Sports betting was a gateway drug to online gambling and the lottery

DraftKings would love for you to bet on the Knicks game. Oh, and while you’re at it, why not pop over to the casino app and try out some online blackjack? And wouldn’t it be nice to throw a few dollars on some lottery tickets sometime?

As more Americans get used to betting on games via their mobile phones, sports betting is just the beginning. The next step is to get people to play on everything.

Sports betting has exploded since 2018, when the Supreme Court struck down a federal law that banned sports betting. Thirty-eight states and Washington, D.C. have legalized betting, and sports leagues that once balked at the slightest thought of betting on their games have embraced it. Even Disney, the bastion of family-friendliness, is trying to get a piece of the pie. And it’s a pretty big pie: According to the American Gaming Association, Americans will legally bet $119.84 billion on sports in 2023, a 27.8% increase from 2022. Sports betting revenue reached 10 last year, $92 billion, up 44.5%. While growth may not continue as quickly — it’s not clear how many more states will legalize sports betting — it’s clear that betting isn’t slowing down. The industry expects activity to continue to pick up in states that have already given the green light. The American Gaming Association estimates that bettors wagered $23.1 billion on this year’s Super Bowl alone.

But many online gambling companies don’t want to limit themselves to just sports. By and large, it is assumed that once someone bets on an NBA or NFL game, they will develop a preference for betting on other things as well. This gives companies more opportunities to tap into consumers’ wallets, many of which are more lucrative than sports betting.

“These companies don’t make nearly as much money from sports betting as they do from online casinos, but they do get their foot in the door with sports betting,” Lia Nower, director of the Center for Gambling Studies at Rutgers University, said.

Take DraftKings: The Boston-based sports entertainment and gaming company announced in February that it was buying Jackpocket, an app that lets people buy lottery tickets online, in a planned $750 million deal. DraftKings also has an online casino app and bought Golden Nugget Online Gaming in 2022 as part of its efforts to expand its iGaming operations – think online blackjack, roulette and slots.

Last year, DraftKings CEO Jason Robins said that iGaming already accounted for a “significant portion” of the company’s revenue and was a “hidden gem” for DraftKings. In the company’s most recent earnings release, Robins talked about the overlap between DraftKings customers and Jackpocket customers and pointed to the cross-selling opportunities he saw across DraftKings products. “There are a lot of different levers you can pull and the most important thing is not to force anything, just try to get the right products in front of the right customers,” he said.

DraftKings is not alone. FanDuel, owned by Flutter, a Dublin-based sports betting and iGaming company, is also working on expanding its iGaming offering. Caesars and MGM, both of which are in the sports betting space, are also jumping on the iGaming bandwagon, although it’s a delicate dance for the casino stars – they don’t want to cannibalize their brick-and-mortar businesses too much.

Currently, iGaming is only legal in a handful of states – New Jersey, Connecticut, Delaware, Michigan, Rhode Island, Pennsylvania and West Virginia – while bills are pending in other places, including New York. As the prevalence of online betting increases, there is plenty of revenue to be had. Macquarie analyst Chad Beynon explained some of the calculations behind these investments. The average sports bettor might spend about $1,000 a year, he said, but the average person doing iGaming might spend $5,000 – the action takes place around the clock, while the number of sports games to watch can bet is limited. And then there’s the lottery, where the average player spends $300 a year. Everything grouped under one roof means dollar signs.

The more people gamble – and the more culturally acceptable gambling becomes – the more likely gambling addiction will become a bigger problem.

“Sports betting is kind of the customer acquisition channel, and then you sell them other things,” Benyon said. “At the end of the day, they’re trying to be digital leaders, and whether it’s lottery tickets or sports betting, I think ultimately these companies want to do it all.”

Getting into iGaming is particularly attractive because sports betting is a low-margin business. Companies must pay leagues or third-party providers for data and wait for games to take place. In contrast, online tables are open 24 hours a day, all year round, and there is no one paying to host the promotion. In addition, Nower told me, the payouts for games like slot machines or roulette are much cheaper for the operator than for sports betting.

Sports betting can also help solve an age-old problem facing casinos and other traditional forms of gambling: attracting younger people to the game. A 22-year-old might not go to Atlantic City to sit down at the blackjack table, but he might place a side bet on a baseball game on his phone and maybe try out a few hands of blackjack while he waits for the result.

“What we are finding is that since online casino gaming and sports betting have been legalized, more people are betting online and betting at both land-based and online venues,” Nower said, citing a recent report on the prevalence of gambling in New Jersey she co-author. “It’s this additive effect of more forms of gambling being legalized and more avenues in which to gamble.”

Sports betting companies want to break into not only people’s gambling budgets, but also their entertainment budgets, said Chris Grove, a sports gambling industry investor at Acies Investments and partner at EKG Ventures, which invested in Jackpocket. These companies could start offering products that make this possible Be Gambling, but not feel Consumers like it, he said, adding that many people don’t really think of the lottery as a game of chance, even though it is.

“The goal of a lot of these companies, DraftKings, FanDuel, etc., is to really ask the question: Yes, I can try to get more of that gambling dollar, gambling budget, but that really only goes to a certain point. and it’s getting more and more expensive,” he said. “The bigger my share gets, the more I have to think about how I can access the broader entertainment share of the consumer wallet.”

It’s not unlike what Las Vegas has done over the years, Grove said. It’s not only a destination for gambling, but also for shows and hotels and now the Sphere. Play it forward, and what could end up looking like an ecosystem of brands and products, some of which look a lot like gambling, others of which don’t.

Of course, as much fun as sports gambling is – like gambling in general – it has some serious disadvantages for society. Sports betting and gaming operations say they represent a significant source of tax revenue for states, which is why states give them the green light in the first place. That’s true, but how much money is collected can vary greatly from state to state. There is also the question of compromises. Gambling addiction is a real problem that is often glossed over. According to the National Council on Problem Gambling, 2 million Americans have a severe gambling problem and another 4 to 6 million have a mild or moderate problem. As depicted in a recent “SNL” sketch, the core content of many sports betting ads is essentially: “SPORTS BETTING IS COOL AND BIG AND AWESOME” (and here’s a number too in case you have a problem, but we think so). “What gambling companies will notice is that they have a number of consumer protections in place that are not the case with illegal and offshore operations – cooling off periods, mechanisms for players to do certain things, including their deposits and Bets, limit, and tools to automatically identify potential problem gambling.

Expanding the offering increases the risk that more people will develop unhealthy gambling habits. In New York, calls to gambling hotlines have increased, as has the state’s tax revenue from sports betting.

“Having the online space available in your pocket 24 hours a day drives more engagement,” Nower said. The more people gamble – and the more culturally acceptable gambling becomes – the greater the likelihood that gambling addiction will become a larger problem. It also depends on how many states join iGaming, which they are generally reluctant to do.

The gambling culture in America has changed significantly in recent years, not least because of sports betting. I participate, although not on a large scale – I’ve been betting the same $20 on the Caesars app for over a year. If New York legalizes iGaming, could I start playing slots on my phone? Personally, I don’t know. But companies expect many will.

Emily Stewart is a senior correspondent at Business Insider and writes about business and economics.

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