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Few industries are evolving more rapidly right now than US online gambling. In particular, the 2018 repeal of PASPA and ensuing legalization of sports betting in many states has created a dynamic market that can be hard to keep up with.
There are, however, a few reliable markers along the path.
One notable trend is that of industry consolidation. Some of the largest gambling companies have bulked up through mergers and acquisitions, grabbing an early stranglehold on the young market.
In the past year alone, four such deals have made headlines across gambling and financial media:
The end result of these tie-ups is a chessboard with fewer pieces in play. And such rapid consolidation has numerous implications for the industry — some good and others not so good.
One major advantage of consolidation is that lobbying efforts should become more focused. In this aspect, the interests of the industry and the consumers are mostly aligned.
Well-crafted and carefully enforced regulation is good for everyone, protecting gamblers while relieving some of the pressure on companies to press up against ethical boundaries in the quest to maximize shareholder value.
There is, broadly speaking, a lack of good information on gambling at the moment. That’s especially true for sports betting and online gambling in the US, neither of which were legally viable until recently. As a result, policymakers continue to make questionable decisions based on bad assumptions and outright misconceptions.
Effective lobbying can help remedy that.
The trouble in a fragmented industry is figuring out who’s lobbying for the collective good. Competitors sometimes spar in favor of their own interests, confusing the message and drowning out the most sensible recommendations.
The fewer lobbyists, the smaller the gap between corporate self-interest and advocacy for the good of the industry as a whole.
On the other hand, the most obvious and inevitable consequence is one that is bad for the consumer. Industries that are dominated by a few massive companies tend to suffer from a lack of consumer choice.
Healthy competition drives innovation and tighter pricing, and consolidation removes some of the incentive for such differentiation. If one operator comes up with a popular new idea, others have little choice but to follow suit.
The situation often ends up back where it started, with competing licensees offering similar products at similar prices. Even without price fixing or similar shenanigans, the effect for the consumer is not so different from a market in which there is explicit collusion.
Larger, multi-faceted companies also have more reason to focus on market sustainability. While they don’t necessarily do a good job of it, sometimes focusing on short-term profits to appease shareholders, incentives are better than they are when many small companies compete.
For one thing, the “tragedy of the commons” effect comes into play when a market is divided between many parties. There is only so much one small company can do to make a market sustainable, creating pressure to get while the getting is good.
For another, the easiest avenue for growth as a small company is to grab market share. Small companies can thrive even in a shrinking market so long as they’re pulling customers away from the competition.
Larger companies are more sensitive to the ups and downs. The leaders, in particular, have few ways to increase their share and must instead focus on growing the market as a whole.
In the gambling industry, this may have positive implications for responsible gaming. For a company already holding a huge market share, predatory practices are self-defeating if they produce public backlash or a regulatory crackdown.
The nature of this trend is that it tends to be hard to reverse. Once a market is under the control of a few giants, it becomes almost impossible for new companies to get a toehold.
Brand familiarity and advertising budgets are the major hurdles here. It’s difficult for a newcomer to market itself against ubiquitous brands that have become household names.
The regulatory environment can be another issue. The bigger the company, the stronger its preference for large up-front costs versus ongoing operating expenses.
This dynamic is reflected in lobbying efforts and, in many cases, in the resulting regulations. Those one-time costs for things such as testing and licensing can reach into eight figures in some states, an insurmountable barrier to most prospective competitors.
For the time being, there is still some room for small companies to establish a place for themselves. Some independent Nevada bookmakers, for instance, have attempted to expand into other states as they open up.
There are upsides and downsides to consolidation, but the future of US gambling is a market with relatively few brands and an even smaller number of parent companies — for better or for worse.