Online casino is a huge opportunity in the US and beyond but isn't drawing same attention as sports betting

Where Are All The US Online Casino Startups?

Online casino has long been the ugly duckling of US online gambling. Since the repeal of the Professional and Amateur Sports Protection Act, sports betting has dominated the headlines and the legislative agenda. And crucially its dominated the attention of US entrepreneurs.

As Chris Grove, a managing partner at the Sports Gaming Investment Fund (SGIF), put it recently: “I see a ton of startups that are aiming to ‘reinvent the online sportsbook’ but basically none that are looking to “reinvent the online casino.”

Grove put it down to sports betting simply having a “cooler” image to investors and VC’s from out of the gaming industry. 

It’s fair to say too that betting is more familiar to investors because it’s so indelibly linked with sport. Everyone has filled out a March Madness bracket, for instance, but very few have played online roulette.

Regardless of the reason, are US entrepreneurs missing a trick by focusing on online sports betting over casino?

Multi-billion dollar opportunity

In a recent note, Morgan Stanley pegged the US online casino market at $3.5 billion in revenues by 2025. 

That’s a little under half the projected size of the sports betting market, but still nothing to be sniffed at.

What’s more, Morgan Stanley pegged the average spend per adult on online casino at $81. That’s more than double the $38 per adult for sports betting.

In other words, as more and more states take up online casino, the sector will only close the gap on its more illustrious rival.

“I would agree that it’s probably an area that warrants more interest given its comparative size to sports betting” said Lloyd Danzig, who distributes a monthly newsletter on US betting start-ups.

So why are there so few startups trying to crack the online casino code?

Major barriers to entry

There are two main factors according to Blaine Graboyes, the CEO of video game casino company GameCo.

The first factor is the longer timeline for the state-by-state approval of online casino. To many entrepreneurs, why would you focus on a three-state market over a 20-state market?

That of course may change over a longer time horizon.

The second reason is a lack of support for innovation from operators themselves.

“I have never seen an industry shoot itself in the foot so repeatedly and make zero changes to support the growth of their businesses,” Graboyes told Online Poker Report.

“Online casino operators know they will get a constant, free stream of content from providers and they don’t really care what it is as long as they keep getting it.”

“The operator mindset is every antiquated and not supportive of the startup ecosystem,” Graboyes added.

Two sides to every story

The operators themselves see it somewhat differently. According to Rush Street Interactive president Richard Schwartz, operators do want to support innovation but it just isn’t a top priority in an early-stage market.

“We do and will continue to invest in innovation but I think startups underappreciate the challenges operators face right now, just launching reliable products in new markets.”

Schwartz added: “Many operators don’t own their own tech platforms so they can’t innovative without relying on third parties and those who do own their own platform, have other priorities at this time.”

It’s hard to argue with that strategy too. Casino market leaders like Rush Street Interactive and Golden Nugget online casino are already kicking off enough profit to command huge public valuations. And they also have strong moats because the US licensing system ties online casino sites to the physical properties.

For them, is it not a case of “if it aint broke, dont fix it?”

The Netflix effect

Not so, according to Graboyes, who compares operator incumbents to Blockbuster in a pre-Netflix world.

“It would be great if Golden Nugget or RSI used a fraction of those IPO proceeds to invest in innovation,” Graboyes said.

“Creating a startup fund would do more to drive the outcome the market is expecting than anything else. They have a chance to create a hundred Netflix’s and see what sticks.”

Golden Nugget and RSI did not respond to a request for comment.

Primed for innovation

In one sense, the US market is ideal for new online casino concepts. Unlike Europe, regulatory and technical standards are relatively homogeneous across states, meaning games can be adapted easily for multiple markets.

And, as already noted, the market is far from overcrowded.

“There’s a complete lack of competition in US online casino, in everything from game development, to suppliers, technology platforms and operators,” Graboyes said.

“There’s just so much less competition at each of those tiers in the US than probably anywhere else in the world,” he adds.

Set that environment against the crowded field of sports betting startups, and the smart money should only be going one way.

- Brad has been covering the online gambling industry in Europe and the US for more than four years, most recently as the news editor at EGR Global.
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