Let’s discuss the main peculiarities of sports betting as a business
With the coronavirus restrictions on mass gatherings and closures of many sports facilities, athletes and fans are not the only ones to suffer. For the bookmakers and gaming companies, such a loss of major markets meant a huge shift to virtual sports and online gambling. According to the American Gaming Association, the sports gambling industry was estimated to lose $140 million during a single weekend in March 2020 due to the absence of nationwide tournaments to bet on.
Before the lockdowns, the sports betting industry was a huge phenomenon. The report of Zion Market Research revealed that the global sports betting market was valued at around US$ 104.31 billion in 2017 and is expected to reach approximately US$ 155.49 billion by 2024, growing at a healthy CAGR of 8.83%. According to the Technavio’s market analysts, the sports betting market will grow at an even more impressive CAGR, with the global revenue expected to reach nearly $370 billion by 2022.
Investors and representatives of sports betting companies in the US, who gathered at an event sponsored by Morgan Stanley in 2019, predicted that the fast-growing industry will have $7 billion to $8 billion in revenues in the U.S. within five years. Morgan Stanley gave an even rosier estimation that sports betting could generate $15 billion in revenue by 2025 if every state in the nation had legalized it by then. In any way, the total money wagered at licensed sportsbooks in the US broke the $11 billion mark last year, nearing the revenue amount to $1B.
Despite any current obstacles, sports betting is not a thing to go with the wind. People were as eager to take their chances at KHL Russian Hockey League, Turkish and Mexican Soccer Leagues, Belarusian sports, live and virtual horse racing, etc. Many more are still trying to fill the void with online casinos, betting on TV shows, political events, and all available alternatives. Hence, today we’ll discuss the main peculiarities of doing such a business.
Is sports betting legal?
Gambling per se and sports betting as its vital part is not legalized everywhere. However, to tell the truth, most countries of the world consider is at least partly legal.
The regulation of sports betting in Europe is not governed by a single piece of legislation. It depends on national laws and regulatory issues around sports betting. Generally speaking, most nations have a strong stance on those who run bookmaking or casino operations. Hence, certain licenses need to be obtained. Currently, Germany and the Netherlands are preparing to introduce new gaming laws in 2021. Besides legalizing sports betting, online poker, and online casino games, Germany is planning to place significant restrictions on those gaming activities. For sports betting, bettors will only be able to wager on the final result or the next scorer of a game.
In the US, the betting landscape is similar. On the one hand, it became legal in the United States on May 14, 2018, when the U.S. Supreme Court overruled the Professional and Amateur Sports Protection Act (PASPA). On the other hand, there’s no single legislation to cover the whole territory. Each state has the right to pass their own legislation to authorize sports betting. Currently, 24 states have sports betting legalized to some extent, while 24 more are moving towards adopting betting regulations. Idaho and Wisconsin do not have any publicly announced bills in this realm, whereas Utah is unlikely to authorize any kind of gambling.
Gambling in China is mostly illegal. However, Hong Kong and Macau, which are special administrative regions, have authorized and regulated the sports betting activities. In addition, Chinese citizens can legally access online sports betting websites.
Profitability of a sports betting business
As you can see, becoming a sports betting bookmaker may require some paperwork and application processes. So, you may wonder if it is worth the effort. The profits of a betting business depend on many factors, which are hard to predict. At the same time, there are common principles that make it attractive for entrepreneurs.
To begin with, bookmakers earn something, no matter the outcome of the bet. If a person loses, all the money goes to the betting business. If they win, some percentage of the bet is also given to the bookmaker as a commission fee – so-called “vig” (vigorish) or juice. This small payment is a guarantee that the business will make some money regardless of the outcome.
The next technique allowing a bookmaker to stay profitable is setting the right built-in profit margin while calculating the odds. Therefore, the bookmaking firms usually employ odds compilers with deep knowledge of a particular sports field who can skillfully price up markets for sports events. The odds they set determine how much in wagers a bookmaker is likely to take in, and how much money they are likely to make. Ideally, compilers also make sure that a bookmaker has a balanced book, which means they can make approximately the same amount of money, regardless of the event outcome.
According to the Motley Fool, the three major companies that provide the infrastructure for sports betting are International Game Technology (IGT), Scientific Games, and The Stars Group which recently agreed to merge with Flutter Entertainment.
In 2019, IGT got $4.78B in revenue with a total asset portfolio of almost $13.5B. Scientific Games Corp received $3.4B in revenue for the same period and managed total assets of $7.8B. The Stars Group, in its turn, reported revenue of over $2.5B.
As for the major sports betting websites, their financials are not always publicly disclosed, but still quite impressive. For instance, 888 Holdings saw its revenues increased to a record high of $560.3m in 2019, but its profits fell as gaming taxes and other expenses increased. Kindred Group plc reported that its gross winnings revenue amounted to GBP 912.8 ($907.6) million for the full year 2019.
These numbers should give you an idea of sports betting business profitability.
How to start a sports betting business
To begin with, check the legal regulations existing in your country, or the country of operation. Make sure it’s legal. Please, mind that whenever you want to expand the scale of your operations, you’ll have to deal with different regional laws and policies.
Like with every business, you’ll have to make a plan. Decide on whether you should open a land-based betting facility, or go 100%-digital. Choose the specific target audience. List down the sports which are most popular in your targeted market. Please, mind that if you want to deal with fantasy sports too, your legal and financial options may get much scarcer. Calculate initial expenses and look for funding, if needed.
Furthermore, decide whether you start on your own or onboard with a pay-per-head company (PPH) that provides sports betting services including betting software, servers, and databases, and of course the betting odds.
Since omnichannel is a key trend today, you’ll most likely need to either create a brand mobile app/website from scratch, or choose a ready-made sports-betting solution. With the numerous offers at the market, you may be confused. Therefore, before you make a choice you should have a clear vision of your startup. For instance, when you create a website, you should have already decided if it would only be about sports betting or also include other gambling opportunities like popular casino games, etc.
The white label sportsbooks are quick, easy to launch, and affordable. At the same time, they make you dependent on the platform provider. Customized software development takes more time and is not very cost-efficient, but you receive complete control of your sports betting business. Most popular solutions include features like risk management, live streaming, back-office support, reports & statistics, etc. The most successful online betting companies have simple designs and at least 50 variants of wagers offerings.
Once you’ve done with the channels of providing services, you’ll need to take care of the financial side. Choose your payment service provider to have a merchant account with. According to iKajo, the essential features of the payment processor for sports betting and gambling are:
- smooth pay-ins and regular payouts
- various payment methods including wire transfers (like SEPA, SWIFT)
- multiple currencies and local payment methods
- accepting prepaid cards, especially the reloadable ones that don’t need a bank account
- supporting certified e-wallets relevant for your target market
- smart recurring billing software
- fraud and chargeback prevention systems
- integration with the major gambling platforms
Finally, start your branding and marketing campaigns with the help of professionals. A betting business can be called successful if it manages to retain at least 200 active players in its customer base. Attracting and keeping them requires a solid amount of time.
Before you come up with a strategy, you may research your competitors and determine what you need to stand out. You need to start a pre-launch advertising campaign to inspire prospective clients with publications, online advertising, presentations, and more. For the after-launch, you can promote your business using methods like online advertising, SEO, and banner networks.
As a business owner, you can also establish a bonus system to reward your loyal customers.