Why It’s Time for The Sports Betting Industry to Embrace Platforms

With the landmark supreme court decision in the U.S. this week, it’s game on for sports betting.

However, traditional gaming companies weren’t the only ones celebrating. So too were so-called fantasy sports for cash companies like FanDuel and DraftKings. These companies have long argued that they are games of skill and not gambling. But the court decision means their ongoing legal struggles will go away.

Now that traditional gaming companies, both online and offline, will be going directly up against these fantasy sports platforms to compete for customers, it’s time that they looked at the adapting their business models. The key innovation that these fantasy sports platforms brought to market was peer to peer betting, at scale.

In the peer to peer model, the platform takes no risk on its balance sheet when customers bet, in contrast to the traditional sports wagering model, where bookmakers set the odds and take wages on their own book. While they try to set the odds to make money no matter the outcome, they still take balance sheet risk. Bookmakers need to be able to withstand large, short-term losses. Platform’s don’t have this problem.

Instead, these platform companies simply take a cut of each transaction. Whenever customers wager against each other, FanDuel and DraftKings take a cut. The platform model in effect outsources the risk by connecting betters directly.

The other “innovation” these companies created was finding a legal loophole around gambling laws by positioning themselves as fantasy sports competitions rather than gambling. However, with gambling laws in the U.S. changing, there’s no reason that traditional gambling can’t adopt the same peer-to-peer model. The platform model has even taken off with video games and eSports betting.

For bookmakers, this model promises profits without risk. Competition for customers will be fierce as ever, but the network effects that the platform model generates creates a stronger moat than traditional bookmakers enjoy. With online gambling set to enter a whole new market, the time is now for gaming companies to embrace platform innovation.

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