For sports betting fans, it’s exciting to see new states creating sports betting industries. It’s also exciting for them to see some states take the lead and create gaming powerhouses. New Jersey and Pennsylvania are two of the largest gaming markets outside of Nevada. They’ve legalized online and retail sports betting and online and retail casinos. They also offer enough licenses for many gaming companies to compete for bettors and their money.
However, there’s one thing that even the most well-designed gaming markets can’t counter. As other large markets open in other states, some gaming companies are quickly capturing market share. Giant gaming operators like DraftKings and FanDuel are moving into these new large markets. Over time, they’ll increase the amount of working capital they have to out-compete smaller sportsbook and online casino brands.
Over the next few years, sportsbooks that can’t make it will exit the industry. They may shut down because they’re not profitable. They may see the writing on the wall and sell to a larger company. But however these smaller companies leave, they’ll leave a gap in their place that may not be filled by other scrappier startups that pressure big brands into innovating. The gap may be filled by larger operators that ice the little guys out.
There’s a growing danger of monopolies growing in the shiny new sports betting industry, and bettors need to know about it just as much as their states’ attorneys general do.
Cutting Through The Excitement Of Sports Betting Legalization
There are a few massive gaming markets that sportsbooks would love to break into. Texas is one. California is another. At the time of this writing, Florida is probably next. And when it legalizes online sports betting, New York will be a giant sports betting market, too. When sports betting inevitably arrives in those markets some of the largest brands, like DraftKings, FanDuel, and BetMGM will likely be among the first. That’s great for them and bettors. But there’s a storm brewing beneath the surface that we must remain alert to.
DraftKings, FanDuel, and BetMGM are the three largest sportsbook operators in the United States. As they expand into new markets, they will not only capture market share in their new states. But they’ll also increase the size of their companies. Over time, they’ll be the ones making acquisitions and gobbling up smaller operators.
By itself, there’s nothing wrong with that. However, there’s a monopoly trap looming on the horizon if we’re not vigilant.
What Monopolies Could Do To The Sports Betting Industry
Bettors may enjoy abundant bonuses and competitive odds now. One of the reasons is the similarly abundant competition among sportsbooks. DraftKings faces pressure from BetRivers, which has virtually identical odds but offers a reward system that DraftKings lacks. Small sportsbook brands have their own competitive advantages. For example, SBK in Colorado gets its odds from a betting exchange in the U.K. (The same British company owns both products.) That allows it to offer better odds than most other sportsbooks on the market.
However, if there are only two or three sportsbook brands in the market, then there’s little incentive to continue innovating. DraftKings wouldn’t need its ‘missions’ section to compete with BetRivers’ rewards. The largest brands would only need to offer bet boosts to balance their liabilities on high-profile betting lines. They wouldn’t have to consider the added benefit of outdoing SBK’s odds. In a monopolized industry, bettors could expect sportsbook odds to worsen and bonuses to disappear.
Oregon: A Glimpse At A Monopoly
Oregon offers a glimpse at what the sportsbook industry could look like if it was monopolized. It has one lottery-run sportsbook called Scoreboard. It offers a couple of bonuses, and its odds are actually pretty good. Its underdog odds beat out DraftKings, FanDuel, and BetMGM at the expense of its odds on the favorite. However, that’s the only odds trend in Oregon. Bettors who want competitive odds on the favorite to win are surrounded by better but unavailable options out of state.
But its odds don’t make up for poor bonuses. Its deposit bonus is only $50. Slicing DraftKings’ deposit bonus by 1/20 isn’t an attractive welcome bonus. Even the small bonuses are five times that large.
Oregon Scoreboard has strong odds on one side of the line. Those odds even beat leading sportsbook brands. However, when that’s the only odds competition on the market, it limits bettors’ strategies. Oregon Scoreboard is great for underdog bettors, but not for anyone who wants to put money on the favorite. The promotions are a joke compared to the big brands, too. Allowing one sportsbook to dominate the market would likely crumble into this over time.
What Will Keep The Sports Betting Industry Competitive
Even if the sportsbook industry turns into an oligopoly–where a few companies dominate the industry–bettors could find betting less enjoyable. Odds and bonuses would be the main casualties. But there’d be little incentive for sportsbooks who comfortably dominate the industry to offer timely withdrawals, either. Other features could begin to become less impressive over time.
But strong anti-trust laws could keep the sports betting industry from a long period of decadence. Anti-trust laws prevent companies from forming monopolies in their industries. These laws maintain the competition that produces thriving markets for bettors–and any other customer–to benefit from.
Three anti-trust laws govern the United States:
- Sherman Act
- Federal Trade Commission Act
- Clayton Act
The Sherman Act is the main piece of anti-trust legislation. It prevents anything that “restrains trade.” (The Supreme Court modified this law to anything that “unreasonably” restricted trade. Partnerships to form businesses technically restrict trade, but no right-minded person would outlaw them.) The other two modify the Sherman Act. The Federal Trade Commission Act allows the FTC to “bring cases” that are outlawed under the Sherman Act. The Clayton Act, in part, requires large companies to give the government a heads up if they’re planning on a giant merger.
However, state attorneys general watch at their levels to see whether any companies are or planning to monopolize their industries. At their best, they’re watchdogs that will ensure the sports betting industry remains competitive and fun for bettors. But at their worst, they’ll let the sports betting industry decline because of the inability of smaller startups to challenge the big dogs with innovative ideas. If sportsbook companies form monopolies, the states’ attorneys general will learn first.
Sports Betting’s Crossroads
Sports betting operators won’t monopolize the industry any time soon. It’ll take several years for failing sportsbook operators to exit the industry. It’ll take even longer for large sportsbook operators to outmaneuver each other to have any hope of monopolizing, anyway.
But there’s no guarantee that sportsbook operators will do this either. The largest sportsbook operators could be held at bay by anti-trust laws. They could continue innovating to outdo each other. However, losing the constant stream of smaller competitors who are nimble enough to take the big companies on is a great danger that must be guarded against. Although there are strong federal laws in place to protect us from monopolies, state attorneys general are on the front lines. They’ll be the ones who catch the red flags before they gain national attention.
As we come to the end of the blitz of sports betting legalization, the industry will work its way toward some point of equilibrium. But as sportsbook operators who can’t cut it leave, we’ll have to watch for other startups to take their place. As long as they can maintain competitive pressure on large operators, then there’s hope for a thriving and sustainable industry. But losing that competitive streak will be the beginning of the end of the golden age of sports betting in the United States.
Sports betting is approaching a crossroads. It’s still far off in the distance. But the signs of a healthy or unhealthy future will become clearer over the next few years. Now is the time to watch for them.