Simon Trim, 10star strategic advisor, on how innovation in trading, risk management and data usage can unlock a sustainable and harmonious relationship between the customer, supplier and operator.
In the world of sports betting the ecosystem comprises three main participants – those of the bettor, the operator and the supplier. However, unlike the many symbiotic connections in nature, the relationship between the “three sisters” of sports betting is often ugly and characterised by parochial and adversarial behaviours, rather than sustainable and cooperative ones.
The United Nations first defined “sustainability” as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”.
In the natural world, this refers to the ability of ecosystems to remain diverse, productive and resilient over time, but it is often overlooked that these themes are just as important in the business world too. Sustainable industry practices also rely on building healthy ecosystems to provide resources and services optimally between the business and the consumer.
High-margin betting innovations are unsustainable
The customer is at the core of the sports betting ecosystem; after all their participation fuels the revenue that sustains both the operator and supplier. Sportsbooks have sought to gain this revenue largely through leveraging their brand. The sports betting landscape is characterised by a destructive level of mass-marketing spend to attract new customers to a largely homogenous sports betting proposition.
Recently, the focus has been on propelling short-term profits by driving excessively high-margin same game accumulators and parlay (SGPs) products, which does nothing to ensure the sustainability of the customers that sportsbooks have expensively acquired.
For most, betting is a form of entertainment and the turnover this generates for operators is recreational in nature. It isn’t a great leap to surmise that bettors will soon find more entertaining ways of interacting with sport if the current same game parlay products they are consuming give them very little chance of winning due to the high margins in the operators’ favour.
Alongside tightening regulations in Europe and a deceleration in newly regulating US states – and thus new bettors – the industry needs new ways of thinking to ensure future harvests.
The level of outsourcing that now exists in the industry increasingly means that operators are a facilitator in the ecosystem, connecting bettors with the sports betting products and services largely provided by third-party suppliers.
Operators have the power to cultivate a sustainable ecosystem by fostering ethical social practices, efficiently managing customer journeys and ensuring compliance with regulatory frameworks. But when it comes to the development of products and services they are often reliant on their supply chain.
Over recent years, parts of this supply chain, in partnership with rights holders, have increasingly constrained operators through the prohibitive cost it charges for the data required for live betting.
Expensive marketing, generic odds and data costs fueling US exits
Seemingly across every sport, each renewal cycle of these official data packages increases costs to a new record level. Often, these suppliers also bundle odds alongside the official data with the intention that operators then use these prices for their customers to bet against. As the major suppliers in the market have no experience in offering sports betting to their own customer base, these odds are usually of a low quality and are often scraped and copied from elsewhere.
Following a business model characterised by expensive marketing, generic odds and high data costs has destroyed value for the slew of operators who have been forced to exit the US market.
Revenues generated from sub-standard, generic pricing are not enough to cover the high costs of data supply, operations, licensing and regulation required to operate a modern sportsbook, even with super-normal profit generation from the likes of SGPs, which over the long term will lead to fewer customers and not more. These are the behaviours of a parasitic, destructive relationship – not a symbiotic and sustainable one.
A new way of thinking is needed to secure sustainable relationships
For new operators looking to enter the market, or existing ones looking for an alternative, pivoting to a more sustainable relationship is possible, but it requires a different way of thinking.
A new age of analytics, pricing differentiation and odds-making expertise is required within the industry to break the reliance on inferior pricing sold as an “add-on” to official data. For example, the ability for operators’ prices to react in real time to valuable market information their customers are giving them through their betting patterns – what they are betting on, when they are betting on it, what happens immediately before and after they bet for example – enables price differentiation.
However, it also requires a specialist provider with a strong trading background to supply the odds and risk management services that empower operators with the confidence to adopt the model. It is trading knowledge that breeds this confidence.
Injecting more expertise into the trading function and innovating how data is used is the key to unlocking a more sustainable future for all industry participants. While it might currently be anathema in boardrooms, the way to greater longer-term profit doesn’t lie in customers continuing to lose on SGPs at the current rate; it lies in customers losing at a slower rate.
Reduce margins for a differentiated product
Margin reduction (and bettors winning more often) can enable this, but producing better prices requires improved knowledge and expert risk management. In turn, this ensures a higher volume of turnover generates higher returns through increased efficiency of pricing, rather than just leaking profits.
Unlocking the ability to successfully offer tighter pricing helps lower churn, improves differentiation, reduces acquisition costs and generates a sustainable increase in market share.
A supplier that can marry the symbiotic parameters of pricing and risk management through the improved use of real-time customer analytics and trading expertise can propagate a virtuous circle of industry growth that benefits both the consumer and the operator and repairs the damage that unsustainable cost, driven largely by the practices of the current supply chain, has done to the industry.
Bio
Simon Trim has over 25 years’ experience in the betting industry, including 15+ at board level. A driving force in bringing the sophistication of spread betting to power the growth in the B2B fixed odds market, he is now strategic consultant to premium market-making and risk management service 10star. Launched by the same owners as Pinnacle, 10star is innovating in the gaming sector by bringing some of the risk management techniques of the financial markets to improve the bottom line for sportsbook operators.
