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Inspired Entertainment released its fourth quarter and full year 2019 results on Wednesday. It was a strong report for the company overall, but especially for its virtual sports products which had their strongest quarter on record.
Inspired is a gambling content and hardware company. Though headquartered in New York, it has offices throughout Europe and does most of its business there today. It has been making headway in the growing US online gambling market over the last few years, most notably with its virtuals.
Virtual sports blur the line between casino gambling and sports betting. They work more or less like a table game behind the scenes, with a fixed return-to-player percentage and results produced by a random number generator.
From the customer’s point of view, however, the betting options resemble those of a sportsbook. The “match” being wagered on typically lasts only a minute or two. Most products use digital animation and fictitious athletes, while others splice together real game footage.
Inspired’s Q4 revenues more than doubled to $66.4 million in 2019 from $30.7 million in 2018. This was largely due to the acquisition of the Gaming Technology Group (GTG) of Novomatik UK, a $118 million cash purchase completed in October.
Overall revenue growth for the year was more modest, at 9%. Virtual sports outperformed most other products, however. The company added 11 operators to its client list to bring its total to 111, including several in the US. Quarterly revenues from those products were up over 16%.
Virtuals remain a relatively small part of the company’s overall operations, especially after the Novomatik GTG acquisition. At $9.3 million, they accounted for about 14% of the company’s Q4 revenues. Still, it’s clear — both from their growth and from the prominence with which Inspired features them on its website — that the company sees the virtual sports sector as an important part of its future.
Inspired’s presence in the US and the performance of its virtual sports products should both get a boost this year. The company has broken new ground in New Jersey thanks to a deal with bet365 which facilitated the launch of new products in January.
Virtual sports are primarily popular in Europe at the moment. Unlike the US, most of the markets Inspired serves there have had legal sports betting for a long time. European online sportsbooks treat virtual sports much the same as regular sports. For bettors, they provide a way to scratch the itch when there’s no real match to be bet on, or to kill time while waiting for one to start.
Virtuals have been around longer than legal NJ sports betting has, making their first appearance in 2016. Because there were no licensed online sportsbooks at that time, virtual sports were instead integrated into online casinos. Casino players aren’t really the primary market for virtual sports.
Bet365, however, obtained permission from the NJ Division of Gaming Enforcement to offer virtual sports within its sportsbook. Although they’re taxed as casino games, the games presented alongside real-life betting options — the same way they are on bet365’s European and international sites.
Inspired also inked a deal with 888 that extends beyond virtual sports, and it appears that those will be launched via its casino platform rather than its sportsbook.
Companies like Inspired trying to popularize virtual sports in the US face a few important challenges. All gambling companies have to contend with regulatory hurdles and unfamiliarity with the products on the part of consumers; that’s just the nature of doing business in a new market.
For virtual sports, however, it’s more than just that. The fact that sports betting and casino gambling are often treated separately poses another problem.
Many states are legalizing both online and retail sports betting while leaving other forms of gambling to the brick-and-mortar casinos. Even Pennsylvania, which legalized all major verticals, elected to separate the licenses for sports, casino, and poker.
It’s often the skill element of sports betting that’s seen to differentiate it from casino gambling. Since virtual sports lack that, it seems unlikely that most states would allow them to operate under a sports betting license.
There is, however, the possibility that some states will allow virtual sports as a form of terminal-based gaming. The PA Lottery has been doing so since 2018, for instance. Its Xpress Sports terminals are provided by Inspired and offer football, plus horse and car racing.
The new market also necessitates new products.
Until recently, these companies focused on the sports that appeal to a European audience. That means soccer first and foremost, but Inspired also offers games like cricket and darts. Bringing that lineup to market in the US wouldn’t make much sense.
As a result, early forays into US virtual sports relied on racing products such as horses and greyhounds. These are not only easier to simulate than some other sports, but they have more universal appeal.
Race betting is furthermore treated separately from sports betting in the US and was already legal at the federal level prior to the repeal of the Professional and Amateur Sports Protection Act (PASPA) in 2018. Thus, American customers were perhaps more accustomed to betting on real-life racing events.
Inspired still doesn’t have a full lineup of US sports, but it did create an NFL-style football product to go alongside its soccer and racing products.
Meanwhile, its competitor Highlight Games plans to bring an officially-licensed basketball product called NBA Last 60 to New Jersey in partnership with Virgin and Tropicana. It’s probably only a matter of time before we see baseball and hockey as well.
The Ultimate Fighting Championship (UFC) would be another promising partner given its overall interest in gambling. Producing a convincing fight simulation would likely present some challenges, however.
Exactly how big the US virtual sports market could be is anyone’s guess.
Some of the hype about it is exaggerated — for instance a claim by Strategic Trader editor E.B. Tucker that virtuals will be “the next $100 billion industry.” For one thing, he’s talking about bets placed, while revenue would be only a few percent of that. He’s also looking at early numbers from Greece and scaling them up to the US population, incorrectly assuming that all 50 states legalize the format.
A hundred billion is an unrealistic number, but that doesn’t mean virtual sports are won’t be big. They just won’t be that big.
The UK Gaming Commission hasn’t reported virtual sports figures recently, but they accounted for 8.5% of online betting revenues in the country from Q4 2016 to Q1 2017. That’s likely grown considerably over the three years since. Now, virtual sports reportedly account for up to a third of some operators’ revenues.
Inspired, for its part, claims that a sportsbook can hope to increase its revenues 15% to 20% by adding its products to the lineup.
It’s not just revenues that are increasing by leaps and bounds but also the quality of product.
Inspired’s virtual sports look comparable to modern video games. The level of detail is lower, but the animations are fluid, the audio commentary seems natural, and the players behave in a realistic fashion.
There’s even some innovation going on with the gameplay. Inspired’s golf product, for instance, includes in-play betting with odds updated after each shot.
A few years ago, it would have been easy to brush virtual sports off as a gimmick that was unlikely to find traction. Now, it might be time to take the sector a bit more seriously in the US.