The Sports Betting Market
Sports betting is a large and growing market, fueled by the legalization of betting in many states and the explosion of on-line betting. Industry expert Shaun Kelley will provide his perspectives on the industry, the drivers of growth, who are the key players, and what the future may hold.
Shaun Kelley is a Managing Director in Americas Equity Research covering Gaming, Lodging and Leisure, based in New York. He joined Bank of America in 2004 and has covered his current sectors since 2008. Kelley has been ranked in the Top 3 of Institutional Investor’s annual Americas research poll for 10 of the last 11 years, was Runner-Up in 2009 and received an Honorable Mention in 2008. He also ranked Top 3 in the Greenwich Research Associates Poll from 2009-2013. Prior to joining Bank of America, he was an investment banking analyst and associate in technology, media and telecom, primarily at JPMorgan. He has a Bachelor of Arts degree in political science and economics from University of North Carolina at Chapel Hill.
Speaker Summary
Shaun gave an in-depth, fast-paced analysis of the history, explosive growth, current status and future projections for the on-line “gaming” (an industry euphemism for gambling) industry. He noted that this is a business that is in its infancy, having only begun in 2018 when a lower court ruling was upheld by the Supreme Court no longer making it illegal (versus legal) to place bets on line. New Jersey became the first state to allow the activity, rapidly followed by 37 others.
Shaun shared key industry terms that are used to define and explain the economics of the business followed by a brief (since its only 5 years old) timeline of the industry. He then shared the rapid growth from $0 in 2018 to $16B today with a projected CAGR of 27% between 2021 and 2026 and a 15% CAGR on an on-going basis. He distinguished between on-line casino betting (i-gaming) and on-line sports betting (OSB), where the latter drives the market’s size with the former currently allowed in only 5 states. He noted that OSB is seen as more acceptable and, in some ways, rationalized as “entertainment” versus “gambling”.
He explained how the industry has grown at double the initially projected rate due to 3 key factors: many more states have allowed betting sooner than expected; consumers have increased how much they bet (Betting Per Adult has tripled and is still growing); and, the Hold or Win Rate (how much casinos win per bet) has doubled and is still growing. This last factor has been driven by shifting the kind of bets from single items to parlays of “layered” bets (e.g., the game + the score + highest scoring player) which have a much lower chance of being won. Shaun noted that knowledgeable bettors rarely bet parlays due to significantly lower odds of winning them (parlays represent 27% of dollars bet but 59% of casino winnings/hold rate).
Shaun spent a great deal of time talking about how the industry has evolved largely into a data/analytics-driven business where the betting companies use sophisticated algorithms and customer betting data/history to quickly identify (after as few as 5 bets by an individual) “sharps” (smart bettors) versus “whales” (bettors placing lower probability bets) to individualize and target their marketing efforts to drive their handle and hold rates. So, this industry seems to be as much about data and analytics as it is about providing a means of enabling consumers to place bets on sports events. Shaun noted that the two dominant players in the industry have the most resources and are best at this aspect of the business.
Shaun then spent time showing the breakdown of betting by sport (basketball being largest due to the number of games and the number of bets on individual players) as well as how seasonality impacts betting by sport. Finally, he shared data on the number of players in the market (by business type/segment – front-end brands, license partners, tech players, media partners, etc).) and how the industry has rapidly consolidated behind two major players (Draft Kings and Fan Duel) and a third significant player when i-gaming is factored in (Bet MGM), and how the economics/cost-of-entry requires scale and share dominance to make the economics of the industry work for individual companies.
He closed with a brief discussion of the risks facing the industry with the greatest likely being efforts to regulate the industry as concerns about addiction and the negative outcomes of betting on the consumer emerge. But he also noted that, when compared to traditional casino gambling and lotteries, on-line betting is projected to be large but much smaller than these other betting outlets.
Presentation video: The Sports Betting Market