Go big or go home: How important actually is scale?

A lot has been talked about scale in the online gambling sector recently, but Sky Bet redefined the term during the recent Cheltenham Festival. According to a recent trading update from The Stars Group, Sky Bet gained 170,000 new sign-ups and an additional quarter of a million reactivated customers with over a million actives during the four days of the festival. It effectively invested an eight-digit sum in a week-long promotion that generated 25% of its annual acquisition target in four days. It’s online gambling Jeff, but not quite as we’ve known it before.

These eye-watering numbers are the result of a Cheltenham offer, a free £20 bet on the opening race every day available to all customers. And it was cited as the main cause of sports betting margin coming in between 6 and 7% in the first quarter, a couple of points behind Sky Bet’s average norm. With staking growth in the mid-teens and margin 9.2% in the first quarter of 2018 that is a big hit to revenues in the short-term with the hope and expectation those players acquired will bring bigger rewards in the months to come. So was it genius or was it hubris?

Honestly, can it be both? In this market there is an increasingly fine line between the two as operators throw money at promotions, pricing, offers, sponsorships, advertising and whatever else they can do to stand-out. This isn’t a battle any more, it’s a warzone. Sky Bet is not some lone giant rampaging over the plains of the UK sports betting sector. It is, in fact, possibly not even the largest sports betting operator in the UK market with Paddy Power Betfair and bet365 maybe ahead of it in terms of annual revenues.

The futility of effort

And for the peer group looking on it must be an alarming state of affairs. What’s the point in giving away free £5 bets if your competitors are on £50? How can you grab market share from firms giving away millions in matched in-play offers, or bet refunds or spending your annual acquisition budget in four days? This is no time to be a second-tier operator in the UK market that’s for sure, and we’ve seen some early casualties already this year with BetBright and 188bet both withdrawing from the market.

You doubt they will be alone. To compete in the UK feels like a thankless task in 2019. It’s not a huge leap to compare it to trying to win the Premier League if you’re not one of the top tier. How do you even start? You can’t compete on price. You can’t compete on offers without running at a loss. You can’t compete on brand without huge backing or some incredibly creative PR (and huge backing). You can’t compete on marketing without an endless pit of money. You can compete on product, but it’s a long, slow expensive road to the top that way around, as BetBright can bear testament to.

But the latter feels like the most realistic way forward for smaller or even mid-sized operators. BetVictor has managed to build a decent if modest market share in the UK partly through a quality in-house product and some innovations of its own. And even from the big boys there is still a sense of a commoditised product with some bells and whistles with a user experience that isn’t radically different beyond colour palette. The user cost of switching in terms of learning a new UI never feels particularly high.

The cost of playing

That said it is a huge undertaking. The mass market game is an extremely difficult and extremely expensive one to play in and there can only be a very small group of winners. Operators entering the UK or indeed any of the other regulated markets need to decide if they want to be a great big business or a great, small one. It’s perhaps not a case of go big or go home, but more think differently or think again. And that might mean leaving the UK alone and focusing on emerging markets elsewhere.

So can anyone take the big four on? Well probably not at their own game, but why would you want to let the scale firms set their rules of engagement. There is likely still room for genuine product or, more importantly, user-experience innovation and there is still room for brand, although that’s two very different ends of the spectrum and cost-base. We’re starting to see more niche operators emerge too with a focus on specific sports, and that lends itself to further experimentation with the hyper-local model also presenting options if attacked intelligently.

TSG talked about getting the pieces in place to take this scale model to sports betting across the globe. Once they have a market leading in-house platform ready then they can work on truly localised front-end and marketing offers before reinvesting money into the business and blowing the competition away. Well when you put it like that it sounds so simple. But really, only bet365 has managed anything approximating this in the history of the betting sector and those are a lot of big details to get right.

For operators who can afford the luxury of focus there are still battles that can be fought and won in sports betting. We’re really only at the start of what can be done with the product on mobile and with in-play, and there truly hasn’t been a disruptive solution since Betfair. Perhaps there won’t be again and the game now is the game of thrones where only scale matters. But I wouldn’t want to bet on it.