The U.S. online gambling industry has seen two giants emerge from the post-2018 wave of sports betting regulation, but beneath all the talk of profitability and EBITDA figures it is FanDuel’s and DraftKings’ sports betting platforms that are putting them in positions of leadership.
From being able to market their products, to their databases of fantasy sports bettors – especially in the early days of the regulatory waves in 2021 – to high margin-generating parlays, there are a host of reasons for the dominance those two operators enjoy.
Indeed, below the headlines lie many other factors that affect how players respond to operators’ offers and how betting products and margins can be impacted by the platforms they operate with.
As the prospect of being able to compete meaningfully with FanDuel or DraftKings continues to recede for the operators that make up the rest of the top 10 betting charts in the U.S., little is heard of the factors that impact the revenues those companies generate, or, just as importantly, those they leave on the table through average or poor product offerings and ‘simple’ operational issues like time lags, feed delays or market suspensions.
Parlays and the strong margins they generate get all the attention, but they are also enabled by the quality of an operator’s technology and trading capabilities. If operators’ teams can trade and manage risk in ways that maximize events and revenues from players, in other words if they are able to ‘sweat’ their customers, they will enjoy stronger hold levels and revenues than their competitors.
More specifically, for the many sportsbooks that don’t have in-house tech stacks, their margins and, ultimately, the revenues they generate, are in large part the result of their betting providers’ trading skills and ability to handle large volumes of data quickly. This may seem straightforward, but speaking to a number of providers, consultants and betting executives, it is far from easy.
Officially speaking
In the U.S. these issues are somewhat complicated by the official data agreements leading suppliers such as Genius Sports and Sportradar have with the NFL or the NBA respectively, and the inflated prices they demand from the leading operators for these.
As one industry contact told CDC Gaming: “Prices are more competitive in markets where there’s no ability for leagues to leverage product fees. For example, the English Premier League can’t charge U.S. books product fees like they do on domestic sports, but this also extends to all U.S. leagues and their ability to extract revenue from non-domiciled operators. There’s no lever to pull to extract money, so books can put this back into having more competitive pricing at lower overrounds and in the process drive customer engagement.”
In addition, in the U.S. the official data and statistics are only taken up by the leading five or six operators as it also gives them marketing access to NFL games.
“This places on-shore operators at a disadvantage,” the contact notes, “and from an odds perspective ‘official data’ is quite irrelevant. You need markets, and markets need consensus and liquidity – it’s great for settlement, but pre-match and in-play I am unclear how useful it is.”
In-house, kind of
Returning to the issue of in-house versus third party solutions, the topic might be more relevant to ex-U.S. markets, as these tend to have more sportsbook brands for consumers to choose from. But most operators with in-house platforms will also have a number of odds, trading or analytics suppliers that provide them with trading and risk management services.
If we look at DraftKings, it also explains why the group spent so much time and money building up its in-house teams following its acquisition of SBTech in 2020-21, while for the likes of BetMGM and Caesars, it also explains why they have acquired companies like Angstrom (via Entain for BetMGM) and ZeroFlucs to improve their trading capabilities and drive up margins.
Time bandits
From a general B2B standpoint, there also seems to be major delays and time lags depending on the data providers. This has a major impact on the trading services they offer and the risk they are able to manage for their clients. If results or incident outcomes are coming in five seconds (or more) later than some of the faster suppliers, a betting solution provider’s ability to trade efficiently for its operators is highly compromised, while inefficient market suspensions have a big impact on the volumes they can accept.
This situation can be compounded by whether a betting provider can handle multiple feeds. Again, this may seem obvious, but many providers are unable to do this and are dependent on a single data supplier. This impacts the margins they generate for operators, but also key products like parlays and whether they can offer correlated events, which require strong algorithms and the ability to trade same-game events, so that bettors take up those high-margin products.
“Technically, absorbing multiple feeds is hard,” says CDC Gaming’ source, “but once done it allows books to gain a key advantage, as well as being able to hold the suppliers to account on cost – if they know a supplier can’t run multiple feeds, many prospects won’t come to the table.”
So many tiers
CDC Gaming’ industry contact adds that there are “various tiers of gray when it comes to data feeds”. “There are a number of companies who patently just scrape (leading sites’ odds such as Bet365’s) or are keying in data from broadcast feeds. This has more of an impact in-play, however if you set foot in any trading floor the world over, the sea of people at those desks reflects the reality that even ‘official’ data is not always the best or fastest data”.
These trends are all underlying and seldom discussed openly, but they continue to play out in a young market such as the U.S. and will be even more critical in high potential markets in Latin America, where the early days of soon-to-be regulated activity in Brazil or Peru will be critical in establishing the competitive landscape.
Of course, the reason these issues are so rarely discussed is because they are subject to sensitive commercial negotiations and impact on providers’ reputations. What they show is that even leading operators such as DraftKings are always trying to improve their products and its upcoming focus on live betting represents another way for the group to sweat a key product. But it has taken the company the best part of five years to get to this stage and it had to withstand significant pressure when it was racking up losses of half a billion dollars just a few years ago. Equally, that timeframe shows the scale of the task facing the chasing pack.
