Just over a year has passed since the U.S. Supreme Court overturned PASPA and gave States the autonomy to legalise and regulate sports betting within their boundaries. The period since has been characterized by an obsession with “speed-to-market”—both in the State legislatures (as illustrated by the abandonment of a competitive procurement process in D.C.) and amongst operators opting for “turnkey” solutions to quickly provide sportsbook technology and pricing via a single source.
However, whilst these “one-size-fits-all” solutions have allowed operators to act in haste, the quality of pricing and risk management they provide is also causing them to repent at leisure. The white-label business model was developed to supply vendors in grey (and black) betting markets, where the absence of regulation, taxation and social responsibility requirements for the operator means they can still generate profits whilst offering sub-standard, scraped and homogenized pricing.
As the regulated U.S. market matures, competition (and customer choice) will increase, first mover advantage will be eroded and the ability to differentiate from the crowd will become imperative for operators to thrive. More sophisticated product innovations such as “bet-builder” may give operators a temporary edge but they are quickly replicated by others and become part of an expected customer offering. Initially healthy margins are squeezed, and the cycle begins again.
For operators to stay ahead of the competition in the medium to long term, attention should be given to differentiating through the odds that are offered to customers. This can only be done if the odds supplied are underpinned by expert trading and risk management capability.
For lotteries in newly regulated European markets, following this strategy has been proven to keep them as market leaders. However, expert pricing and risk trading is not available through either the white-label solutions currently in the U.S. or the managed, manual trading services (MTS) being offered by suppliers that have no experience of running the risk on their own book. These solutions generally focus on limiting exposure at source by reducing customers’ stakes, which will not be acceptable to U.S. consumers and therefore damage the reputation of the brands that supply them.
The need for improved returns, price differentiation, scale and business efficiency is why we at Sporting Solutions developed our unique automated Risk Adjusted Pricing (aRAP) service to complement the market-leading B2B pricing and trading propositions that are proven to succeed in regulated markets. Part of our suite of Risk Management Services, the dynamic pricing function of aRAP has been developed using risk management algorithms akin to those used in the financial sector for managing portfolios of correlated exposure on vast amounts of real-time positions.
Our solution is unique. Sporting events are priced and traded via a combination of Sporting Solutions’ proprietary algorithms and expert trading teams, meaning operators offer the best opening prices in the market. As exposure is built up on those prices, aRAP automatically adjusts them on a bespoke basis according to the operator’s own appetite to risk on that event.
The result? The operator is able to offer best-of-breed pricing that is fully automated (to reduce cost overhead), customized (to promote differentiation), optimized (to maximize profit) and can even incorporate client analytics tooling that give the operator a cutting-edge view of player behavior.
This fulfils the requirement to weigh player safety equal to the need of customer excitement in a game of tightening margins. We believe aRAP is the innovative solution of today that will support those U.S. lotteries wanting to offer sports betting in becoming the market leaders of tomorrow.
Written by Simon Trim, CEO, Sporting Group