Igaming Focus: VIPs betting offshore set to continue for the foreseeable future

Igaming Focus: VIPs betting offshore set to continue for the foreseeable future

  • Jake Pollard, CDC Gaming Reports
April 22, 2021 2:00 PM
  • Jake Pollard, CDC Gaming Reports

Many high value players continue to bet on offshore books, but it doesn’t seem to trouble the regulated operators, as many refuse to take the action and those VIPs have their own workarounds. 

DraftKings chief executive Jason Robins made a startling comment during the company’s investor presentation in early March. When it came to customer acquisition, the biggest issue for DraftKings was attracting the high value players who were still betting with offshore sportsbooks.

Many of them were still to be channelled to regulated sportsbooks. For good measure, and possibly as a reassurance to investors, Robins added he wasn’t “sure when it would happen, but I am confident it will.”

In reality what was startling was the fact that Robins willingly volunteered the information. It’s well-known that many high value bettors continue to bet on unregulated books, but it clashes with the key narrative of igaming regulation, which is to channel the vast majority of players to licensed operators.

All the countries or states that go through the regulatory process claim “channelization” as one of their key objectives; so that the activity generates strong volumes for operators and tax revenues for the authorities.

Failed regulation?

Ergo, if a large number of high staking VIPs, sharps and professional bettors for whatever reason are opting to bet with unregulated operators, then regulation has failed in a major way in one of its most important goals.

Many will point out that those VIPs are making a choice on where they want to bet, while regulated operators must also shoulder responsibility as they refuse to take the action. Other factors pushing VIPs and sharps to bet offshore will centre around familiarity and convenience.

“Long-time sports bettors in the US have grown accustomed to user flows offered by unregulated books and PPH (pay per head) sites over many years, and in some cases decades,” Lloyd Danzig, CEO and founder of gaming investment firm Sharp Alpha Advisors, tells CDC Gaming.

“The difficulty experienced by regulated books in attracting these customers is primarily attributable to the comparative friction involved in the onboarding process and the significant perceived switching costs.”

Add in features such as geolocation, KYC/AML, payment processing or risk, and “the regulated customer journey is fraught with pain points that cause a significant drop off in acquisition and retention rates”.

While professional bettors are used to the situation and have their workarounds and systems that they know and trust, operators are also missing out on another segment of the player base.

‘Wannabe sharps’

New Jersey-based betting pro Jack Andrews, who uses the name Captain Jack Andrews on social media, says: “The regulated U.S. market has definitely been focused on just one segment of the market, the recreational bettor. Operators are all fishing in the same pond, hoping the stock never runs out. Eventually, they’ll need to recognize there are other segments out there.

“Most operators believe there are two types of players, squares and sharps. Anyone not losing at more than 8% is an undesirable sharp bettor who could damage their bottom line. In reality, there are very few bettors who are any kind of threat to the bottom line.”

A large number of players straddle the recreational-sharp punter divide and operators should cater to them. “I call them ‘wannabe sharps’. On average they will lose between 2%-6% of their bankroll per year, shop around for best prices and don’t want to make bad wagers. They won’t lose as much as 8% but their spend will be sustainable and the book is earning steady income. But players who lose at 8%, which is what operators want when they talk about recruiting recreational punters, will just stop playing.”

Such talk sounds reminiscent of poker sites searching for fish to feed their sharks at the height of the online poker boom. Sports betting is a totally different vertical, but there is also a feeling that “even though U.S. brands are maturing and taking more bets, much of their corporate focus remains on recreational punters looking for entertainment. That’s because the perception is that sports betting is new to the U.S., when of course it isn’t at all,” Andrews says.

DraftKings and FanDuel did not wish to comment on the topic when contacted by CDC Gaming, but Lloyd Danzig says the term “‘European-style risk management’ is increasingly being used as a pejorative term describing the process of limiting profitable customers”.

The fact that so many of the leading U.S. books are run by European teams and tech platforms may not be a coincidence to this trend, but as their senior executives have often reminded conference audiences, bookmakers are there to generate profits and make no excuses about doing so.

In the meantime, “some brands are seeking to capitalize on this dislocation by targeting and encouraging sharp action, with books such as Circa Sports explicitly referencing this topic in their messaging,” adds Danzig.

VIP impact

More specifically, Pennsylvania’s March numbers also showed the impact of missing VIP action on Bartsool Sportsbook’s volumes. The group’s share of mobile handle dropped to 12.4% from 14% in February and it has been unable to add to its 12-13% share of market since launching in September 2020.

This has happened “despite heavy promotional activity over the last several months, since some of its VIP base moved on to other states”, Deutsche Bank explained in its monthly report.

That VIP base is Barstool CEO Dave Portnoy and his group of high-staking friends not being in Pennsylvania during the time period. The group’s social media presence also has the effect of encouraging followers to bet. Barstool is a unique case but does show the impact high value players can have on operators.

As sharp bettors ask to not be kicked out or limited, Andrews says for the operators the issue isn’t necessarily about catering to high value players. This is because the long-term view will be on getting online casino regulated in more states, especially if sports betting doesn’t generate the hoped-for tax revenues.

“I don’t think Jason Robins worries about who is still betting offshore, as long as he can get them on to DraftKings by the time more states regulate online casino.”