A Second Sports Betting Licensing Tier

With the US sports betting industry rapidly consolidating at the top, is it time to consider a second licensing tier?

The US sports betting industry is rapidly consolidating at the top. DraftKings and FanDuel control 75% of the market, and when you toss in BetMGM, Caesars, and three or four other operators, there’s perhaps mid-single-digits of the national market share to split amongst a couple of dozen operators – and that number is rapidly declining.

However, market share isn’t the entire story, or at least it shouldn’t be.

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The regulated sports betting industry should serve all bettors, which means creating an environment that welcomes massive multinational corporations and small startups catering to niche markets.

To get there, many states need to reconsider their licensing and taxation structure.

Going in the Wrong Direction

Given the current trend — higher tax rates and more regulatory restrictions — the rich are likely to get richer as the barriers to entry grow. Startups will find the landscape as inhospitable as Cohaagen found Mars at the end of Total Recall.

In most states, customers will have the choice of DraftKings and Fanduel or a handful of alternative operators using the same business model — the only difference is how well they execute.

You won’t see Sporttrade (a newsletter sponsor), Prime Sports, or other “alternative sports betting models,” as the Massachusetts Gaming Commission calls them, in states with high licensing fees and tax burdens.

Let me be clear: there is nothing wrong with the recreational sportsbook model. It makes financial sense and is necessary due to the licensing and tax burdens in some states, and customers obviously like the product.

You Get What You Get, and You Don’t Get Upset

That said, not every bettor is a fan of the recreational model, and they are looking for alternatives.