The future is murky for esports betting
Esports betting examined, Bragg’s third-party benefit, analyst takes +More
Esports betting was the future once – at least in some optimistic circles – but a recent weeding out of some big names within the sub-sector leaves some question marks about its prospects.
With Unikrn and Luckbox giving up the ghost and Midnite pushing the button on lay-offs, experts suggest the rest of the sector now has a job to do to prove it can fulfill its promise of attracting a younger generation of bettors.
And there ain't no magic pen, To get back what you lost.
Between the lines
Once pitched as the next big thing in sports betting, is esports being quietly forgotten?
Sector shake-up: The pool of relevant esports operators has started thinning out. Several bookmakers bowed out of the space last month within days of each other, casting uncertainty around the segment and its future.
Real Luck Group suspended all betting activity on Luckbox, effectively ceasing its operations in full.
Entain brought Unikrn to a halt, scrapping the esports-betting brand less than a year after relaunching it.
Layoffs hit Midnite, and the company confirmed it would continue to “pivot away from esports”.
Inside scoop: The sequence of events is less indicative of the segment’s longevity as much as it highlights mismanagement among the aforementioned businesses, according to Esprouts author Ollie Ring.
“Esports betting isn’t going through a tough time necessarily, but people need to take heed of the erroneous errors made by these companies,” Ring said, adding he believed Unikrn, specifically, was “badly run”.
Entain acquired Unikrn for £50m in 2021 but put the platform on ice until December of last year when it relaunched the brand. Any market share Unikrn had at the time of its purchase was cut off at the knees when it was taken offline for more than a year.
Rebuilding the brand from scratch was bound to be an uphill battle.
Entain CEO Jette Nygaard-Andersen said as much during the company’s Q3 trading call, admitting that turning Unikrn into a profitable business was going to be “really capital-intensive”.
Still, Nygaard-Andersen maintained the company is “really excited about esports” and will wisely roll Unikrn’s tech into Entain’s existing brands.
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Dealing in fractions
Reality check: While esports is seeing some regulatory tailwinds in Nevada and elsewhere that will help drive growth over time, the reality today is the segment only makes up a fraction of the global sports-wagering industry.
Not only does a finite addressable market like this leave room for only so many operators, but it places an increased emphasis on disciplined spend, effective acquisition strategies and reliable consumer touchpoints to make progress without going bankrupt.
Successful operators in this space have carefully balanced spend against ROI, using tailored marketing capable of reaching the right audience in the right markets where esports betting is popular – namely Latin America, Europe and Southeast Asia.
Those strategies are beginning to materialize and carve out a playbook for esports betting moving forward that previously didn’t exist.
Show me the money: Established bookmakers such as Pinnacle, Betway and bet365 continue to maintain their esports offerings and invest in the space, but they also aren’t wholly reliant on it.
Esports may look like an accessory from that standpoint, but progressive operators are seeing the bigger play as an access point into a younger demographic of users who can then be cross-sold into a larger product suite with sports and casino.
While the size of the esports betting market is ambiguous, its ability to court a new customer base that’s not engaging with traditional media is not.
That’s a widely overlooked piece of the value proposition when you consider that one third of Gen Z doesn’t watch live sports but most engage with gaming content.
Leading the pack: Rivalry, the Toronto-based operator hanging its hat on Gen Z, has staked a claim for this strategy. Esports accounted for more than 90% of the company’s sportsbook handle in FY22, and the segment is driving big gains for the business.
Rivalry reported a 60% year-over-year jump in revenue in Q2 2023 and is on track to reach profitability in H1 2024.
It reports its Q3 earnings later this week. As pointed out in yesterday’s E+M, in the run-up to its results, it has enjoyed a 34% rise in the share price last week.
Standout: What has set Rivalry’s acquisition and engagement apart from competitors is an organic media strategy focused on creative marketing and entertainment. The company mostly forgoes the expensive team and league deals in favor of partnering with hundreds of gaming creators on Twitch that it can collaborate with on viral content and reach customers directly.
That tactic is further elevated by a brand and creative direction pointed squarely at internet culture, lending itself to a more seamless connection between Rivalry and its target audience.
Despite showing that esports can drive a meaningful amount of action, its chief executive Steven Salz said the bigger opportunity is leveraging the segment “as a powerful top-of-funnel” into a sought-after demographic of Millennials and Gen Z with a unique CPA.
That strategy has worked so far, helping the company attract a youthful user base where 80% of its active users are under 30 years old. While the approach is easy to digest, Salz noted that it’s not as easily replicated.
“It’s not enough to just offer esports betting to customers – the entire experience across the product suite, marketing and brand needs to be connected and relevant to the gaming consumer to engage them.”
Bottom line
Stroke of genius: Rivalry’s masterstroke, and what we can glean from it, is positioning a betting brand within esports and gaming culture through content, partnerships and activations versus just selling a product within it can drive the value that makes this segment worthwhile at its current vector.
Through that lens, the total addressable market shifts to include some of nearly 3.4 billion gaming consumers broadly which can be brought into the larger product mix.
Users may come for esports, but stay for other offerings. For example, Rivalry noted that 50% of users who bet on esports in 2022 also bet on sports.
The esports market may not stand up to sports today, but the consumer opportunity marks a path forward for operators to engage a new audience and future-proof their business with the next generation of fans. And as regulations ease, consumer awareness grows and game publishers continue to warm up to regulated betting, the market will become more substantial.
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Third among equals
It’s in the game: Bragg Gaming received a share price boost last week after activist shareholder Raper Capital went public with its concerns about the company’s trajectory – and its lowly rated share price – and called for a sale.
In their assessment of the news, the team at Peel Hunt looked into the revenue mix for Bragg for clues as to what any potential purchaser would be buying.
Noting only 21% comes from supplying PAM and turnkey services, Peel Hunt suggested this showed how B2B platforms are now a commodity business.
“The value is to be found in the games that run on them,” they added.
🎰 Majority of Bragg’s revenues come from supplying 3rd-party content
Recent analyst takes
DraftKings: Reaction to the company’s investor day was generally positive with only Deutsche Bank marking the card for the few remaining bears on the stock, saying the bull case rests on same-store GGR growth remaining “robust”.
“While the big picture story is possible, with paths through legislation, delivery on the stated legalized financial target, or a combination of the both... we see risks,” the DB team said.
IGT: Noting a recent sharp 8.5% fall in the company’s share price, the team at Jefferies suggested the end of the week tumble may have been prompted by comments at Flutter’s Italian away day with analysts last week that its Italian subsidiary Sisal might bid for the contract to run the country’s lotto.
Rush Street: JMP said the improvements in the underlying product offering in iCasino lay behind the company’s successful Q3 and noted “success is being driven through multi-player games, creating engagement and loyalty to the platforms”.
Calendar
Nov 28-29: Jefferies Sports Betting & iGaming Summit, New York
Nov 29: Kindred, Rivalry
Dec 4: BetMGM investor meeting
Dec 5: Allwyn
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