How to launch an online sportsbook in 2021
On these pages, we already covered in detail how to start an online casino. Many of the same principles apply when launching an online betting platform; however, there are some differences that should be kept in mind by those interested in investing in this vertical. This article focuses on these specificities and outlines what's needed to get a successful online sportsbook off the ground.
After the abrupt halt caused by the pandemic in 2020, the betting vertical has quickly recovered, and online sportsbooks have significantly increased their market share thanks to the closure of physical betting shops. Given the sector's sustained growth over the past few years, starting an online sportsbook is an attractive proposition for investors everywhere. To learn how to make the best of this opportunity, keep reading this article.
Why launch an online sportsbook?
Pandemic notwithstanding, the online sports betting vertical is in better shape than ever. In Europe, home of the wealthiest gambling markets in the world, sports betting accounts for over 40% of all iGaming income, raking in an astounding €10 billion in gross gaming revenues in 2019. The forecasted year-on-year growth between 2020 and 2025 stands at 10%.
Similarly, sports betting takes the lion's share in developing markets like Africa, partially due to infrastructural limitations making other forms of iGaming less viable, and Latin America, where the passion for football drives the consumption of betting products.
In the United States, a 2018 Supreme Court ruling allowed the legalisation of sports betting at a state level, resulting in the staggered opening of a massive and extraordinarily wealthy market. Revenues amounted to $1 billion in 2020 and are expected to grow to $8 billion by 2025.
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While the gambling industry as a whole suffered greatly due to the forced closure of brick-and-mortar establishments throughout much of 2020 and 2021, the sports betting vertical was hit particularly hard by the suspension of sporting events and leagues. However, this unexpected situation accelerated the adoption of alternative prediction markets, opening new revenue streams: the GGR derived from esports, for example, grew by 39% in 2020 up to the €280 million mark, following years of growth at much lower rates.
What makes online sportsbooks unique?
Much like starting an online casino, launching an online betting platform requires plenty of planning and extensive market research. Arguably, the most significant difference between the two is that running a successful sportsbook without relying on expert advice and existing solutions requires a much more in-depth understanding of the vertical's inner workings.
Online casino operators have to provide players with a constant stream of new games to keep them engaged. These games can be acquired directly from developer studios, or more conveniently, through aggregators like Slotegrator. Once the games are added to the casino's catalogue, operators can move on to sourcing the next batch of titles. In a sense, this is a recursive "fire-and-forget" process.
Operating a sportsbook differs in so far as it requires a more hands-on approach. The service provided – bets listing and handling – remains constant, but the specifics of each listed bet must change substantially at a moment's notice for the sportsbook to stay profitable. We will cover in detail how this is done further down this article. Operators can choose between tackling this issue independently or relying on solutions provided by industry experts.
Where to launch an online sportsbook?
The first step in launching an online sportsbook is to decide which market(s) to enter. Generally speaking, operators have two options: to create a service aimed at unregulated markets or to enter one or more regulated markets.
Unregulated markets are the "grey area" of iGaming – it's a collection of countries that don't outright ban online gambling but don't have dedicated legislation either, leaving sportsbooks de facto free to operate from offshore.
On the other hand, regulated markets are those jurisdictions in which comprehensive legislation dictates the specific requirements that sportsbooks must fulfill to operate. These requirements vary between each regulated market and may include, among other things, technical specifications, player protection measures, and marketing guidelines.
Most of the industry's wealthiest markets are regulated, thus requiring local licensing. Meanwhile, unregulated markets give operators the ability to cast a wider net while being subject to fewer legal constraints.
It is important to note that grey markets aren't exactly the Wild West of the gambling industry: as players residing in unregulated markets can't appeal to local authorities in case of issues, they tend to choose online platforms that hold a license issued by a respected jurisdiction – the "Big 4" being Malta, Gibraltar, Alderney, and the Isle of Man. This creates an incentive for operators to abide by high-quality standards rather than exploiting the lack of control.
Choosing a regulated market requires extensive research. Before getting started, investors need to understand which market best fits their needs and possibilities regarding licensing costs and requirements, market size, level of competition, and growth potential.
Small and emerging markets can, in some cases, represent a better opportunity than large, wealthy markets. With lower licensing fees and less competition, new operators lacking the marketing budget to compete with the industry's giants can find their footing and start making a name for themselves in a less cutthroat environment.
Attractive emerging markets are scattered across the world. We already mentioned Africa and Latin America, while, within Europe, plenty of opportunities can be found East of Germany and in the Balkans.
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The great advantage of regulated markets is their relative stability. Yes, regulations may be updated at any time, but revolutionary changes are unlikely. On the opposite, grey markets are much more volatile, as the introduction of formal regulations – or the outright banning of online gambling – can happen at any time and completely disrupt a sportsbook's ability to operate.
Regulated markets may differ in the types of bets allowed and on what events operators can list. For example, horse racing is frequently subject to national monopolies, even when sports betting is otherwise legal. If the operator has a specific interest in offering non-traditional types of betting, for example on esports or virtual sports, that should also be kept in mind in this phase, as some jurisdictions may limit their ability to do so.
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How much money is needed?
As in any other type of venture, perspective sportsbook owners will need a detailed business plan and access to funds. The amount required will significantly vary depending on the chosen market, as this will define the licensing costs and the monetary guarantees that must be provided to authorities. Similarly, the market's size impacts the expected bet volume, and so do the sportsbook's marketing efforts. The more bettors play on a platform, the higher the operator's baseline exposure will be.
