Is The Sports Betting Gold Rush Over? (Part II)
In Part I, we explored the opportunity for new sports betting platforms. In Part II, we explain why a wave of new "betting-adjacent" businesses will also emerge.
Is the sports betting gold rush over for investors?
The answer is no. In Part 1 (here), we explained why we expect a new wave of venture-backable betting platforms. From new sportsbooks to daily fantasy games to online casinos.
But in our view, the betting industry’s next phase of growth won’t be limited to betting platforms.
We also anticipate a wave of businesses that sit adjacent to the betting platforms and serve critical roles across the betting ecosystem. These “betting-adjacent” businesses are the subject of this Part 2.
But to predict the future of the betting business, it’s essential to understand one piece of history…
The US sports betting industry practically emerged overnight.
In 2018, the Supreme Court struck down PASPA, a law that effectively banned sports betting nationwide. Suddenly, the US went from Prohibition to states calling the shots. Within a month, New Jersey became the first state to legalize.
By 2024, less than seven years later, sports betting was legal in 38 states, Americans wagered nearly $150 billion, and betting operators drove $14 billion in revenue.
Few industries have ever gone 0-100 like the US sports betting industry. In 2020 and 2021, annual growth neared 180 percent.
Betting operators were eager to capture that growth. But to do so, they had to prioritize.
Why? Sports betting was a land grab market. DraftKings, FanDuel, BetMGM, Caesars and others knew that their products were commoditized. Every product offered similar game odds and UI/UX. The winning sportsbooks would be whoever reached consumers first and gained enough scale to beat out the competition.
So, since 2018, sportsbooks sprinted to acquire as many customers and gain as much market share as possible by prioritizing three things:
Government licenses
Marketing budgets
Product suites
1. Government Licenses
Sportsbooks spent millions to lobby state regulators, push legislation through statehouses, support ballot measures, purchase state sportsbook licenses, plan state-by-state launches and ensure compliance with local regulations. And each process looked different across the 38 states on the map below.
To explain the scale of these costs… consider that every sportsbook needs to pay New York $25 million just to obtain a license. Or consider that DraftKings and FanDuel spent $114 million just to influence state ballot measures from 2016-2022.
2. Marketing
After obtaining licenses, sportsbooks needed to acquire users – by spending billions across league & team sponsorships, promotional offers, performance marketing, and more advertising channels.
In 2021, DraftKings spent 76% of revenue on sales & marketing. In 2022 and 2023, even as that percentage decreased, DraftKings spent $1.2 billion per year. See below.
Meanwhile FanDuel leveraged Flutter Entertainment’s balance sheet to spend similar sums. Major casinos (e.g. MGM & Caesars) and sports giants (e.g. ESPN & Fanatics) leveraged both their balance sheets and their media assets to promote their own sportsbooks.
3. Product Suites
Lastly, betting operators grew topline revenues by developing their core sportsbook products – as well as supplemental products like daily fantasy, horse racing and online casino. Betting operators had to hire masses of engineers, data scientists and ML experts to build optimized mobile apps, odds-making algorithms, and scalable platforms capable of handling millions of users.
Market leaders also took an aggressive M&A approach to build out their product suites. For example, in 2022 DraftKings spent $1.56 billion on the online casino Golden Nugget and $750 million on the digital lottery courier Jackpocket.
Now here’s the catch. By prioritizing licenses, marketing and product… betting operators inherently deprioritized other things. As a result, in 2024 we’re seeing problems emerge and consumer needs go unmet across the betting industry. That is the basis of the opportunity for betting-adjacent businesses.
Here we’ll highlight four examples of categories that are not betting platforms – but are nevertheless critical to the long-term success of the betting industry and ripe for innovation:
Responsible Gambling
Regulation Tech
Betting Advice
Data Providers
1. Responsible Gambling
7 million American adults suffer from gambling addiction, causing an estimated $14 billion in annual cost across healthcare, criminal justice, job loss and bankruptcy. Those addiction figures are only increasing as more consumers download online sportsbooks.
