It’s no secret that online gambling is going to grow in the United States in the coming years. Projections vary, but it looks likely that the size of the market will at least double by the end of the decade. It has already ballooned since 2018, when online betting and gaming were highly limited outside states like New Jersey, before the Supreme Court decision paved the way for individual states to decide for themselves. Now, around a couple of dozen states have legal online gambling in some form, and plenty more have bills with a fair chance of passing to start the ball rolling. The scene is set for growth.
Yet, it is also an interesting market. A recent report by Mordor Intelligence laid out some of the interesting aspects of growth – it predicts that online betting and gaming will hit $14.79 billion in 2031 at a 16.51% CAGR – but it also described a highly concentrated market among key players. Effectively, it looks like a first-mover market, rewarding those brands that have moved to consolidate early.
Big gambling brands have consolidated
Indeed, when you look at it, it makes sense. The major brands are FanDuel (Flutter), DraftKings and BetMGM, with others, like Fanatics Betting & Gaming, having some success in making up ground. But there is a high concentration of power among the major players, and there are reasons that look set to continue if and when more states open up to online gambling.
The most commonly cited reason for this is the high barrier to entry for new operators. A frequent tactic for lawmakers to get bills through is to promise that the state will rake in cash through expensive licenses and large tax takes – up to 50% in some cases. It is a sector where it is difficult to be a ‘nimble’ startup, as it requires substantial financial backing to make an impact. Customer retention is ultra-competitive, too. According to SportsLine casino reviews, all the major brands in the US are offering sign-up and player retention bonuses, which impact customer acquisition and retention costs. There is a lot of outlay to get customers onboarded, and it seems that the major players alone have the artillery.
Fanatics has used its ecosystem astutely
There have been surprising success stories, though. We mentioned Fanatics earlier, which has surged in several states. It has used its significant eCommerce arm to its advantage, creating a crossover strategy. It is basically an example of using an ecosystem to its advantage. Yes, DraftKings and FanDuel can do that too through their fantasy sports operations, but Fanatics has around 80 million sports fans linked to its apparel business.
However, brand recognition and ecosystems are not everything. The Sports Illustrated sportsbook – operated by Authentic, not SI’s parent company– struggled to gain a foothold in states like Michigan and recently signaled it would shutter operations. There are other challenges, not least the competition from prediction markets. Federal lawmakers have moved to regulate prediction markets that have moved into sports betting trades, but there is still some challenges to the market share.
For investing, much of this seems to be a case of a scale game. There is room for significant growth in a country where many state lawmakers are mulling over legislation that could open up legal online gambling to millions of customers with the stroke of a pen. Yet there are challenges – financial and otherwise – that favor established brands. It’s something to bear in mind when deciding your trading strategy on the U.S. gambling market.
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