Thursday, January 18, 2018

Winning the Gambling Internet

“New Jersey will end up with sports betting no later than Week One of the next NFL season and potentially as soon as March Madness,” says Daniel Wallach, a gaming law expert at Becker & Poliakoff. Other states would almost certainly follow.

So notes a story today at Bloomberg.

In other words, the gambling world is about to change.

How it goes about changing is anyone's guess, quite frankly. Internet gambling, especially that in which involves sports, is a thorny, murky malaise in North America. It always has been.

However, despite the obvious questions (and the risk rate that it demands), companies are positioning themselves with laser-like speed. One scenario has existing gambling companies purchasing customers (and the infrastructure and regulatory assets) that are already 'gambling' on the web, legally.

"More likely, it seems, is that established gambling companies look to team up with daily fantasy operators or buy them outright. DraftKings and FanDuel have acquired millions of repeat customers with a proven willingness to spend money on games that work a lot like bets. “You’re not piggybacking on a society that already loves peanut butter, you are literally introducing peanut butter into the country for the very first time,” says Nic Sulsky, a sports gaming consultant who previously ran DraftDay. “But the daily fantasy companies have been selling almond butter for years now. It’s the next closest thing, and it’s a huge advantage.”

“It’s going to move fast,” says Jordan Nof, head of investments at Tusk Ventures.

DFS sites, where growth has been good, but not great over the last two years, are not being valued as they once were, but even at 3X revenues, they are attractive, due to the edge they have, and the lifetime value of their customer base, along with attractive churn rates.

This model - startups who land customers with advanced technological edge > building a customer base > spending money to quell regulatory risk, and gain a resulting edge > laws changing > being acquired by larger companies - is not new, but it is how the internet gambling saga (one way or another) will shake out.

And, as the analyst above notes, it is "going to move fast".

What is most disconcerting about this, for me, is racing's unwillingness to ever play by this set of rules.

The Draft Kings and Fanduel of racing was UK based Betfair. Back in 2003 when they were approaching racing for partnerships, not one of the big entities in racing even thought about an equity stake. Not one (that I know, or heard of) thought that racing would one day be a global game, needing global brands with proprietary technology to usher in the future; that Betfair's upwards of million customers with a reported $3B on account would be worth harnessing, like others have done with DFS companies, positioning for the future.

The above, in my view, is why racing has not succeeded as it should in North America on the internet. It simply has not acted like things are "going to move fast"; never acted like partners are potential partners, rather than threats; never acted for what may happen tomorrow.

Sports betting will come to the United States, and it will be here soon. Maybe racing will grab a few scraps by inviting a competitor on their property (like they did slots) and taking a cut. Maybe TVG hosts will be promoting parlay tickets for March Madness, along side Los Al pick 4's.

But racing will not have "won" anything. It will be a passenger, along for the ride.

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