Igaming Focus: Hype, no winners, and waiting for Fanatics

December 22, 2022 8:00 AM
Photo: Shutterstock
  • Jake Pollard, CDC Gaming Reports
December 22, 2022 8:00 AM
  • Jake Pollard, CDC Gaming Reports

Hype is integral to new sectors, but rarely has its excess been clearer than in the case of FTX, while books blocking sharps and winners is a sad continuation of established practice, and 2023 will be the year when major brands will hope to reach profitability as they wait for the arrival of Fanatics.   

Never believe your own hype
Does the collapse of the crypto exchange FTX mark the day when crypto customers and fans find that the emperor “never had any clothes to begin with”, as one industry contact remarked pithily?

FTX was once valued at $32bn and collapsed under the weight of its debts while its business model, if that is not too far-fetched a term to describe how it operated, seemed to consist of taking depositors’ funds to pay off the investment losses it was racking up on its Alameda Research hedge fund. 

As the Alameda investments continued to tank, the group became completely dependent on FTX customer funds to keep going and, crucially, a constant influx of new customers to keep opening accounts to feed the Alameda beast. 

Not before long, Changpeng Zhao (CZ), CEO of the world’s leading crypto exchange Binance, noticed that something was off, caused a run on FTX and, in the words of FTX founder and CEO Sam Bankman-Fried, “he played me”.

Beyond the potential reasons for CZ wanting to cause trouble for FTX, the collapse of Bankman-Fried’s company is also a story of excessive confidence and lack of investor and media curiosity.

And when it comes to online gambling, it’s worth bearing in mind that some of the largest online casinos and bookmakers in the world currently are crypto-backed operators, while a year ago FTX was on the verge of acquiring betting startup PlayUp for $450m.  

In the end, though, FTX did not produce any goods and the currencies that were traded on the exchange were neither backed by (any kind of) manufacturing or used in any mainstream economic activity. In other words, it was pure asset speculation that had no corresponding value in real life. As with most bubbles, they always end up bursting. 

Bally’s sharp dealings
The topic of ‘sharps’ being banned by U.S. sportsbooks has reemerged with ‘Spanky’, a well-known pro bettor based in New Jersey, recently forced to close his account with the startup betting exchange Sporttrade.

Spanky recently started betting on Sporttrade in New Jersey, and having Spanky as a customer was a major fillip for the startup and its “winners welcome” messaging. Spanky’s big wagers and social media presence would bring it exposure and liquidity. 

The reason for his account closing was not obvious at first, but soon became clear: Sporttrtade’s market access agreement in New Jersey is with Bally’s Corporation and it transpired that the casino group had told its sub-licensee in no uncertain terms to block Spanky.  

On his Be Better Bettors podcast, Spanky said that Bally’s Atlantic City resort had cited money laundering worries as the reason for refusing his action. One of his arguments against that  point was to say that when he first opened the account at their Atlantic City resort, he deposited $100k in cash, only for Bally’s to refund the money via check – to which he responded, ironically: “Thank you Bally, you’ve just cleaned the money.”

Jokes aside, the news that a big betting brand is banning sharps is not surprising, but for Sporttrade it is a bitter blow. As a betting exchange that is allowed New Jersey-only liquidity, having Spanky bet with it created markets and wagering volumes, brought media exposure, and attracted other big players and curious onlookers to see what the fuss was about. 

At least Sporttrade’s market access agreements in Indiana and Louisiana are not with Bally’s, but relative to liabilities, the latter’s decision also does not make sense since Sporttrade is an exchange and not a bookmaker. Nonetheless and as is also common in Europe, banning sharps and winning players will continue among U.S. books and much further down the player food chain than Spanky.

Horizon profitability
On a more optimistic note, a longer term picture of the U.S. online sports betting industry is starting to take shape as the likes of BetMGM, Caesars Interactive and FanDuel envisage turning profitable by the end of next year. 

The flipside of course is that a number of smaller brands have already decided to call it a day, unable to attract players in large enough numbers to make their businesses viable. Consolidation is always a feature of newly-launched industries and markets, but it still isn’t great for competitiveness, innovation or originality. 

For the leading sports betting operators – say the top four, plus the likes of Barstool Sports, BetRiver/Rush Street Interactive or PointsBet – this (to varying degrees) translates into a focus on data-led efficiencies on marketing and promotions and mixing national scale and state-level advertising to optimize costs and returns. 

On the product front, the focus on parlays and in-game betting will continue while ongoing improvements to the user experience should see more operators finally launch single sign-in wallets and integrated betting/casino apps. 

Mergers and acquisitions are also highly likely to feature with the long anticipated arrival of Fanatics’ online sports betting offering scheduled for next year. The group recently raised $700m in its latest funding round that valued it at $31bn (the contrast with FTX’s one-time $32bn valuation is startling) and will use some of those proceeds to acquire either a betting technology platform provider or go straight for a consumer-facing brand.    

If Fanatics does decide to build its customer base from scratch it will be fascinating to see how it fares considering the roll call of companies that have tried and thrown in the towel in the face of the costs and competition involved.