NEWS
Sweepstakes casinos operate without real-money bets. Instead, they utilise a "freemium" approach. VGW is the dominant sweepstakes operator, with more than 90% market share, primarily through its Chumba Casino brand. VGW was founded by Laurence Escalante in 2010 and now has more than 1300 staff globally, with around 220 in Perth, Australia.
Waterhouse VC asked the leading iGaming companies to share their experiences and strategies for acquiring their first customers, providing valuable insights for new businesses in the industry.
In every industry, there are prominent figures who stand out, and the wagering industry is no exception. This month, we shine a spotlight on three distinct leaders in the industry: Tim Heath, a crypto wagering pioneer; Peter Jackson, the CEO of Flutter Entertainment (listed on the FTSE100); and David Walsh, renowned as one of the world’s largest professional horse racing gamblers.
Whilst it is very difficult operationally and cognitively to win at betting, there are several groups that do so very successfully. We believe that professional betting is one of the most difficult fields in the world. The three keys to winning at betting are: making correct bet selection; betting at an attractive price; correctly staking (knowing how much to wager on each selection).
In 2023, Waterhouse VC generated a strong return of +39.5%, strongly outperforming the S&P500 (+24.8%) and the ASX200 (+7.8%). In 2023, there were two stand out contributors to the fund’s +39.5% performance:
Project Tennis - a professional betting syndicate founded by Tom Dry focused on tennis (first discussed in December 2022 and invested in on 1 July 2023)
Saintly - a crypto wagering operator and B2B platform (see more here) - position exited in August 2023.
Relying solely on their monopoly position is not an optimal strategy for monopolies, particularly in the context of increasingly accessible unregulated wagering. Unregulated wagering will compel monopolies to engage in at least some level of competition and they must deliver an attractive product offering and customer experience. As regulated monopolies face continued pressure from unregulated operators, they must consistently innovate to retain and attract customers.
Balancing gambling regulation/taxation is crucial to ensure a harmony between safeguarding consumers, thwarting criminal activities, and cultivating a market that is both fair and competitive. A well-crafted regulatory framework effectively considers the interests of betting operators, consumers, and the broader community.
‘Local heroes’ are wagering operators that have been successful in attracting customers from a single geography. The largest global operators, including Flutter, Kindred, Playtech (which also has a large B2B arm) and Entain, have effectively grown by acquiring local heroes and assisting them with expertise and technology. Most recently, in September, Flutter acquired an initial 51% stake in MaxBet, the second largest sports wagering and gaming operator in Serbia, for €141 million. Flutter has an option to acquire the remaining 49% of MaxBet in 2029. In the 12 months to June 2023, MaxBet had around 20% market share in Serbia and generated revenues of €145 million (44% from online).
With 214 million people and 217 indigenous languages in addition to Portuguese, Brazil is a large and complex market. It is one of the largest online sports betting markets in the world with 42.5 million unique users. Wagering operators generate significant revenues in Brazil by leveraging influencer marketing and numerous sports sponsorship deals. Brazil's Chamber of Deputies recently passed a gambling regulation act, allowing online gaming and omnichannel wagering, with operators able to buy three year licences. However, operators will be prohibited from offering bonuses and will pay an 18% tax on revenues.
The rise of pro gamers and dedicated fan bases has boosted user numbers on streaming platforms like Twitch, which Amazon bought in 2014 for $970 million. The opportunity in streaming is vast, with just a handful of platforms dominating the US$3.8 billion industry. Kick continues to attract fresh streamers, with its alluring 95/5 revenue split supporting the platform’s growth from 9,000 active channels in January to 67,000 active channels in April. With such strong growth and a positive attitude towards gambling streaming, Kick poses a formidable challenge to Twitch's dominance.
While the US and other newly regulated markets present exciting opportunities for affiliates, we are particularly enthusiastic about the prospects for affiliates focused on directing bettors towards crypto wagering operators. Similar to the US market dynamics, numerous crypto operators are currently vying for market share and affiliates are well-remunerated for delivering depositing bettors to crypto operators.
World-renowned investor Warren Buffett and numerous other famous investors were initially influenced by betting and bookmaking (particularly horse racing) before transitioning to financial markets. The new wave of professional bettors are now finding success in financial markets as well, with significant cross-over in the statistical analysis and thought processes applied across the two domains.
In May last year, we first discussed the opportunity of crypto wagering, which is the fastest growing part of the wagering industry. Some online crypto operators have rapidly become large businesses and well-recognised global brands, such as Stake.com and Sportsbet.io. Whilst there are numerous existing B2B wagering platforms for fiat operators, there are just a handful of platforms built for crypto operators.
The large betting syndicates receive generous rebates from pari-mutuel/tote betting for providing liquidity. This gives them a significant edge over other participants. To receive this rebate, bettors need to turnover vast sums of money.
There has never been more data and technology applied to professional betting as there is today. The increasing power and prevalence of AI is the latest wave of technological disruption, which presents opportunities and threats to betting syndicates.
India’s online wagering market is growing at a rate of over 20% annually and has become an attractive market for global operators and B2B suppliers due to the country’s rapid development (GDP per capita has doubled since 2009) and the presence of over 370 million bettors. The Indian cricket wagering industry alone is estimated to already be worth US$150 billion, with around 85% of Indian bettors wagering on the sport.
US bettors are incredibly frustrated with both the US online wagering experience and the US taxation system (regarding the treatment of winnings). These hurdles are pushing volume to unregulated operators, such as those operating in Costa Rica. Regulated operators (such as FanDuel) are able to develop strong brand awareness in the US through marketing channels unavailable to unregulated operators. A vote on Flutter’s US listing would require a 75% approval rate at Flutter’s April annual meeting.
Online crypto operators, such as Stake.com and Sportsbet.io, have a similar user experience to online fiat operators, and are already recording extraordinary turnover. We are seeing opportunities emerging to invest in the next generation of wagering platforms, leveraging new technology and embedding modern third party integrations. These platforms will integrate crypto at the technology layer rather than as an afterthought. Considering the continued growth of crypto wagering globally as well as all online wagering in the US, we are very excited by the possible opportunities.
The world’s largest professional betting syndicates wager billions of dollars each year by exploiting a unique ‘edge’ across sports and horse racing. There are several emerging syndicates across both sports and horse racing. One such racing-focused syndicate is led by Dominic Catsaras and another syndicate focused on tennis is led by Tom Dry.
Flutter effectively leverages its experience gained outside the US to grow FanDuel with a focus on near-term profitability. In 2021, the US represented just 22.5% of Flutter’s overall revenue. Flutter’s third quarter results demonstrated FanDuel’s clear market leadership, with 42% gross gaming revenue market share in online sports betting and 18% market share in iGaming.
Another way that bookmakers can appeal to a younger, digital-native generation of bettors, is by promoting the social aspect of betting. Bettors have always discussed their top picks with their friends, but this was not previously embedded within bookmakers’ apps. By bringing together social media and wagering, bookmakers hope to improve customer retention and lifetime value. Social betting also plays into the growth of influencers, with respected bettors able to build large followers who can copy their bet.