Abstract
Over the past few years, the sports betting market has experienced significant growth and change, in part driven by legislative and regulatory shifts in countries like Canada and the U.S., but also grounded in technological advancements which have enabled the development of new betting methodologies and allowed sports betting to present in different settings and in novel ways. While a magic crystal ball is hard to find, certain emerging trends seem to be developing, which may provide a hint as to what is to come.
Over the past few years, the sports betting market has experienced significant growth and change, in part driven by legislative and regulatory shifts in countries like Canada and the U.S., but also grounded in technological advancements which have enabled the development of new betting methodologies and allowed sports betting to present in different settings and in novel ways. Such advancements have led to projections that the Global Sports Betting Market will expand at a compounded annual growth rate of 10.26% and reach revenues of more than $167.6B USD by 2029. 1 Accordingly, both participants and observers face the conundrum of predicting the direction that such expansion will take as it leaves the confines of historic patterns.
While a magic crystal ball is hard to find, certain emerging trends seem to be developing, which may provide a hint as to what is to come.
THE SHIFT TOWARDS BROADER REGULATION
As noted at the outset, legislative and regulatory changes have been one clear impetus for growth. In Canada, the 2021 adoption of the federal Safe and Regulated Sports Betting Act opened the way for single-event sports betting, 2 and Ontario's adoption of an iGaming framework in early 2022 created a new opportunity for private online gaming operators to enter the regulated sports betting market in that province. 3 In the U.S., the 2018 Supreme Court decision in Murphy v. National Collegiate Athletic Association struck down the Professional and Amateur Sports Protection Act and enabled each U.S. state to regulate sports betting within its borders. Legislative and regulatory changes in other jurisdictions over the last few years, including Germany, 4 the Netherlands, 5 Australia 6 and Ireland 7 have similarly moved sports betting from a largely unregulated, untaxed and private activity into the regulated, taxed and public sphere of activity.
This trend is unlikely to abate for a number of reasons, including: (1) the increasingly online nature of sports betting, making prohibition or control over unregulated gaming and the protection of customers steadily harder to maintain, 8 (2) the growing debt/deficit-laden nature of governments, making the tax dollars associated with regulated sport betting progressively more difficult to forego, 9 (3) the societal perception of sports betting as a vice and/or criminal activity steadily being replaced by a view of it as a form of entertainment or leisure activity, and, in some jurisdictions, potentially a valid financial investment method, 10 (4) the larger societal trend towards the “gamification” of both solitary and social activity, particularly within a younger demographic, and (5) the increasing pressure exerted on each jurisdiction to keep up with its neighbours. 11
Accordingly, many observers have remarked that it is inevitable that the overwhelming majority of U.S. states and Canadian provinces will, within the near future, move to a more inclusive regulated model for the online segment of the gaming industry, particularly as neighboring jurisdictions do so. The already long list of U.S. states that have recently adopted legislation or regulation favoring regulated industry expansion 12 is expected to be joined by California, 13 Kansas, 14 Maine 15 and Ohio 16 within a short period. Additionally, regulated expansion could soon restart in Florida, but may depend on the validity of an agreement between the Seminole Tribe and the State of Florida. 17 In Canada, Saskatchewan has broadened the scope of the regulated offering in that province, but limited private industry participation, opting instead to develop a partnership with Indigenous Peoples 18 —while the other provinces keenly await early results from Ontario's initiative. Anticipated legislative and regulatory changes which broaden gaming opportunities are expected as well in India 19 and Peru. 20
It is critical to appreciate that such legislative and regulatory changes are unlikely to proceed in a linear and consistent fashion. Rather, different jurisdictions, on either a national or regional basis, can be expected to implement such changes at different rates or in a different fashion. Inevitably, such changes will also trigger some measure of retrenchment, as mistakes are made, vulnerabilities uncovered, or shifts in the underlying activity occur. But overall, the legislative and regulatory trend has shifted to shutting down the “grey market” and bringing private industry into the regulated sphere in a manner that, at a minimum, signifies a major change in governmental attitude and approach.
THE INTEGRATION OF SPORTS BETTING AND THE SPORTS INDUSTRY
For many years, one of the most significant impediments to the expansion of regulated sports betting has been the reluctance, if not antipathy, shown towards it by sports leagues, associations, and teams. In some countries, such organizations litigated or actively lobbied against sports betting, 21 notwithstanding the ongoing size and scope of the unregulated sports betting marketplace. As with the government actors cited above, this perspective has changed significantly in the last several years, and major sports organizations and authorities now actively seek out partnerships with sports betting businesses. Both groups have profited from such relationships: the sports organizations receive greater visibility of their athletes and product, obtain lucrative contracts to provide “official” information, and are able to increase customer engagement. Meanwhile, sports betting businesses are able to receive reliable and often exclusive content, leverage proprietary trademarks and other intellectual property to enrich the product offering, and connect directly with their target customers much more capably.
