchain. This is before we consider gambling-adjacent products, such as decentralised finance and NFTs. “The lowest-hanging fruit is cryptocurrency payments,” says Haas. He notes that such payments are already permitted in several US states and international jurisdictions. Canada-based CoinSmart, where Haas serves as a non-executive director, is regulated by the Ontario Securities Commission and recently received a permit from the Wyoming Gaming Commission. It hopes to become a leading crypto payment service provider for online gambling operators in other regulated jurisdictions. “The footprint will continue growing slowly, but steadily,” he adds. In the meantime, crypto-focused operators are likely to continue to grow faster than the wider market. Haas describes “an obvious demand gap” as consumers want to bet and play with their cryptocurrencies for utility and entertainment. He notes that cryptocurrency-focused operators are now eating an increasing wallet share from within regulated markets, driven primarily by strong products and promos, as well as margins “like plump ducks”. “I think it will take years before gaming regulators understand this well enough to start formulating good policy on crypto gambling,” Haas notes. “It’s more likely the activity becomes influenced by prescriptive banking requirements like the rules the EU just announced recently: the Transfer of Funds Regulation (TFR) and the Markets in Crypto-Assets (MiCA). Together, they will establish a licensing regime for cryptocurrency businesses in the EU, including EU-wide rules for enforcement.”

Education, education, education

In the absence of a full embrace by gaming’s largest regulated jurisdictions, most tier-one operators have steered clear of crypto so far. The notable exceptions have favoured the space as a way of driving product innovation, rather than as a payment solution, helping to avoid scrutiny from gaming regulators. DraftKings launched an NFT marketplace last August, while Entain’s January announcement of a £100m investment in innovation via its Ennovate hub namechecked both NFTs and the metaverse. Among those hoping to see greater adoption, all agree education is going to be essential to keep the segment moving forwards. As part of its sponsorship of Premier League team Southampton FC, Sportsbet.io has focused on delivering educational content to fans. This has included a series of videos and the launch of a Crypto Fan Fund, where it donated two bitcoin to be used to deliver a series of fan-led initiatives. Haas argues that education is of “paramount importance” and calls on crypto proponents to engage legislators, regulators, media and consumers to help them better understand the risks and benefits of the technology. “We need to move thinking away from digital assets solely being used for rabid speculation and outsized financial returns to utility and entertainment.” Will sport sponsorships play a role in this process? Craven at Stake.com thinks so. “Our strategy is to work with the biggest and best names, shining a light on the brand in view of millions of people worldwide, whether they follow football, combat sports, popular culture, esports or some other forms of entertainment,” he states. Others sound a note of caution. “I think in terms of sport sponsorship, crypto faces a tougher reckoning,” says Wright at Red Knot. She cites a growing list of controversies, from the collapsing values of football club ‘fan tokens’ to the social memes that circulated when a Formula 1 driver crashed into a Crypto.com advertising hoarding. “It can’t have been what brand executives were looking to get out of a multi-million-dollar investment.” Ultimately though, the greater test will be building sustainable businesses. Unlike five years ago, the leading crypto-focused operators can now compete with the fiat giants on product, brand and marketing. This positions them well to weather both PR mishaps and cryptocurrency market crashes. “Good businesses can ride out this current negativity if they do the basics right,” concludes Wright. “Connect with their customers, offer transparency and value, and concentrate on the positive attributes of crypto.”