​When Investors Should Go All In With Sports Betting

Jeff Volaski  |

For years, sports and sports betting have existed in spheres that simply circled each other. Each occupied its own space, yet legislative barriers prevented them from commingling. That all changed, however, when the U.S. Supreme Court in May overturned the Professional and Amateur Sports Protection Act, which had prohibited sports betting in most states since 1992.

What will this mean for sports and gambling enthusiasts? For those living in Delaware, Mississippi, Nevada, New Jersey, and West Virginia, where sports betting has now become legal and regulated, it's the chance to add a new dimension to the fan experience, which potential customers seem eager to explore. With six other states expected to follow suit soon, the sports betting landscape looks primed to break out.

Unfortunately, its tremendous market potential has been stunted by a series of false starts. Participating states charge heavy taxes or annual license fees that have stifled innovation and limited the number of new entrants into the market.

How, then, should interested investors enter the market? Start by peeling back the barriers to entry and seeing its potential. The Supreme Court repeal didn't produce the number of consumer-facing services many expected, but that's not an indicator of the market's ultimate ceiling.

This legislative update has slow-developing benefits that will take time to materialize, but investors shouldn't stall. Early movers into the sports betting market have the opportunity to invest in companies that are poised for impressive growth.

While investors might hesitate to fully commit to the sports betting market, the financials point to an industry on the rise. By 2020, sports betting revenue is expected to reach $3.1 billion, and doubters don't have to look too far to see how it will get there. Daily fantasy sports betting operators, which penetrated the market through apps and other everyday tech platforms, collect revenue in about 40 U.S. states and provide a blueprint for what the future might hold for sports betting.

Sports betting is closely tied to in-person casino operators, but for opted-in states without active casinos, their only recourse is to offer a user-friendly product. Re-teaming with casinos is the next big step for sports betting, though it could take longer than anticipated. However, some of the most promising companies are trying to use new technologies to give sports fans new tools for sports betting.

What will this mean for investor expectations with as many as 20 states expected to legalize gambling in 2019? As sports betting consumer products become more ubiquitous, those heavy financial burdens that are currently market barriers for investors may be reduced.

With fewer limitations in the market, mobile platforms will create more revenue for the industry, sports gambling leaders will capture revenue through mobile applications, and upstarts will innovate through data analytics, peer-to-peer platforms, and possibly even cryptocurrency.

Investors can position themselves early to profit from the emerging sports betting industry. The most important principle for investors to remember is simple: Betting is not about money; betting is about the emotional satisfaction of predicting an outcome or triumphing over peers. Success will come to products that can connect consumers and keep them engaged.

Investors interested in sports betting can look for companies that are expanding into these areas:

1. Up-to-the-Minute Data: Real-time, in-game betting will become the norm and will reward fans with cash and virtual prizes. Companies can allow fans to participate in games as they happen in front of them, heightening their connections with their favorite sports and injecting some serious drama into the tense final moments of any contest. Cash is the primary reward, of course, but fans might also respond well to gamification in which their picking prowess is conveyed through virtual badges or ranks like those in video games. For investors, this kind of buy-in makes sports gambling a market that will continue to pay dividends.

2. Statistical Storytelling: Next-generation statistics can leverage the power of data to engage users. Fans love statistics, but the truly innovative companies will find ways to bring data to life through stories. Companies that leverage contextual data can use that information to build the narratives customers might not see and highlight trends and values they don't know about. This data empowers and educates a betting company's customers and its oddsmakers, which can be an attractive situation for investors.

3. Instantaneous Crowd Input: Some companies have applied crowdsourcing principles to sports broadcasts by allowing anyone with a laptop to comment on live sports streams. Truly innovative companies will merge the popularity of sports with crowdsourcing and sports betting. This crowdsourcing movement can merge with contextual data usher in a new way of gathering data and telling real-time stories. Companies that can take the best parts of each can create empowering, well-rounded services for investors to put their stakes in.

Investors have a great opportunity in front of them. Attitudes toward sports betting are either positive or undecided among most Americans, suggesting that a sizable potential market exists. However, the rewards from this opportunity will accrue to the few investors who have the talent and drive to identify the right companies and to invest in them before they start scaling.

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Jeff Volaski is the founder and CEO of StatRoute, an analytics platform that contextualizes historical data leveraged by fantasy football consumers and sports bettors. Volaski — a long-time fantasy sports enthusiast with a Master of Business Administration from the University of Denver — built StatRoute as a solution that can address the needs of fantasy sports customers and the industry as a whole.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.

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