As the Kansas City Chiefs celebrate their thrilling Super Bowl LVII win, the topic of online sportsbooks operating their technology stacks in-house or via third parties is revealing of the hard business environment they work in — and tough choices they have to make.
The debate around in-house and outsourced technology platforms has been going on since the earliest days of the post-PASPA expansion of regulated sports betting. In recent weeks it has come to the fore as major U.S. gambling groups discussed, in both direct and indirect ways, the role tech solutions play in their operations.
Unsurprisingly, some of the starkest differences of opinion on the topic depend on which side of the debate companies stand on. Suppliers such as Kambi, GAN and others will explain how difficult, costly and time-consuming running an in-house sportsbook is; while on the other side, operators will explain how important having full ownership of the tech stack is to their operating models and, of course, to their revenues.
This state of mind was recently demonstrated by comments from Penn Entertainment CEO Jay Snowden. The group owns the online sportsbook brands Barstool Sports and the Ontario-based theScore BET, which is part of theScore Media, one of the leading sports media brands in Canada that Penn acquired as part of a $2bn buyout in 2021 .
Transition control
The group is planning on migrating Barstool from the Kambi sportsbook platform it currently operates on in the summer and is already working with its in-house platform in Ontario. As part of its fourth quarter earnings release, Snowden said “theScore Bet continues to experience strong momentum, achieving record gaming revenue in December for both sports betting and iCasino” in Ontario.
“The transition to our proprietary technology platform last summer has resulted in higher customer engagement and a noticeable increase in hold rates,” he added. “Greater control over our product offering and advanced promotional capabilities is contributing to encouraging retention metrics and cross-sell rates to iCasino.”
Speaking to analysts during the company’s earnings call, Snowden added: “We have great third-party partners today. But I think what you are seeing (is that) when you have control of the product roadmap and you can put more offerings front and center, especially with the retail masses that are betting mostly on parlays. We are still sitting at around 20% of total wagers in the U.S. on parlays. I think that’s a lot lower than most of our competitors. So we look forward to (increasing) that (percentage).”
Parlay pressure
The importance same game parlays (SGPs) have acquired as the sports betting industry has matured means the product is a must-have for sportsbooks, while the high margins SGPs generate play a crucial role in driving under-pressure operators towards much needed break-even and profitable status.
Further illustrating the key role SGPs play, with Super Bowl betting handle likely to hit $1bn, analysts at JMP said 37% of that handle came from parlays, while geolocation provider Geocomply registered 7.4 million accounts over the weekend, a 32% increase from last year, and leading U.S. sportsbook FanDuel said it recorded up to 50,000 bets per second during the game.
The importance of parlays to operators’ hold levels (aka margins) is another reason why they are such a key product. With historical margins at 7%-8% for U.S. books, parlays generate margins of 25%-30%. And with FanDuel not only enjoying first mover advantage on SGPs but also operating the product fully in-house from the start and enjoying 100% of the revenues, they are a key reason why the group commands a 42% share of the U.S. online sports betting market, with its closest competitors DraftKings at 24% and BetMGM at 15%.
By comparison, DraftKings only launched new parlay products during the third quarter of 2022, despite its acquisition of SBTech three years ago that was supposed to enable fast in-house developments and quick product launches.
Different ambitions
For all that, it’s important to note that only the largest sports betting groups have been vocal in wanting to own their tech stacks. In addition, as BetMGM has shown, not having full ownership of the technology does not stop an operator from performing strongly in the space, even if the Entain-MGM joint venture is not straightforward from both corporate and technology angles.
The way the U.S. online sports betting market has developed has left minimal room for small or medium-sized operators that are often the backbone of many B2B networks. This structural issue leaves suppliers in a difficult situation because for many of their potential clients — think media groups or tribal casinos — sports betting is not a core product and they have seen what a tough vertical it is; invest minimal amounts into marketing, and suppliers end up doing much of the running and incurring many of the costs.
Of course the potential regulation of sports betting in California or Texas might change the landscape, but that is some time away and by no means certain to happen.
ICE London is back – but for how long?
ICE London 2023 concluded last week and was a major success, but a cloud hangs over whether London will continue to be the host city for this major industry event. The reason is that major exhibitors such as Novomatic and Merkur want to move it to Madrid, Spain, or Paris, France, to avoid the import duties and extra costs caused by Brexit. Sources close to organizers Clarion Gaming have confirmed that Brexit is the reason those exhibitors are pushing for the change. In general there is a split between online gambling companies that want to stay in London and the likes of Novomatic pushing for change; but replicate this pattern up and down the UK and with companies of all sizes and the economic impact and uncertainty Brexit has caused is clear. So much for “taking back control” and “knowing what they voted for”.
