Is the North American racing industry under threat from the continued rise of sports betting?

Churchill Downs - Louisville, Kentucky

Is the North American racing industry under threat from the continued rise of sports betting?

The legalized sports betting market has certainly captured the attention of many companies on both sides of the Atlantic as brands battle to dominate on a state-by-state level.

Of course, the prize is the billions of dollars in revenue that will be won by capturing the hearts and wallets of players. It is also fair to say that this stellar growth will normalise, because the evidence of that trend can already be seen.

A key factor is that in the sports betting market there are only so many sponsorship and other commercial tie-ups that can be done with sporting brands, brand ambassadors, and media publishers.  That means it is likely to come down to around five main players, just as it has done in many other regulated markets outside of North America.

In that context, the next question is this: What happens when market access, and market growth, starts to flatline and (from an investor standpoint) margins become the focus of attention as the other unicorn or vanity metrics of valuations and price to earnings ratios take centre stage? Sports betting margins are slender, so they will come under increasing pressure as taxes rise, while platform costs and revenue shares increase – and that will ultimately lead to marketing driving a ‘race to the bottom’ by offering more aggressive free bets and bonuses to gain players’ attention.

 

So, what’s next? Virtual Racing?

The North American pari-mutuel wagering industry is worth a staggering $11billion a year, which dwarfs the UK where the market is valued at around £4billion a year, (source: UK Gambling Commission).

As regulated sports betting across the USA finds its normalized levels, the market’s giants will look to the racing industry for product verticals to grow market share, attract new bettors, and of course revenue. This is a great opportunity for the racing industry and all its stakeholders to further accelerate their partnerships as some have done already with sportsbooks.

From our perspective at Virtual Live Racing, we are ideally positioned to provide solutions for racetracks, online sports betting and casino brands because our products are regulated, certified and built on the existing pari-mutuel platforms, using the racetracks’ databases to deliver a real-time digital replication of the venue.

Virtual games have been very much a success story in the UK where retail betting companies had to innovate following the launch of the National Lottery which started eroding their businesses in the UK, and across continental Europe.

Virtual products provide gambling businesses, racetracks, sportsbooks and casinos with digital games content that appeals to a massive market of digital natives. A study by the NPD Group last year suggested that the Covid-19 crisis has accelerated interest in digital content and consumption, with three out of every four digital natives (that’s around 244million people) in the US playing video games and consuming other content.

From within the racetrack industry, this provides diversification of their existing product sets to reach more digital natives who prefer a virtually-based gaming experience. And that can be used as a bridge, and a means of infotainment, to engage their interest in the ‘sport of kings’.

Please feel free to reach out to discuss how we can assist your racetrack to extend its digital pari-mutuel product footprint.

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