Ecosystems

The Digital Evolution Of The Online Gaming Ecosystem

Digital Evolution Of The Online Gaming Ecosystem

In 2018, the Supreme Court struck down a 1992 law passed by Congress that made it illegal for most states to legalize sports betting within their borders.

“The legalization of sports gambling requires an important policy choice, but the choice is not ours to make,” Justice Samuel Alito wrote in the 6-3 opinion. “Congress can regulate sports gambling directly, but if it elects not to do so, each state is free to act on its own.”

The decision opened the floodgates to legalized sports betting – both in-person and online – in the U.S. Since 2018, when sports betting was only legal in the state of Nevada, 19 additional states and the District of Columbia have legalized the practice, either already allowing bets to be placed or are on the way to doing so.

According to ESPN reports, 24 more states are “moving toward” legalization. In parallel, Daily Fantasy Sports (DFS) betting – housed on sites like Draft Kings and FanDuel – has been made legal in 43 U.S. states, with only Arizona, Hawaii, Idaho, Montana, Nevada and Washington labeling DFS as illegal.

The industry is big business – and getting bigger by the day. Late last year, DraftKings reported $213 million in 2019 revenue and control of about 60 percent of the market, indicating that the industry as a whole had revenue north of $350 million – and that’s only counting the direct revenue brought in by wagers. An entire consumer ecosystem has been built around sports betting – including merchandise, podcasts and entire YouTube channels that employ analysts, meteorologists and sports experts to support the industry and its ever-growing base of consumers.

“I didn’t even know what DraftKings was,” Kevin Roth, chief meteorologist for RotoGrinders, told Vox of his initial entrance into the complex world of Daily Fantasy Sports betting. RotoGrinders is a website that provides the DFS community with various bits of data, including game-specific weather forecasts. “But I knew weather and sports,” Roth noted. “And that was really all I needed.”

Given the explosive popularity of DFS betting – not to mention the seriousness with which its most dedicated customers approach it – professionals abandoning perfectly stable work as television meteorologists to participate in the online gambling gold rush is likely to become more of a norm than an exception.

Last weekend’s Super Bowl offered an excellent illustration of the sea change in scale that is underway in sports betting. All in, counting online and in-person wagers, Super Bowl betting was worth roughly $6.8 billion. Around 26 million people placed their bets, about four million of which were placed in person. About five million were placed online via fantasy gaming sites, and the remaining 16 million or so were part of office pools and other smaller-scale, friendly wager arrangements.

In a microcosm of the national expansion, New Hampshire’s newly online sports gambling program raked in $2.31 million in bets for Super Bowl Sunday, according to reports in the Concord Monitor. The betting platform – which is managed via DraftKings, which won the competitive bid for the project – has been operating since late December, and saw a spike in activity over the weekend. Thus far, the program has 34,800 registered users who have collectively placed $20.8 million in bets, according to the state’s Lottery Commission.

“When we launched sports betting just over a month ago, we were introducing our players to a completely new way to win,” noted New Hampshire Lottery Commission Executive Director Charlie McIntyre. “Clearly, it has not taken long for sports fans to embrace the excitement of sports betting here in the Granite State.”

And New Hampshire is far from unique: According to the Monitor’s reports, both Connecticut and Rhode Island have seen similar results with their online gambling platforms.

And, according to Bank of America analysis, this is the beginning of a boom, not the end of one. Per BoA analysts, sports betting is on track to reach 50 percent of the U.S. population by 2022, pushed largely by the emergence of digital channels like DFS sites. While sports betting revenue was about $950 million in 2019, future estimates range from $6 billion to $20 billion.

“We think the success, adoption and technology behind online and mobile sports could be a catalyst for wider iGaming penetration, a notable shift for an industry that has thus far not been widely impacted by the internet,” Bank of America Research Analyst Shaun Kelley wrote in a note to investors, as reported by CNBC.

As the industry expands, it will face challenges going forward. Sports betting is regulatorily complex, and different states and localities control the activities differently. Moreover, where there is consumer interest and money, there are fraudsters looking to jump into the flow of funds and make off with money that isn’t theirs or launder cash they shouldn’t have.

Fighting that means building an onboarding process that makes the platform inaccessible to fraudsters from the start, noted Jennifer Aguiar, vice president of compliance and risk for DraftKings, during a recent interview with PYMNTS.

“We’re engaging [in identity verification] a lot more from a data perspective, rather than automatically requesting the customers to upload documentation, which puts them out more,” she said.

But challenges aside, sports betting – particularly the digital version – is a clearly expanding ecosystem. As 2019 turned into 2020, DraftKing announced it was merging with Diamond Eagle Acquisition and SBTech. Diamond Eagle will change its name to DraftKings Inc.

According to CNBC, Diamond Eagle is a special-purpose acquisition company that is already publicly traded, meaning the merger allowed DraftKings to become public without going through the typical initial public offering (IPO) process. The firm entered the public markets with a valuation of $3.3 billion – and a motive to take on a market that is poised to keep growing and evolving.

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