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How To Solve The Operator Loyalty Problem: Interview with Jesse Learmonth
After a land grab, operators are focused on new tech, and startups are building new consumer apps, as well as data, AI, live streaming and infrastructure.
When it comes to technology in sports gaming, Jesse Learmonth has a front row seat.
Learmonth is the host of the Betting Startups podcast where he talks to up-and-coming startups in the industry and writes the Betting Startups newsletter. A former executive at Pinnacle, he’s now an advisor to startups so he knows the ins and outs of what’s moving the market.
In this discussion Learmonth talks about what he's seeing in terms of innovation in sports gaming, from AI to free-to-play gaming to live streaming to infrastructure plays.
Operators have a loyalty problem and a commoditization problem and they are trying new approaches to technology, fan engagement and marketing to address it, Learmonth says. That’s also leading to interesting dynamics and deals between big operators and new startups.
Operators have an increasing interest in new technology and innovation. But this wasn’t always the case. In the early years after PASPA was overturned five years ago, operators were in land-grab mode and just trying to acquire customers, Learmonth said. (Big bonuses always help.) “They were just literally trying to get to market with whatever they could. So in the early days, the operators weren't focusing too much on innovation,” he said.
Now operators realize that their products are too similar. There are dozens of operators in many states, many of them with similar lines and odds. So operators are looking to technology to differentiate.
“We are starting to see more of an increasing emphasis on operators really trying to look at ways to differentiate their brands and their products, recognizing that it is quite a homogenous commoditized landscape now. And a lot of these operators are looking to early stage companies to really be the drivers of that innovation,” he said. “Innovation is more of an increased focus now than it may have been over the last few years.”
But many operators don’t have the resources for new technology. “As much as they might want to be innovating internally, the reality is for most of these outfits that resources are scarce. Compliance and regulatory is a massive priority and it often pulls resources away from projects that may be focused on innovation. So they need to lean on innovators to drive forward those objectives.”
For some operators that are now established, they can focus on technology. “A lot of these operators are now ready to start to focus on this—now that they have their footprint in certain states. So innovation is the theme now of these next innings of the regulated US betting market.” he said.
Commercial partnerships and B2B deals between larger operators and tech startups are picking up—and could later lead to M&A. Areas that are buzzing for these types of partnerships include companies creating unique betting markets or betting products and then providing them to operators, he said.
One company creating new markets is Alt Sports Data, which is securing rights to alternative sports such as skateboarding, snowboarding, surfing, motocross or even bull riding. The California-based company then creates betting markets and offers them to larger operators. Alt Sports Data recently announced a deal with a large operator to offer markets for professional skateboarding, Learmonth said.
Large operators are looking to expand beyond the big four pro sports into new demographics and new audiences.
“Whereas a year or two ago, [operators] were focused on the major pro leagues, now they’re saying, ‘You know what? We do have good market share with these leagues. We now need to extend into some of the longer tail sports,” he said.
The other major area of innovation is fan engagement, which is key to keeping consumers around, Learmonth notes.
“We've all seen these headlines on the crazy sums of money that the operators have been spending to acquire customers without as much corresponding attention being put on the retention side of these customers once they paid the $1,000 to acquire one.”
Now operators are looking at player engagement through things like free-to-play games, live streaming or live betting markets, he said.
“There's a lot of focus now on: What can we do as an operator to move beyond simply facilitating a transaction and move into actually creating a viewing or fan experience around the transaction as well. So a lot of startups are trying to serve that need now. And focusing on increasing the retention once the operators have paid all this money to acquire their customers.”
Anything to improve the live experience, through live streaming, visualizations, new forms of real time stats or data are also a big focus, Learmonth said.
The Loyalty Problem
Many customers are willing and able to switch between apps, especially if there are bonuses or +EV opportunities—because there are so many apps that have become commoditized, as well as affiliates and aggregators to compare the best lines and odds. That’s a major concern for operators, so they see technology as a way to keep customers by generating more loyalty.
“There's not a lot of loyalty right now amongst customers between operators, and operators are trying to use this fan engagement piece to build some brand loyalty amongst their customers that really prevents the situation where users are jumping from app to app, and not having much loyalty towards any one brand or operator,” he said.
The heavy marketing budgets of operators are not going to last, so operators need to take different approaches, Learmonth said.
“A lot of the above the line marketing we've seen is around brand awareness—TV ads, billboards, and that's not sustainable forever for a lot of these operators. So there is a shift towards more sustainable marketing which means rather than trying to get all customers in, instead getting the right customer for each operator. Then once you have them what are the things you can provide that will keep them content and not jump to the next one that's offering the next sign up bonus?”
New Consumer Markets
In direct-to-consumer startups, some are making big best by trying to create completely new forms of betting markets. One approach is Mojo, a startup that lets customers essentially buy a “stock” in a player—which are like contracts in an athlete’s performance.
“They’re allowing people to really represent their fandom through betting on players that they think will have long successful careers,” he said.
Another startup with a novel concept is Sporttrade, which offers markets in the form of $100 contracts. Customers can buy or sell contracts that will settle for either $100 or $0. Prices fluctuate between $0 and $100.
“That lowers the barrier to adoption for people to get their heads around live betting, which for most sportsbooks is a grid of numbers that looks like a spreadsheet,” Learmonth said. “And what Sporttrade has done nicely is obfuscated a lot of that complexity and made it easy to understand by offering what are just simple contracts that settle in either $0 or $100.”
Artificial intelligence and data
In terms of AI, more companies are using AI to set lines and odds and handle risk management or lifecycle management. At companies such as Pinnacle where Learmonth worked, AI was used to do things like defend certain positions from high-volume, sophisticated entities, Learmonth said.
Another use of AI is for personalization, with companies such as Future Anthem, which provide personalized experiences and personalized bonuses. Finally, AI can be used to do things such as predict problem gambling and make interventions for certain players that exhibit those tendencies, Learmonth noted.
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Relatedly, one other area of development is new forms or uses of data as well as new ways of automation for data capture. Companies like ShotQuality are using computer vision to generate basketball data, Learmonth said. But there are more technologies that should come to market soon.
Finally at a macro level, the industry is watching how sports betting relates to iCasinos—which are still emerging and don’t have regulatory clearance in many states, Learmonth said. “A popular thought is that with sports betting, it’s not just how you acquire a customer but how you cross-sell them over to an iCasino, how you actually turn them into a profitable customer,” he said. “The one to watch is going to be the emergence of iCasino over the coming years, as it rolls out in new states and seeing how these operators really try to capitalize on that.”
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