This trend towards partnership and business integration between what formerly were bitterly divided parties is likely to increase even more in the years to come. Faced with growing competition from other entertainment and leisure activity industries, we can expect to see both sports betting businesses and teams, associations and leagues modifying their products/services to leverage their relationship further in an effort to deepen and broaden the customer experience and create greater “stickiness.” Already, a greater number of sports venues are incorporating retail sports betting locations within their stadiums and arenas, 22 in addition to the betting already taking place at events via smartphones and other devices. Sports betting businesses are also actively seeking to integrate betting opportunities into broadcast or other media that have historically proven to be the primary connection between sporting events and fans outside of such primary venues. This naturally includes extensive paid advertising, but has also expanded to integration into the production side itself, such as venue, event and content sponsorships, 23 half-time/end of period/play interruption shows, 24 and a move towards “in-game” sports betting as part of the viewer experience.
As both sports betting businesses and representatives of the underlying events—leagues, teams, players, broadcasters, etc.—scramble to expand their customer demographic, deepen their customer spending, increase their customer engagement, and broaden their product offering, it is inevitable that such relationships will increase in number, nature and value. We can anticipate that we have only seen a foreshadowing of what is to come in such regards.
THE ADVANCEMENT OF MICRO-BETTING
Sports betting businesses long ago realized the value of offering betting propositions on more than just end-of-game outcomes. However, it is only more recently that micro-betting—gambling on short-duration events within a sporting event—has emerged as a more significant addition to the customer experience. In part, the timing is due to technological advancements—advanced statistical analytics, increases in processing speed, the assembly of larger and more varied digital databases and, perhaps most importantly, machine learning—which have combined to permit sports betting businesses the functional capability to develop and offer odds for multiple in-event scenarios and to adjust those odds on a near real-time basis. Such offerings have not only opened new revenue streams, but also served to increase customer engagement as participants become more invested in individual moments, decisions and plays, rather than just the overall outcome of the event—keeping their attention even if such outcome becomes a foregone conclusion.
If the short history of social gaming is any indicator, high volume, small payment structures can be a formula for success, particularly in a younger customer demographic. However, the integration of micro-betting into the customer experience remains tricky. Ultimately, the goal is to seamlessly blend it into the viewing experience, because poorly done it can be a distraction rather than a source of enrichment, detracting from the overall experience. In addition, many customers are new to the experience and consequently require a greater educational commitment than applies to well-established gaming platforms, responsible gaming elements still need to be fine-tuned, and regulatory understanding and associated standards and controls are still developing. Notwithstanding these challenges, as relevant technologies and practices improve, operational experience builds, and betting and viewing platforms integrate further, we can expect these challenges to be steadily overcome.
Micro-betting provides sports betting businesses a window into a unique opportunity—the ability to tailor and time betting offerings to a specific customer in a unique manner that suits their individual tastes and the specific circumstances of the moment. Essentially, it moves betting from a generic proposition to a customized proposition. Other entertainment and leisure industries (music, video, books, etc.) have been working with that objective in mind for well over two decades—and sports betting businesses will increasingly be driven to catch up or have greater and greater difficulty competing for customers' leisure funds.
AN EXPANDING CONCEPT OF SPORT AND THE METAVERSE
The concept of what is a sport is old, but somewhat muddled. Its first usage in a narrower sense to mean a game involving physical exercise dates from 1520, according to the Online Etymology Dictionary. 25 For sports betting purposes, the idea has proved narrower still in modern practice, principally involving roughly a couple of dozen types of physical sporting competitions, based on a few national leagues, with some added limited intermittent international competitions. However, sports betting businesses have vastly expanded their offerings over the last couple of decades to include a much wider range of sports, for a number of reasons. In part, this stemmed from a realization of untapped markets, an ability to operationally support and service a broader product offering, and the globalization of the sports industry. Concurrently, sports that formerly were seen as fringe or of marginal interest (e.g., snowboarding, surfing, climbing, skateboarding, etc.) have gained prominence at an unprecedented and remarkable rate. Meanwhile, activities that formerly were considered only “games” (e.g., esports, chess, competitive poker, bridge, etc.) have actively sought recognition as sports 26 and been afforded new platforms for competition. For all these reasons, our concept of “sport” for sports betting purposes has undergone more change in the last few years than it has in the preceding centuries.
