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This is a contributed post by Greg Bettinelli, a partner at Upfront Ventures.
The floodgates opened for legalized sports betting in the U.S. yesterday as the Supreme Court ruled 6-3 in favor of the State of New Jersey, striking down as unconstitutional the Professional and Amateur Sports Protection Act that banned sports betting outside of Nevada.
For people like me who have been following the case and expecting this decision, it was still a heart-pounding “OMG, this is really happening” moment. And if you haven’t been following the case, you probably don’t realize how much is about to change. Short answer: A whole lot, very quickly. And in my opinion, straight out of the gate, it’s not going to be pretty.
Okay, in two weeks, we will likely be able to legally bet on the NBA finals at Monmouth Park (a racetrack on the Jersey Shore). That’s pretty cool! And of course it’s not just about New Jersey — many state legislatures have been working on bills with the expectation that the court would rule this way: Delaware, Massachusetts, Mississippi, New Jersey, Pennsylvania, Rhode Island and West Virginia, just to name some. There could be 32 states offering legal sports betting within five years. And virtually no one will be ready for this amount of supply.
Laws will need to be written. Tech (and brands on top of that tech) need to be built. Product and pricing needs to be figured out. And everyone — and I mean everyone — is going to want their piece. Traditional gambling participators like bettors, regulators, casinos, lottery companies, racetracks, tribes, and also participants like leagues (think exclusive data deals, “Integrity Fees,” sponsorships, etc.), players, media properties, league sponsors, tech providers … I have a harder time thinking about who won’t want in on this.
Consumer expectations are going to be way too high, and supplier expectations will be equally crazy because no one knows what the true demand really is. Today, legal sports betting in Nevada is about $5 billion a year (of which NFL is around 50 percent). For reference, wagering on horse racing in the U.S. is $11 billion a year. Reports vary, saying the expanded sports betting market could range from $10 billion to as high as $150 billion — a totally ridiculous figure, IMHO, but no question, the scale will be huge.
Here’s the problem: Sports betting is a very low-margin business. The take rate of sports wagering is around 5 percent, while it’s closer to 20 percent in horse racing. And in unregulated markets (which will occur somewhere in U.S.), the price of the product is going to get close to zero. It’s going to be hard to make any money, and customer loyalty will be basically nonexistent without pricing power.
As a result, there will not be enough for everyone to split and be happy. Look at Robinhood, which has essentially taken all of the economics out of retail equity trading — overnight. Look at the margin of sports wagering in Vegas — it’s almost nothing. It likely won’t end well for most players. But a few are going to crush it (I hate saying that, but it’s true). And I bet the winners will surprise us.
In addition to all the sports leagues like MLB, MLS, NCAA, NFL, NHL and the PGA, keep an eye on media companies like AT&T (DirecTV), CBS, Comcast (Golf Channel), Disney (ESPN), Fox, Time Warner (Turner), Verizon (Oath) and Action Network/Barstool Sports (with the backing of the Chernin, Kerns and Jacobs dream team). Don’t be shocked if StubHub and even Ticketmaster figure out a way to get in the game, as they know the customers with high propensity to bet on sports.
You will also learn a lot more about the likes of DraftKings and FanDuel (again), Boyd Gaming, Churchill Downs, IGT, MGM Resorts, Paddy Power/Betfair, Penn National, Stars Group (SkyBet), Stronach Group, William Hill, Wynn Resorts and then tribes like Mashantucket Pequot, Mohegan, Morongo, Pechanga and Seminole, which have all been active in gambling at the state level.
As a VC, I’m quickly re-learning what happened in Europe with legalized sports betting, as well as thinking about the broader implications like quickly finding tech talent in states like Mississippi and West Virginia to support the explosion of opportunity to come. Things like age and geographical verification, account funding, data and content providers all need to be considered.
Honestly, it’s not an overstatement to say that we’re about to see radical change, not just in sports but in the related media, tech, finance and law. Buckle up — let’s enjoy the ride!
Greg Bettinelli is a partner at Upfront Ventures. He joined Upfront in 2013, with an investment focus in businesses at the juncture of retail and technology. His investments include GOAT, thredUP, DroneBase, inVia Robotics, Happy Returns, Rival and Ring (acquired in 2018 by Amazon). Prior to joining Upfront, Bettinelli was the chief marketing officer for HauteLook, a leading online flash-sale retailer that was acquired by Nordstrom in March 2011 for $270 million. Before HauteLook, he was EVP of business development and strategy at Live Nation, responsible for strategic direction and key business partnerships for the company’s ticketing and digital businesses. Earlier, Bettinelli held a number of leadership positions at eBay, including senior director of business development at StubHub, where he led business development, partnerships, sales and seller development, including spearheading StubHub’s landmark relationship with Major League Baseball. Before transitioning to StubHub, he led eBay’s event tickets and media businesses (including Half.com), and led eBay’s acquisition of StubHub in 2007. Reach him @gregbettinelli.
This article originally appeared on Recode.net.