Venture Capital Funds Eyeing up Sports Betting Sector

  • Sports betting in the US is already proving to be a lucrative sector
  • Venture capital firms see the potential and are looking for opportunities
  • Analysts and experts say venture capital firms most likely to take advantage of this sector will be those who are the cheapest and the most innovative
  • However, they must manage their expectations due to the tight margins on sports betting
Venture capital firms are looking to get a slice of the action in the US's nascent sports betting sector.
Venture capital firms are looking to get a slice of the action as the US’s nascent sports betting sector takes off.

Potential for external investment

The federal ban on sports betting in the US came to an end in May 2018, following a vote by the Supreme Court on the issue. Since then eight states have opened sportsbooks. These are; Nevada, Delaware, New Jersey, West Virginia, Pennsylvania, New Mexico, Rhode Island and Mississippi.

New Jersey in particular has been achieving great success since opening its sportsbook, and it is closing in on Nevada as the country’s leader in sports betting. More than 80% of its sportsbook revenue comes from mobile sources.

More than two dozen other states are currently considering various sports betting bills to see which ones suit their needs the best.

And just like any growing sector, there is interest from investors and venture capital firms looking for a slice of the action.

Partnerships and deals already signed

A number of companies have embraced legal sports betting from the get-go. The main operators in the space currently are William Hill, FanDuel and DraftKings.

Paddy Power Betfair has a majority stake in FanDuel. Therefore, two of these three current main operators are based in Europe (William Hill being the other). They are able to leverage their experience in the European sector and adapt it to the nascent US market. They know what sports bettors like and what should be avoided.

Over time, more companies will get involved in the space because of the opportunities it presents. New technology will develop and companies will stand to benefit handsomely by having a key role in this sector as it expands.

Venture capitalists step in

Investors and venture capital firms are among those looking to fund companies in their early stages, hoping they will be massive in the future. Many venture capital companies are looking at how they can take advantage of the nascent US sports betting sector.

One of their main areas of interest is the provision of data to sports bettors. Many of the most successful sports bettors have complex systems and analyze reams of data to make informed decisions. It allows them to place bets not solely reliant on their intuition.

Making these algorithms and information available on a wider scale through a platform could be very lucrative. Sports bettors could instead gain access to a proven algorithm that takes into account large swathes of information.

This would eliminate the time and skill aspect for a lot of sports bettors when it comes to analyzing live events. This is a type of service they would pay for.

Other areas that venture capitalists are looking at are companies that have close relationships with sports betting. This includes firms that have a focus on regulations, such as technology for ensuring compliance with anti-money laundering rules and ensuring that underage gamblers cannot place bets.

Greg Bettinello is a partner of Upfront Ventures in California. He believes that those who see success in this space will do so because of product innovation and having the lowest prices. He also warns that due to the tight margins in sports betting investors need to manage their expectations.

Startups getting funds

Numerous startups in the sports betting space have been funded by venture capital firms. A sports betting startup called Action Network raised $17.5m in a recent funding round. This is a subscription service that will cover all forms of media for the sports betting sector.

Some of Action Network’s notable investors include Fertitta Capital, 6721 Capital (owner of the Chicago Cubs) and David Blitzzer (co-owner of the Philadelphia 76ers and the New Jersey Devils).

Silicon Valley venture capital firm Sapphire Ventures recently launched a $115m fund dedicated to startups in the sports technology space. Other startup platforms are going down the crowdfunding route to get investment.

A startup called Pyckio, for example, raised more funds than its goal of $395,000. This sports betting marketplace, which already has more than 25,000 users, puts tipsters and bettors together on a global platform. It describes itself as a “sports betting hedge fund.”