While the competition to lead the U.S. sports betting market is heating up beyond belief, it is that parallel other new market – iGaming – that is framing a generational opportunity for innovators to place themselves firmly in the winner’s circle.
Macquarie is forecasting today’s approximately $2 billion U.S. online regulated sports betting and iGaming revenue is set to grow to over $30 billion in 10 years. Among other industry analysts, H2 Gambling Capital is forecasting a $24 billion market in ten years, with TRUIST bringing up the rear with their forecast showing TAM at just over $20 billion over the same period.
These stratospheric numbers are not surprising to gaming industry veteran Gavin Isaacs, a Draft Kings Director and Chairman of SB Tech, who said, “Sports, a familiar pastime to many Americans, is the leading edge of online gaming. Casino games are higher margin than sports betting, so there is going to be lots of opportunity for game developers willing to get licensed and develop iGaming titles.”
The leaders of this unprecedented land grab are already well on their way to establishing a significant foothold, but innovative new iGaming titles and game genres are ultimately set to be the most profitable and highest-value means by which the industry provides U.S. players with this $20 billion – $30 billion worth of betting fun.
In the United States, the repeal of PASPA in May 2018 paved the way for the birth and remarkable growth in U.S. sports betting. Led by New Jersey, 23 jurisdictions now offer some form of sports betting, with six states offering regulated iGaming and more on the way soon. Truist projects that by 2030, 66 percent of the country will place sports bets and 30 percent of the population will play regulated iGames.
Industry watchers are divided on whether sports betting or iGaming will ultimately be the more important segment. No matter whether you believe sports betting or iGaming will be a larger business by 2030, almost all pundits agree that iGaming yields better margins and captures a higher lifetime value (LTV) than sports betting. iGaming receives nowhere near the emphasis that sports betting does although it is ultimately a better business and, based on the experience of European operators, is the key to profitability for the industry.
Consider that some European operators view sports betting as a loss-leader for the more profitable and inextricably linked iGaming. Whether an operator considers this to be the case or not, David Shapton, head of M&A at Akur Capital and a 15-year veteran of iGaming M&A said, “Wherever online slots are permitted, they immediately become a huge part of the operator’s profit margin in any vertical, whether the core product is sports betting, poker, live casino, lottery or bingo. The critical factor is that customer acquisition costs for other verticals is lower than recruiting players solely for slots products.”
So, are casino slots set to be the plough horse of gaming profitability in the U.S. as has been the case in Europe? Not so fast. Amid a slowdown in fortunes at home, European sports betting and gaming companies eager to find a growth opportunity in the U.S. market should not forget the very reason for the trans-Atlantic feeding frenzy: slowdowns and structural changes in their home markets combined with a changing demographic that is just not as keen on slots and crying out for different experiences.
Jamie Nettleton, gambling law partner at Addisons, said: “You can see the continuing trend towards convergence (which, in essence, involves ensuring that the relevant product is more accessible using new technologies to a broader audience), from online slots to social casino games and from console games to online skill-based games. It is all a search for a new market. And this needs to be done in a way that attracts and maintains a younger audience within a regulatory framework that requires increasing and more focused player protection.”
While much of the extrapolations charting the growth of the U.S. market are based on the experience and performance of international markets, casino games are maturing and simply less popular among emerging players/customers from the GenX and millennial age brackets. In online gambling-mature Europe, the move to regulate or to tighten the rules has accompanied stifled growth rates and an aging-out of players just as it has in land-based casinos. UK and Swedish operators are reporting a decrease in the younger demographic, turned off by slot games. In Germany, a move to regulate has reduced the size of the market. Many in the industry are crying out for variety in games, such as skill-based, while a race to the bottom plays out in the highly stratified slots sector.
Jesper Kärrbrink, a European iGaming industry veteran and head of Green Jade Games puts it succinctly: “The next generation have a different demand for entertainment so the industry must evolve with its audience. The merging of the video game and gambling industries into one is a no-brainer. The gambling industry needs new players and the video game industry needs new revenue streams”.
In the absence of an existing U.S. iGaming market at scale, precise forecasting of player behaviors is a challenge. However, the land-based experience provides a solid set of evidence to chart the digital evolution. Will the behavior of players in land-based casinos be wholesale different to those playing slots online? While there are differences they would ultimately be similar. One key piece of evidence: in the U.S., skill-based gaming supplier GameCo’s land-based data clearly shows the emerging customer demo are not playing slots in casinos anywhere near the numbers of the older generation.
According to research conducted for GameCo by Andrew Cardno of Game Changing Technologies, demand for GameCo and other skill-based games clearly skews much younger than slots as evidenced by the below data gathered from land-based casinos. That this data would be massively different for iGaming seems improbable.
Source: Game Changing Technologies
There is a latent demand to be met with the excitement surrounding the U.S. market opening and a definite modicum of interest fueling a market already worth an estimated $2BN. Fresh new iGaming markets will provide slots with a fighting chance at the outset. However, the real opportunity is in providing the games that the next ten years of customers will truly demand. Those customers will come from the video game generations.
Further land-based data from Cardno shows the optimal slot player to be 70 years old whereas the age of the most productive players of GameCo’s skill-based games is 30, as evidenced in the graph below. In 10 years time these 70-year-olds will be 80 and the 30-year-olds will be 40, supplanted by a new set of 30-year-olds from the GenZ era.
Source: Game Changing Technologies
A potent analogy is the music industry. The classic rock genre is a solid winner among the baby boomer and older demo, and there are indeed some classic rock afficionados among the emerging generations. However, the bulwark of consumers from the GenX and Millennial cadre vastly prefer different music genres like hip-hop or EDM. So, slots can arguably be thought of as the classic rock of the gaming industry.
Herein lies the opportunity for innovative game creators and operators focused on the burgeoning iGaming market – make available the games that the emerging customers want to play. Build the experiences that will satisfy this multibillion dollar market of players and provide the marketing departments of operators with the fuel they need to be successful.
“Every company needs two marketing departments, one that has mastered the tactics of getting rid of today’s products and the other that has mastered the strategy of imagining tomorrow’s products.” – marketing guru Philip Kotler
So, the substantial dollars foreseen by the analysts provide for a profound shot at glory for innovative game studios on the basis that iGaming is the leading engine of growth and profitability for the combined sports betting and iGaming market.
Over the next few years, expect significant focus on companies from both inside and outside of the casino gaming industry that will either pivot or emerge to meet this astounding level of impending game demand.
And bet on the hip-hop or EDM and not the classic rock.
