We are closing out our week of looking back on the first five years of widespread sports betting in the US since the repeal of PASPA and looking ahead to what the next five years may bring. On our final day of reflection, SBC Americas spoke with a trio of industry experts covering all facets of the industry to get their take on how things have developed. Compliable’s Chief Regulatory Officer Justin Stempeck, SportsHandle contributor Eric Raskin, and BettorOff CEO Alex Dubin all bring their experiences to the table as they sum up how the industry has grown since 2018.
In the five years since the repeal, has the speed at which states have regulated sports betting surprised you?
Stempeck: I think that most people watching this industry expected that the pent-up demand for sports betting would lead to rapid adoption, so the pace of legalization itself is not surprising. There was always going to be a sizable wave of first movers into this space and there was a subsequent ripple effect when neighboring states saw the revenue results and were eager to capture some of those tax dollars for themselves. I don’t think we’ll see anything like the frantic pace of 2020-2021 again though, as the states remaining to legalize are doing so at a much more deliberate speed.
Raskin: I’d say it’s been slightly surprising how quickly we’ve reached this point with about half of the jurisdictions in the US now regulating online sports betting, in large part because I came to the sports betting media world from the poker media world. I observed the rise and fall of unregulated online poker in the US, followed by the incredibly slow rise of regulated online poker.
Since legislation was signed in 2012 allowing online poker (and online casino) on a state-by-state basis, only six states have legalized — in a decade. It’s not surprising that sports betting has been embraced more rapidly than that. But I’d say we’re a few states ahead of the pace I would have expected back in 2018.
Dubin: Although one might think that the massive tax revenues associated with legalized online sports wagering would spur many states to move quickly, the political realities of each state vary widely. There are so many different hurdles to clear, as well as the complexities required with rolling out regulation. We saw some states move incredibly quickly, others have been much more measured, but the inexorable spread of legal sports betting won’t stop.
Initially, we saw a rush from major brands, both European and American, to move into the space. Was there any advantage gained in this first mover action?
Stempeck: There is an undisputed advantage for operators to be a first mover into a jurisdiction from a customer acquisition perspective. We have seen this in the launches across numerous states, particularly when compared to the ability of operators in a “second wave” launch to acquire any significant market share. In the past several years, we have seen some of the mid-size and smaller brands take a more strategic view of the US opportunity and not attempt to compete in every single state if the combination of application fee, competition, and market size didn’t make sense. I expect that this will become more common with regional niche players and then a handful of large operators fighting it out in every state for the lion’s share.
Raskin: It’s been a mix, but the quality that’s consistent among the operators at the top is that they’re all major name brands. FanDuel and DraftKings were huge DFS brands, MGM and Caesars were huge casino brands, and those have consistently been the top four in the states where they operate. That said, clearly there has been some first-mover advantage for DraftKings and FanDuel. It was enhanced greatly by their enormous existing player databases, but they launched sportsbooks ahead of most of the competition and never looked back.
Quality of product matters — if your product is severely lacking, you won’t survive — but not nearly as much as planting your flag early and possessing a name that gamblers are familiar with. This may be disproven over time if Fanatics Sportsbook joins the upper ranks or Barstool Sportsbook breaks through from the second tier to the first tier, but through the first five years, it’s been about launching early and launching loudly.
Dubin: At first glance, being a first mover may seem advantageous. These companies had the opportunity to capture early market share, establish brand recognition, and shape customer expectations. They were able to build a loyal customer base by offering innovative features and attracting bettors who were eager to embrace the new digital betting platforms. Speedy, out-of-the-box solutions might have offered a quick entry into the market, but they often lacked the depth and sophistication that well-rounded products brought to the table.
Companies that took the time to develop robust platforms, user-friendly interfaces, comprehensive betting options, and a seamless user experience gained traction over their competitors. By focusing on quality, these companies could attract and retain a larger customer base, ultimately leading to sustainable growth.
The professional sporting leagues in particular have had a huge change of heart, with players now even able to promote sports betting in the latest NBA CBA. Why has this happened, and is it good for integrity?
Stempeck: While professional sports leagues fought sports betting for decades, they had to evolve or be shut out of an extremely lucrative industry. They have now walked back their previous positions and become much more comfortable with the expansion of sports betting. The question of integrity is complex, as before the legalization, there were no regulators watching this space and all sports betting was occurring in black markets. There’s a valid argument to be made that now, with dozens of state regulators following this industry closely, better safeguards are in place to protect integrity. Further, leagues are hyper-aware of the damage that an integrity-related scandal could have to their brand and are no doubt constantly self-policing to make sure nothing occurs.
Raskin: The leagues haven’t actually had a change of heart. They’ve just publicly changed their stance. They were outwardly opposed to sports betting until it was clear to them that regulated betting was coming, and ever since they’ve been angling to get their slice of the financial pie — first through so-called “integrity fees,” then through “official league data” rights, and all along, through franchises being able to partner with sportsbook operators. And if the leagues and teams are going to make money off of sports betting, then the players’ associations are certainly going to push for the players to make some direct money too.