After settling for a market and acquiring the necessary licenses, operators need to make sure they have enough funds to cover their exposure to all the bets coming in. In some jurisdictions, this amount is defined by law. However, even if there is no legal requirement for it, operators must have access to a healthy amount of cash: being unable to pay out winners from the get-go equals an early bankruptcy. In the short term, bad luck exists even for operators, and a sportsbook can be wiped out if it lacks the resources to withstand early fluctuations.
Handling exposure: odds and the vig
When it comes to running a sportsbook effectively, keeping exposure in check is the name of the game.
The first tool operators can use to limit their exposure is capping bet size. By limiting the maximum amount that punters can wager, operators can ensure that potential wins can be covered with available funds.
A positive side effect of limiting bet size is that it keeps "sharps" (professional bettors with the know-how to regularly beat the house edge) at bay; the downside is that some high rollers might be put off. In any case, it is a highly effective practice, particularly for new operators lacking the safety net of large cash reserves.
On top of capping bets size, bookmakers have two more tools to lower their exposure: odds and the vig.
Odds can be represented in various ways: fractional (British), decimal (European), or moneyline (American). Independently from their style, they indicate the ratio between the amount staked and the potential payout. Odds are decided by the bookmaker for each event and can be modified at any point in time.
The vig, shortened form of "vigorish", is also known as the "cut", the "margin", or the "juice". In simple terms, the vig is the commission a bookmaker charges on each bet. The vig isn't a fixed amount either – it can vary from event to event, from pick to pick within an event, and even on the same pick at two different points in time.
Bookmakers modify odds and the vig to incentivise players to place bets on the desired pick.
The point of modifying odds is not to lower the potential payout: players will constantly scour the web to place their bets on the sportsbook that offers the best return for their wagers, so that would be counterproductive. Rather, the idea is to keep all the picks in a bet equally attractive to avoid imbalances. Lowering the return on a likely outcome while raising it on an unlikely one lures players into spreading their wagers equally between the two.
The biggest risk for bookmakers is to have a sizable imbalance between the total amounts staked on the possible outcomes, with most of the money pouring in into a single pick. When this is the case, the bookmaker stands to lose a substantial amount of money if the pick is correct.
Remember: a sportsbook is not a get-rich-quick scheme. This is a business that, when run correctly, rakes in profit over the long term, as, on average, half of the bets placed will win, and half will lose. What brings operators profit consistently is the vig; losing bets are meant to cover for the winning bets. However, in the short term, fluctuations can be wild and ring the death knell for sportsbooks lacking the cash reserves to cover bettors' wins.
Through odds and vig, bookmakers can, to a degree, drive player behaviour, balancing out incoming wagers and, in so doing, lowering exposure. Usually, the vig is the first of the two to be modified if too much money starts flowing towards one side of the scale, as it allows for smaller variations than the odds do. If modifying the vig doesn't improve the balance, bookmakers will consider changing the odds themselves. It's important to notice that this process is not visible to players, as the vig is built into the published odds.
Setting odds is no easy feat, and doing it poorly is a sure-fire way for a bookmaker to go bust. A properly run sportsbook is almost guaranteed to turn a profit in the long term, but miscalibrated odds on even just a single event can result in massive losses.
Setting odds correctly requires extensive expertise and knowledge of maths, statistics, and of the sport in question. It also requires constant access to up-to-date information, as any event can dramatically change the likelihood of an outcome: say that a star player gets injured in training just before the match – the chances of his team winning are bound to diminish. Without direct access to this kind of data and the skills required to analyse it, the best option is to rely on third-party odds.
The online sportsbook platform
Finally, to run an online sportsbook, one needs a platform itself. This can be developed in-house from scratch, but it's also possible to get a head start by purchasing a third-party solution. If one chooses to go with the second option, they can acquire the backend portion of the platform alone, developing the front-facing part of the platform according to their specific needs. It is also possible to get a customisable turnkey solution, dispensing with most of the work required to get the website going.
The platform will also require a host of subsystems. A priority is integrating one or more payment solutions to allow players to deposit money on the website. The next step is sourcing tools for granular customer segmentation and trend analysis to run effective acquisition and retention marketing campaigns. These, in turn, require practical promotional tools to assign players free bets, deposit match bonuses, and the likes.
Finally, the sportsbook will need experienced personnel. From customer service hosts assisting customers with any technical issues to legal experts ensuring the product's compliance with local regulations, from marketers tasked with providing a steady flux of new players to localisation specialists making the platform accessible to a broader customer base, no business can run without the right people behind it.
How can Slotegrator help?
Slotegrator can assist you in starting your online sportsbook in various ways. Our jurisdictional advisory services can provide you guidance in choosing the right market for your needs and acquiring all the necessary licenses to operate.
Furthermore, we offer Sportegrator, a comprehensive bundle designed to get your project going without headaches. Sportegrator includes both a state-of-the-art backend system and a fully customisable frontend, an advanced content management system, CRM tools to drive user retention effectively, and payment providers integration. What is more, Sportegrator gives you access to real-time sports data feeds and to the most vital part of any successful sportsbook: high-quality, profitable live odds compiled by industry experts using cutting-edge mathematical models.
To learn more about Sportegrator and all the other services we provide, feel free to get in touch with our sales team – we'll gladly answer all of your questions on how our tailored business solutions can add value to your enterprise.