What’s the first rule for any business?, the answer is Product Market Fit. If there isn’t a customer need, businesses will struggle to scale. The problem with most Sports-betting companies is they have no strategy, and they are all busy copying each other. More on that later…
If you would like to understand more about evolution of online sports-betting, read our earlier blog titled Online betting industry - the good years. If you are looking for a solution, check out our following blog - How sports-betting companies can succeed in 2019 and beyond.
The fact is too many gaming operators are chasing the same customers. An overload in any business forces fierce competition, and it creates a buyers market. While competition is fantastic for the end-user, it won’t be if Betting companies fail.
Online Sports-betting is no different to any other business. If there are too many doing the same thing, most won’t survive. Those that do will have to learn to cope with smaller profits, and that means streamlining their business.
When a gaming company is looking to raise third-party finance, their pitch will often include the words ‘’the world is our market’’. I’ve read business plans which suggests the Betting market is still untapped, but this clearly isn’t the case!
The fact is the betting market is shrinking, and with one statement i can tell you why. By way of licensing, Governments have successfully blocked non local companies from entering their space!
On that note, if we go back to when the Sports-betting industry was in it’s infancy, anything went. An example of such, companies licensed in Malta would be able to take bets from customers in Netherlands, Denmark, France, Spain, Greece, Italy and so on. Nowadays, that wouldn’t be possible, because to take bets in those countries they would need a locally issued license. And while they could apply for such, the next point will tell you why they should think twice.
INCREASED REGULATION MEANS HIGHER COSTS
Most jurisdictions are now regulating Sports-betting companies. That’s code for saying they want a share of the pie (profits), and a big one at that. Costs of setting up in each country are significant, they include:
*Back office with local staff and costs associated
*Separating betting offer (website with country domain)
*Extra auditing requirements
In some jurisdictions betting tax is passed on to the customer, but that still affects customer spend. From experience, I can tell you people play to their pocket, and the tax authorities taking 5% (like in Germany) would mean 25-30% of total profit!
PROBLEM GAMBLERS + DATA COLLECTION
In many countries, Sports-betting companies are under increased pressure to stop problem gamblers. While this is clearly the responsible way to go, many people don’t want an intrusive registration process.
Is the consumer really comfortable with Betting companies having all your personal data? Lets face it, you can buy nearly everything online without having to send in a copy of your ID card. Some bookmakers are now asking for bank account statements, and governments are encouraging customer cards with restrictions.
In the UK, FOBTS (Fixed odds betting terminals) now have a maximum stake of just two pounds, some had a 100 before!
BUYING SPORTS BETTING DATA
All betting companies buy-in data, it’s a massive cost for the operator. Did you know Betradar sell in-play odds-feed to over 350 operators. Their package can cost upto €200K per month for larger operators, smaller one’s are paying to near to 20% of profits. For those who don’t know the Betradar service, they supply:
*Fixtures and results
*Live Data service
*Pre Match Betting odds
*In-play betting on over 200,000 events per year.
CAT FOOD - ALL TASTES THE SAME
With regards to buying in data, it’s a problem for low end operators. While they can adjust the lines and set to more competitive take-out, there are too many doing the same.
PS - If you are buying something online and 20 stores have the same price, you will buy from Amazon! If you see the same offer from 20 sports betting companies, you take Bet365! More on that in our up and coming blog on what Sports-betting companies should be doing!
Many of the larger sports-betting operators hold a massive advantage over Small bookmakers. The reason, they offer customers live streaming on hundreds of events per day. This sticky content makes sure customers have money (rule if they want access) in their betting accounts, and entices them into making more bets. However, Data rights for live streaming come at a cost, so bookmaker margins are lower.
Another big cost for gaming operators is Banking and payment providers. Most leisure Bookmakers absorb the costs for both inbound and outbound payments. We are referring to those associated with Bank wire, Neteller, Skrill and most other e-wallets. Did you know the costs of accepting Paysafecard is upto 7%!
Unlicensed betting companies such has 1XBET are giving the industry a bad name. The word on the street is Russian mafia operate this company, and they are hacking, cheating and stealing to get ahead. Nevertheless, they are getting stronger by the minute, and they are doing that by accepting bets from anywhere in the world.
In fact, many online Sports-betting companies have a second company to take bets from the grey and black markets. Tipico use Rivalo to take bets from countries that don’t allow betting, while Betsson, 10bet and many others have clones!
In general affiliate websites won’t promote Smaller operators, and if they do it comes a high cost. The reason, predecessors reneged on profit-sharing payments to Webmasters, so trust is gone. Maybe you don’t know this, but companies such has William Hill, Sky Bet, Tipico, Bwin, Victor Chandler, Ladbrokes have found ways to stop paying revenue share. In fact, William Hill used rogue Israeli marketing companies to find Website partners who were never paid.
The knock on effect is marketing has become more costly for companies trying to get more clients, and websites such has ours refuse all marketing requests.
DON’T BELIEVE US
Over the past year, the share price of major gaming companies have fallen drastically. Take these stats:
William Hill - High 331, today 149.65 (loss 55%)
Unibet (Kindred group) - Year high 12.69, today 6.32 (loss over 50%)
888 Holdings - High 3.67, today 1.57 (loss 57.2%)
GVC - High 12.90, today 7.11 (loss 44.9%
PP Betfair - High 9123, today 6206 (down 32%)
The best days are long gone. Increased regulation and the costs of delivering product have driven profits to a new low. Innovation and performing better than the rest is the only answer going forwards. In our next blog, we will give some insight of what must be done!