We’ve now reached the anniversary of when the COVID-19 pandemic changed everything for us – both our society and the US gaming industry, writes Scot McClintic, SVP iGaming Product & Strategy at Paysafe.
It is a milestone that prompts us to reflect and remember the rocky road that led us to where we are today. It is also a milestone to keep us optimistic about the future, and the renewed strength that the gaming sector has demonstrated over the last 12 months, particularly in the online space.
The retail sports betting industry ground to a relative halt when the pandemic began its crescendo in March 2020, with many of the betting world’s marquee events postponed or cancelled as a result. From March Madness, to the Olympics and European UEFA Football Championship, it was relentless.
Even when sports began to return, empty stadiums and social distancing measures meant the vibe was new and unfamiliar compared to the high-energy atmosphere we as fans had long been familiar.
Despite the uncertainty that COVID-19 initially placed on live sports and the sports betting market, there have been silver linings for the industry. For instance, table tennis emerged as a major sports market, and continues to be a bettor-favorite today. Who saw that coming a year ago?
More broadly, online casino showed significant strength as a complementary product offering to hedge against sports content, as consumers looked for new forms of entertainment. This was predictable, but consumer engagement and cross-sell metrics from sportsbooks to iCasino were stronger than anticipated.
COVID-19 was, and continues to be, a shock to the industry. And yet we see the resilience of the market, and players’ need to find new and engaging forms of entertainment.
The pandemic has shed a light on the joy of merging digital forms of entertainment such as sports betting with the live sporting events that we love. This physical-to-digital shift was already happening pre-COVID but has been permanently accelerated by the pandemic.
A rapid decline in revenue, followed by an even stronger resurgence
The fall in sports wagering revenue in markets like New Jersey from March to May 2020 was precipitous. Total gaming revenue for the Garden State in May dropped 65.4% year-over-year, according to its Division of Gaming Enforcement.
In hindsight, it’s surprising that handle did not decline more. However, this relative overperformance during a black-swan event hinted at what was to come – a bounce back for the ages that should be a source of optimism for the industry.
2020 formed a V-shaped recovery for sports betting, with the latter half of the year outperforming by every metric and setting records. The logical next question for an online operator is this: Is the sports betting second wind sustainable, or will there be a return to a pre-COVID equilibrium?
What does this mean for the future?
COVID-19 changed things. Retail sports bettors, who typically comprise around a fifth of the US regulated market, turned to online platforms as they grappled with retail sportsbook and land-based casino shutdowns. Casual sports fans who may have debated the idea of opening an online gaming account prior to COVID decided to enjoy a new form of entertainment.
Many factors at play during the pandemic helped fuel this digital shift. And from a customer acquisition perspective, momentum continues to be strong. But that was during COVID, what about now we appear to be transitioning to a post-pandemic world?
In December 2020, we surveyed over 2,000 US sports bettors with online sportsbook accounts across eight states for our annual ‘All the ways players pay’ report. The objective was to find out more about user preferences when making bets online – and the impact of the pandemic was clear.
Over two thirds (68%) of players told us that they are now more comfortable making online sports wagers – and this was directly a result of online betting being the only available option during the pandemic. In addition, two thirds (65%) of players told us that they are planning to do all their sports wagering online.
Alongside this increased comfort level over placing bets online, there is also the consideration of frequency. We know from our latest research that a majority of sports bettors (61%) already plan to bet more frequently this year than in 2020, indicating a continuation of strong user-driven performance for sportsbooks through 2021.
Holistically, the digitization of US sports betting, a broader target market of players and pent-up demand were all catalyzed by COVID-19. Against the backdrop of newly regulated state markets such as Michigan and Virginia – with others likely on the horizon – the opportunity for the American industry becomes even more compelling.
COVID-19 and state regulation of online sports betting
With state-wide land-based casino closures and entry limits, operators were forced to reconcile a high fixed-cost base with little to no revenue coming in the door. Legislators in states like Virginia – which regulated online sports betting in September 2020 and launched its market this January – have likely seen the vulnerability of the land-based sector in the wake of the pandemic and been influenced by this, among other factors, to regulate the online sports betting and casino verticals.
As a result, land-based operators can monetize online gaming directly or at least indirectly. This leads us to three factors: first, hedging against pandemic effects; second, more data points that show online gaming is incremental rather than cannibalistic to retail casino activity; and third, neighboring states legalizing online gaming, thereby draining the addressable market for tax revenues for not-yet-legal states.
A combination of these factors makes it likely that regulatory momentum will continue through 2021 and beyond. COVID-19 almost certainly acted as an accelerant to legalization, but now the fundamentals and value opportunity for sports betting is too great to ignore.
Looking ahead
Despite the war of attrition that 2020 presented, there are real reasons for optimism this year. Gaming products, business strategies, balance sheets, and legalization momentum are all stronger due to the pandemic. If the sports betting and online gaming industry can thrive through the worst of times, what about the best of times? In either case, we now have table tennis.
This article was authored by Scot McClintic, who oversees Paysafe’s product and strategy development for online gambling and sports betting – both in the US and on a global level.