As the “gamification” of experiences continues, with an increased focus on skill rather than luck-based activity, the line between “game” and “sport” is also certain to become more diffuse. Just as importantly, as competitive activity moves to virtual settings, a plethora of heretofore unimaginable (if not impossible) competitive circumstances will develop that will provide new opportunities for betting. Sporting activities will no longer be constrained by the laws of physics, but solely by the game rules as codified (quite literally) by programmers—and, inevitably, new virtual sporting competitions will be created that have little relation to the physical world. But it is not only the underlying sporting competition that will be subject to change. By moving to virtual settings, the customer will be provided new opportunities to monitor, spectate and even participate in such activities, and the adoption of haptic and other advanced communication technologies may extend such participation beyond three dimensions.
The use of metaverse virtual settings for sports betting and other types of gaming remains in its infancy. A significant number of these early applications involve rudimentary virtual renderings of existing traditional gaming premises and traditional games 27 and it remains unclear which virtual platforms will evolve to be industry dominant. While as a customer experience they currently lack the depth, fluidity and richness that is afforded by incumbent forms of sports betting and sports viewership, some of their attributes hold great potential: (1) as blockchain-based activities, their provable fairness is exemplary, (2) by an increased utilization/leveraging of intangible elements, their costs of operation can be reduced, potentially offering higher returns to customers, (3) by readily accepting native tokens as currency (rather than fiat currencies) they offer greater financial flexibility for the customer, (4) the potential for customization (by either the operator or the customer) of every element of the customer experience is magnified, and (5) the use of a decentralized autonomous organization management model creates new opportunities for operator accountability and customer activism.
Of course, none of these changes will occur overnight. It is unlikely that traditional sports, betting paradigms and platforms—with their ingrained traditions, supporters, cultural connections and financial heft—will cede their dominance of the popular attention any time soon. Still, new sporting and sports betting platforms and paradigms are certain to eventually attract their followings, and the industry will be forced to adapt to them or lose a portion of the customer wallet.
AN ALTERNATIVE ASSET CLASS
As long as anyone can remember, an axiom of the industry has been to treat gaming and betting as purely a leisure activity, to be engaged in solely utilizing surplus funds. However, specifically in the area of sports betting, where odds are estimated and not engineered into the mechanics of the underlying activity, a rethinking appears to be taking place by some, reconsidering sports betting as a viable alternate asset investment class. There are both opportunities and challenges to such an approach. As a data-intensive activity, sport lends itself well to statistical investment analysis. The underlying data relating to the sporting event is relatively reliable, consistent in form and predictable in the manner of its generation. In addition, outcomes by and large have no connection to economic activity or other traditional investment vehicles, providing a compelling opportunity for risk diversification. However, information asymmetries between customers and sports betting businesses may be problematic, liquidity for particular betting propositions limited, trading between customers restricted if not outright prohibited, and the house edge/spread may constitute a significant impediment to achieving a competitive performance threshold.
While the challenges are significant, they have not held back the development of betting exchanges, 28 operator-led betting buy-back programs 29 and other secondary market platforms, many of which provide added liquidity to the betting industry and find ready analogies in other investment mechanisms and strategies. In addition, sophisticated and profitable betting syndicates and pools utilizing state-of-the-art software to analyze match and player/participant performance in international sports such as soccer and horse racing and place bets in jurisdictions with meaningful liquidity have been in existence for a substantial number of years. As a consequence of these developments, as well as the increasing size of the betting market, investment banks and other financial institutions have started to become actively interested in utilizing the increasing complexity and sophistication of sports betting and other forms of gaming to create stable investment models, notwithstanding that most betting platforms and applicable regulatory models are designed for individuals as customers rather than corporate entities.
Such financial industry interest, while still nascent, could easily grow rapidly. As sports betting continues to evolve and grow in scale, one can appreciate why it might capture greater attention from an industry that is skilled at commoditizing financial exchanges of almost any kind. Proponents will argue that sports betting is more predictable, reliable and liquid than a number of new asset classes with a far shorter pedigree (e.g., cryptocurrencies, NFTs, etc.) that have quickly become recognized for similar purposes. However, the volatility and integrity issues reflected in those same new asset classes could equally be argued as a warning against permitting such developments in relation to sports betting, particularly given the care that the gambling industry has taken over several decades to seek to distance itself from these specific concerns. In any case, an essential requirement for fostering sports betting as a workable corporate investment activity will be the co-operation and support of regulators, principally those pertinent to gaming, but in many jurisdictions also those pertinent to securities and other financial markets. This will be a significant challenge given the historic positions of those parties, and their fear of the negative consequences that might ensue were such an approach to segue to the average individual bettor.
While the foregoing five trends are but a sampling of what the future may hold, they collectively point to one inescapable conclusion—that sports betting is going through a period of significant and rapid change, unlike any period in recent memory. Each of the trends identified alone has the potential to meaningfully alter the sports betting industry. In aggregate, they make it clear that the sports betting world of tomorrow will be a very different place than that of today, and that parties who fail to anticipate and proactively address such changes will have a significant challenge in maintaining their relevancy and achieving success.