However, existing treatment options are sorely outdated. Healthcare providers do not offer specialized treatment, and state hotlines fail to provide the hands-on approach needed. As a result, 90 percent of problem gamblers relapse.
All stakeholders benefit from responsible gambling solutions. Betting platforms must ensure consumers bet responsibly to retain them as long-term customers. Regulations must ensure that consumers are adequately protected. Sports leagues must ensure positive public sentiment towards betting in order to continue driving major sponsorship dollars.
Recently Will Ventures invested in Birches Health, a mental health service provider focused on treating individuals struggling with gambling-related and other behavioral addictions, via a combination of therapy, digital tools, and personalized support. Another startup, BetBlocker, helps bettors moderate their usage of gambling products across devices and regain control over their habits.
2. Regulation Tech
Starting in 2018, state governments rushed to legalize because they saw a massive new source of tax income. (To date, states have collected over $7 billion in sports betting taxes). But by rushing, states implemented half-baked regulatory frameworks that are difficult to enforce in many cases.
That’s why we’re now seeing more need for RegTech – technologies that help governments monitor and help betting operators comply with regulations. Major areas of need include know your customer (KYC), anti-money laundering, and fraud prevention.
GeoComply, for instance, provides geolocation services that verify whether users are betting in legal jurisdictions. Compliable – which works with Fanduel, bet365, and Fanatics – streamlines the licensing process for operators by automating compliance workflows. kID helps developers create age-compliant products that work within local regulations.
3. Betting Advice & Social
Bettors don’t just want to place bets. They want to share their bets with friends and learn what other people are betting on. There are two reasons for this. First, betting is an inherently social activity; think of how many times you might have bet on sports with friends before sportsbooks were legal. Second, making money as a bettor is hard; the house’s VIG automatically stacks the odds against you.
That’s why we’ve seen the emergence of numerous business models built around betting advice – from community networks like Pikkit to analysis tools like HOF Bets to media platforms like The Action Network. These tools both have B2C angles selling to retail bettors, as well as B2B angles driving affiliate marketing for the betting operators
Will Ventures invested in DubClub, a platform that allows handicappers (aka pro betting analysts) to sell content around their picks. Handicappers were previously shut out of solutions like Shopify and PayPal. But DubClub provides an all-in-one platform for handicappers to run their business and for bettors to participate in the handicappers’ communities.
4. Data Providers
Data providers like Genius Sports, SportRadar, and Stats Perform are critical parts of the betting industry. They effectively power sportsbooks with comprehensive data feeds, ranging from player statistics to advanced predictive models. These companies make it table stakes to bet on an NBA money line or NFL over-under. But there’s room for innovation around the types of data that can be provided, and the types of bets that can be made.
One example is microbetting – aka the ability to bet on real-time, in-game events like whether a quarterback will complete their next pass. Simplebet, a B2B microbetting data provider, was acquired by DraftKings for close to $200 million. nVenue is another microbetting provider coming out of NBA’s Launchpad incubator.
Consumers are also interested in betting beyond top-tier sports. Alt Sports Data specializes in providing data and pricing odds for smaller sports properties like Professional Bull Riding and World Surf League.
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It’s important to emphasize that these are just four of many categories that are ready for innovation. We continue to see early-stage startups emerge around other industry pain points from high payment processing costs, to struggling affiliate marketing models, to undifferentiated third-party games providers.
That’s why we’re confident we’ll see large outcomes from not just new betting platforms, but also a range of companies across the betting ecosystem.
As a parallel, we can look at the social media industry. First came the core consumer-facing platforms like Facebook and Instagram. Then came a wave of adjacent businesses, from content creator tools (e.g. Canva) to AdTech platforms (e.g. theTradeDesk).
Another example is the video games industry. First came the core consoles and game studios. Then came a wave of adjacent businesses, from community platforms (e.g. Discord) to e-sports organizations (e.g. FaZe Clan).
Similarly in sports betting, consumer-facing platforms like FanDuel and DraftKings will continue to grow – and we expect to see many more adjacent businesses emerge around them.
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Great read.