There is a sportsbook technology debate

There is a sportsbook technology debate

It is said that if you want something done well, you should do it yourself.

That is an adage many sports betting operators have taken to heart.

There will be plenty of mentions of proprietary sportsbook technology on any earnings call for a US operator.

Operators have money which supports their demand for in-house solutions. The supplier was valued at $634.1m after the merger with DraftKings in 2020. The acquisition of William Hill by Caesars was mostly for its proprietary technology.

TheScore announced a long process to build its own sportsbook technology, which surely played a major part in Penn National Gaming acquiring it for $2 billion.

“I don’t want to get distracted by it, but it’s hard to ignore,” Kwiff chief technology and innovation officer Nick Maroudas says of the flurry of M&A targeting businesses that control their own tech stack

As new operators set up and make decisions about their future, the debate between in-house and third-party sportsbook technology continues in mature markets of Europe as well.

Last year, Kindred announced that it was moving away from Kambi to a system building its existing horse racing platform to create its own sportsbook.

At the supplier’s Festival of Sportsbook event, Jamie McKittrick noted that it was not a new debate.

He says that the debate has been going on for as long as mass sportsbook. The debate has been going on for at least 25 years, according to a search through the archives.

Seeking control in some way

Why do operators want to create their own sportsbooks?

sportsbook providers make a lot of money. Operators hope that building an in-house solution will result in cost savings and less overheads.

Sportnco head of sales David Bonnefous argues that the sportsbook is not a middleman and sits between the operator and the data provider.

He says that the sportsbook is a high-quality catalyst between odds feeds from several origins and the high-quality feed delivered to an operator. It allows you to differentiate and add value to your customers, by giving you the most value from the data provider’s provision.

Operators that make the move will often talk less about cost savings and more about freedom and control.

The main reason for building in-house was control, according to the director of the sportsbook.

He explains that the decision to build on the in-house Kindred racing platform to power the Kindred sportsbook platform is indicative of the long-term strategy of greater end-to-end control of its product offering, as well as providing more unique content and customer experience.

Operators need to adapt, shore up supplier security risk, and collaborate in different areas with different providers as a result of a change in the market and landscape.

It will take a lot of work to get that level of control. Building an internal sportsbook is a massive task and often without a clear end result.

He says that the sportsbook is the most complicated vertical you can have. Operators may want to internalise as much as possible, but it is not a short-term race.

It would take a lot of investment, iteration, challenges and a lot of hard work to build a sportsbook for an operator. The buy versus build debate is something that requires true in-depth consideration because several major players have tried to build their own solution and failed.

What is the meaning of it?

What is it that owning your own technology means?

In a period where some of its most high-profile clients have announced plans to migrate to in-house solutions, Kambi appears to have thought deeply about that question.

The question of in-house versus outsourcing is a false dichotomy to the supplier. Every operator will outsourcing certain aspects of their sportsbook, even if they choose to handle a much larger portion of it internally.

“We are not aware of a single operator that does everything in-house.”

The supplier believes the question is more of a sliding scale than one with a yes or no answer.

The market should be asking what extent operators should outsourcing their sportsbook, according to Noah de Villiers of Kambi.

Peter Heneghan is a senior associate at the venture capital fund Bettor Capital.

He says that there are some things that will be in-sourced. PAM and trading are popular things to build in-house.

It doesn’t make sense to build out a geolocation platform, others likely will never be insourced. Other examples include payments, marketing tech functions, and speciality products. People might be interested in owning their own trading team, but for live player props they are still using Swish Analytics, or a live trading solution.

Whether in-house alternatives exist plays a part in evaluating businesses, but it is not the only factor, according to Heneghan.

He says that part of the evaluation of any investment is looking at how easy it will be to bring something in-house. Even though something can be brought in-house, it doesn’t preclude us from looking at a third-party competitor if we believe that the product is strong.

What is the best way to find an equilibrium?

It is easy to see that in-house technology is the domain of larger businesses. Bet365 has long been the gold standard for home-cooked sportsbooks, and many of the evangelists of the approach come from publicly listed operators.

If the matter reaches an equilibrium, one could imagine large-scale global businesses building or acquiring in-house tech, while sportsbook suppliers pursue deals with the next tier of operators.

The market has not completely shaken out that way. Some mid-sized operators have found that working with their own technology makes more sense than using outsourcing technology for some of their brands.

If an operator wants to break through in an established market, they need to differentiate themselves.

To create something different, an in-house solution was necessary for Kwiff, which has built its promotional strategy around a system where any bet can receive enhanced odds.

It wouldn’t be possible for us to get what we were after in terms of an offering to our customers with someone else’s technology.

He notes that having control over a wide range of aspects of the product has become a key benefit.

Being in control of how we bonus people, what we give our customers, the value we give to our customers, the way we speak to customers in terms ofCRM, the look and feel of our app are some of the things that have evolved.

It allows us to follow our own path, not that of anyone else. It makes it easy to pivot and change. It allows us to be in control of ourselves.

Bonnefous notes that a third-party supplier can handle localisation issues for multijurisdiction operators, allowing them to not getbogged down in small but crucial details. He says that this is only becoming more important.

The worldwide market is either regulated or moving towards regulation according to him. There is no harmonisation between regulated and unregulated markets.

In the US, New Jersey and Maryland have very different regulations for mobile sportsbook. The delivery of the sportsbook in each state needs to be different because of this.

A potential long-term equilibrium might involve most of the market landing in the middle of the sliding scale between heavily outsourcing and heavily in-house.

The supplier said that the tides are starting to turn. Operators are considering moving away from the in-house option, according to the chief executive of Kambi.

The expansion of online sports betting in the US happened at the same time as the tech boom. The investor sentiment was on the side of in-house solutions.

After tech stocks fell early this year, he says profitability is becoming king.

We pay attention to all the major operators, even though we are not public-market investors. It has become clear that more and more operators are focused on profitability.

Market conditions have changed according to that. There is a light at the end of the tunnel when it comes to profitability, that is what investors want to hear.

The means to that end will be more important than the operator’s ability to deliver results.

Some investors are not going to really care if a company is in-house or not, he says.

How individual operators improve their margins is the most important thing. If you own your own technology stack but your profit margins are lower than expected, that will not help investor sentiment.

Summary:

The debate between in-house and third-party technology has been around for at least 25 years, Kwiff’s Chief Technology and Innovation Officer Nick Maroudas said. “A search through the archives shows that the debate has gone on for at least 25 years,” he added. Kwiff is one of the largest sports betting operators in the US.