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How The U.S. Legal Sports Betting Business Is Fundamentally Disadvantaged

06-02-2021 07:00 PM CET | Sports

Press release from: PayPerHead.net

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(*Of course, there are advantages, too)

Some people say “Not all bets are not created equal”. With local bookies operating through pay-per-head websites, it’s a world where credit is king. In all regulated markets expanding all across the U.S., the game it’s quite different. 
At a legal sportsbook, a bettor will have to post-up the funds, meaning if he’s betting $22 on the Patriots to win $20, he must first put down $22 in some way — be its cash at a counter or by online account funding and having those funds withheld, pending the outcome of the game.  One of the leaders in the field is PayPerHead.net

That means that for the vast majority of New Jersey’s ever-growing monthly betting handle, most recently $488 million in October 2020, bettors placed wagers in the form of payments online through PayPal, online bank deposit, or ACH transactions (among similar methods). While 85% of wagers came online, the other 15% of transactions required posting up of the funds at physical sportsbooks — cash across the counter or inserted into sports betting kiosks.

However, a bet’s a bet, and the fundamental financial transactions underpinning the competing illegal and legal markets create different costs, various opportunities, and some challenges. While there was actually a bill introduced in Vermont early this year that would allow sports betting licensees “to extend credit to patrons,” that’s a unicorn clause.
And so the purpose of this article: Outlining the key differences in sports betting ecosystems built upon credit from illegal bookmakers versus posting up with legal books — two markets that will compete and coexist as state-sanctioned sports wagering rapidly expands across the U.S. The following represents those key points I am attempting to distill from conversations with half a dozen industry veterans.

Sportsbook marketing expenses.

New legal sportsbooks competing for eyeballs, ears, and market share are cutting up a very healthy amount of cheddar these days to make their sportsbooks stand out above the noise. Some commercials, definitely not William Hill’s (I don’t care that he put his own name on the book 85 years ago), are more inspiring and less annoying than the others. If you reside in the Pennsylvania or New Jersey sports radio markets, you know what I’m talking about.
But the marketing costs expand far beyond the airwaves. Snail mail advertisements. Online advertisements. TV spots.  New Jersey transit signage. All those sign-up bonuses and free bets? The vast majority of bettors ultimately pay the books for the entertainment long-term, but there’s large acquisition spends involved. (And a moment for self-awareness: sportsbooks return an acquisition fee to websites such as this one for playing a role in the journey to becoming a sportsbook client.)

Take all of these expenses together, according to one insider, marketing expenses account for roughly 40% of the outfit’s total budget. The task of marketing is made more difficult when licensed books have to figure out how to spread money across states with different markets and different rules. Throw in regulatory and compliance fees and so forth, and really, as Rhode Island is finding out, there’s not as much revenue and tax dollars as many imagine. Or at least the bookmaker winner’s circle has a fairly low population. It’s just not that profitable an environment. 
Meanwhile, credit-based shops do not have most of these expenses. Credit bookies don’t advertise and don’t have to give attractive bonuses. They have on-the-ground agents that pay standard commission fees when a new bettor/client comes aboard.  Like marijuana in non-legal states, agents acquire new customers through referrals, through people they trust, people who are good for the money. You can’t extend credit to strangers. They meet face-to-face. Ultimately the agent is responsible for the book for the money. 

(Note: There’s a difference between offshore post-up shops operating illegally in the U.S., and credit-based bookies, many of which operate in pay-per-head (PPH) models, where the agent pays a fee to have clients maintain accounts through a website hosted by the larger operation. In another part of the ecosystem, there are offshore post-up shops, and among the leaders is a Bovada.

But there are advantages.

While legal books will be restrained by the inability to extend credit, their potential for clientele growth is big. They will be able to tap into a section of the population that probably will/would never transact with an illegal bookmaker. There’s a cost to engaging this cohort, but they will have solid lifetime value if the book is good enough to retain and entertain the player. 
Many legal books are crawling over each other to reach the Barstool Sports audience (FanDuel, SugarHouse, and PointsBet are among the partners so far). (Barstool also dumped on an offshore bookmaker that illegally accepts patrons in the U.S. after an employee picked a fight with El Presidente on social media.) In general, legal books are reaching a new audience, a massive field of oil laying dormant under the weight of legality, just waiting to get tapped. 
And when some media conglomerates wake up, penetration into U.S. audience by illegal bookmakers will wane, in favor of state tax-paying sportsbooks. Consider this example: Stadium Sports Network is owned by Sinclair Broadcast Group, which is the largest owner of stations affiliated with FOX and ABC. As you may be aware, FOX now offers a full sportsbook called FOX Bet.

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PayPerHead.net is a sports betting software development company that also provides sportsbook pay per head (PPH) services.
It provides one of the best suites of sportsbook software features and tools in the industry. The only offering UltraLive and EZLive at no extra cost.
A fully bilingual customer service team is on-hand 24 hours, 7 days a week.
PayPerHead.net developed the first and only online collection and payment system in 2010.

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