I don’t see any harm in terms of integrity. But players promoting sportsbooks could be a risk to perceived integrity. That’s the challenge: convincing the public that a player endorsing a sportsbook has nothing to do with what happens during the games, and that regulation is a positive for integrity overall.
Dubin: In its simplest form, it’s happened because of money. Sports wagering is a gigantic new revenue source and drives viewership in a way nothing else can, and naturally leagues want to be part of this and push engagement to new heights with viewers.
Sports betting will always require oversight in order to ensure integrity, and by having major leagues involved, education can happen at a quicker rate, and resources will be more widely available to ensure that integrity is embraced at every level.
Many states have embraced sports betting, but notable ones that have not, or indeed outright rejected it, include Texas, California, and Florida. Why is this the case, and is it fair to say sports betting hasn’t reached its peak in the US until these states regulate?
Stempeck: Every state in the US has a unique political landscape and operates on its own timeline when it comes to sports betting. Both California and Florida have extremely powerful tribal interests with a lengthy history in gaming, while Texas has a political history of opposition to the concept. Each of these have factored significantly into the delayed legalization of sports betting in these states. That being said, legalization in those states seems inevitable even if it will be one to three years before they all come online. The significance of the sizes of these respective markets cannot be overstated and the potential value of these sleeping giants will certainly set a new ‘peak’ sports betting when they are active.
It’s definitely fair to say the peak of sports betting is still in the future, with more than 90 million people living in those three states combined, still waiting to be able to place legal sports bets on their phones. Sports betting remains in a growth pattern until some or all of California, Texas, and Florida join the party. Interestingly, they’ve failed thus far for different reasons.
Raskin: In California, it’s the push and pull between the tribes and the state as well as a poorly promoted ballot measure. In Texas, it’s been the combination of certain southern religious and cultural norms and some powerful politicians in key positions being anti-gambling. And in Florida, the complications begin with tribe/state balance issues somewhat like California, but there the governor and the tribes tried an ill-conceived end-around to create a sports betting monopoly, and it’s been hung up in the courts ever since.
Dubin: I think it is fair to say that these three states, if and when they legalize, will bring massive new audiences to online sports betting in the United States. Texas, California, and Florida have yet to regulate online sports betting due to a combination of factors. One of the main reasons is the political climate in these states, as there is opposition to gambling from certain groups and lawmakers. Additionally, there is a lack of consensus on how to regulate and tax online sports betting, which has led to delays in the legislative process.
The size and diversity of these states also make it difficult to reach a consensus on gambling issues. Furthermore, there are powerful tribal gaming interests in California and Florida that have opposed online sports betting, and the state constitution in Texas prohibits most forms of gambling.
While other states have been able to legalize online sports betting through ballot initiatives or legislative action, these three states have faced more significant challenges. However, there is growing pressure from the public and the gaming industry to legalize online sports betting in these states that may play a role in legislation ultimately getting passed.
While sports betting has taken off, iGaming continues to lag behind. Why has it had such different fortunes to sports betting?
Stempeck: A lot of different theories have been discussed concerning why the adoption of iGaming has been significantly slower than sports betting and I’m not sure there is any uniform answer. Generally, I believe that many legislators are more comfortable with the idea of mobile sports betting as opposed to a full casino on your phone available 24/7. There isn’t really a logical explanation for this sort of reluctance aside from the general sense that sports betting is potentially not ‘real’ gambling. Sports are everywhere in our culture and are a common touchstone for most of the population, as is the idea of placing bets on the games. Casinos simply do not have that level of penetration in our society and have been typically associated with Las Vegas bacchanalist weekends.
Further, there seems to be less of a concerted push at a high level to make the case for the benefits of legalized online casinos and the benefits it would offer to states. Online sports betting has consumed most of the air in the room for the past five years and we are all familiar with the arguments for and against legalized sports betting, but that same conversation has not occurred for online casinos. Once the dust has settled on sports betting and states are more comfortable with regulated online gaming then I have no doubt online casino will be the next topic of discussion.
Raskin: I think it’s two-fold. First, online casino and poker don’t have interested parties like sports leagues and teams leaning into their legalization; it’s really just the casino industry and some consumers advocating for it, no other powerful businesses. And second, I think there’s a concern from some — justifiable in my view — that iCasino is both a more addictive product for many players and a more financially ruinous product for many players. It is possible to lose a lot of money quickly playing online casino games. The same is true of sports betting, poker, retail casino gambling, etc., but the ease with which a player can, say, spin the slot reels 15 times in a minute is quite pronounced. At 10 cents a spin, that’s no big deal. But since $500 a spin is also an option in many iCasino games, I think it’s a reasonable concern that has limited the state-by-state embrace of iGaming.
Dubin: iGaming has lagged behind online sports betting in the United States due to a combination of factors, including public perception, lobbying, regulation, and competition. One of the main hindrances has been the complexity of online gaming’s regulation which involves multiple types of games that require different regulations and licensing. Another main hindrance has been that offshore operators offer online gaming to U.S. players, making it difficult for states to regulate and tax the industry.