As the football season kicks off in earnest this weekend, sports gambling companies, and the tech startups that operate in the industry, are getting ready for prime time, as NFL and college football drive much of the revenue generated by U.S. sports gambling firms annually.
This football season, however, will look quite different than previous years for the legalized sports gambling industry now that sports giants ESPN and Fanatics Inc. have made high-dollar bets on the space.
Their moves, combined with new states legalizing sports betting in recent months, have the sports betting industry preparing for growth, even as the industry grapples with two major players dominating much of the sports gambling marketshare and high customer-acquisition costs that make running gambling firms a challenge.
"Football season is the most important part of the sports gambling cycle," said Reid Rooney, the CEO of Betsperts, a sports betting research tool that helps gamblers follow the picks of successful bettors. "The football season is king."
Betsperts, which raised $6 million in 2021 from investors including NBA stars Kevin Durant and Chris Paul, is among a group of startups that are sports gambling adjacent. These startups, while not gambling operators themselves, provide software, content or other tools to support the legalized gambling industry. And as the legalized gambling industry grows, these firms believe they play a vital, and lucrative, role in the burgeoning space.
"The ecosystem of sports betting is a good place to be for companies," Rooney said. "I think we will see in the next couple years almost complete adoption across the United States."
More than 30 states have legalized sports gambling in some form, and more are on the way. Rooney expects more than 40 states to ultimately legalize sports betting, giving the majority of Americans the ability to wager on games from their coach.
Big names jump into sports betting
The biggest news in the the sports betting industry this summer was ESPN's commitment to the space, something the Walt Disney Co.-owned property previously had been hesitant to do. ESPN secured a $1.5 billion deal with Penn Entertainment, which previously had a media deal with Barstool Sports. The deal will lead to the launch of the branded sportsbook ESPN Bet.
"It’s more support that sports betting is not going away," said Catharine Dockery, the founder and general parter of Vice Ventures, a VC firm that invests in startups in superficially "bad" industries, including gambling. "It’s existed in this country illegally and then legally, and now it’s just getting bigger."
ESPN's move can be seen as a signal to the legal gambling space that there's money to be made and that any stigma associated with the sector may be fading.
"Someone’s vice clause ends when someone else starts making money," Dockery said. "[ESPN's viewership] is everyone. It’s my mother-in-law. It’s my grandpa. It’s my little brother. Everyone watches it."
Sports retailer Fanatics launched its sportsbook in four states in August and is expected to expand to more than a dozen others after the close of its $225 million acquisition of PointsBet's U.S. business.
Fanatics, last valued at $31 billion, brings another deep-pocketed player to the industry.
Sports betting creates space for new crop of startups
One of the most high-profile sports betting upstarts is Betr, a sports betting platform led by YouTube star Jake Paul and serial entrepreneur Joey Levy. The startup, which focuses on microbetting transactions like specific moments of a game rather than who wins or loses, has raised one of the largest venture deals for a betting firm this year. In June, it hauled in $35 million at a $300 million valuation.
Other players in the space include Prophet Exchange, a peer-to-peer high-frequency sports betting exchange that raised $10 million earlier this year, according to Pitchbook, as well as Champions Round, which also has raised $10 million this year and has built a fantasy sports app that focuses on shorter events instead of traditional, season-long leagues.
As new platforms launch for taking bets, they face a market that's dominated by two players: FanDuel and DraftKings. Those two firms currently hold more than 80% of the U.S. market. By comparison, new ESPN partner Penn Entertainment holds 2%.
Facing FanDuel and DraftKings head on could be a tall task for sports betting startups, Dockery said.
"The reality, in my opinion, is the market is pretty locked up," she said. "You have FanDuel and DraftKings. You have insane [customer-acquisition-cost] numbers. Running these companies, they need to be so funded. They are money vacuums."
But outside of betting operators, there are startups — like Betsperts — building businesses to assist betting companies, users, regulators and others in the industry. Hall of Fame Bets, a Phoenix-based sports betting research platform, says it's amassed nearly 30,000 users within a year.
PlayerProfiler, another analytics startup, raised $2.5 million this year to bring better statistical modeling to researching bets.
"We see a ton of opportunity in sports betting adjacent companies," Dockery said.
Rooney said it's going to be "a real interesting 12 to 18 months" for the sports betting industry as new states approve legalized gambling. He added that ESPN's decision to put its name behind a sportsbook could prove to be a strong sign for the industry.
"The fact that one of the largest media providers in sports is going to continue to dive into sports betting and educate users ... is a really good sign for what the future of the industry looks like," he said.
