April 29, 2019 Tribal, Land Based

Consider the route to entry

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Kevin Vonasek, Vice President, Business Development Americas, SG Digital, assesses the challenges for tribal operators planning to launch sportsbooks
Commercial versus tribal regulation and sovereignty

Outside the typical go-live steps associated with sports betting for US commercial casinos, Native American casino operators may also need to factor in the additional time for a voluntary federal contract review by the National Indian Gaming Commission (NIGC). As the sportsbook platform and data feed suppliers are typically non-tribal entities, the relationship can benefit from an accompanying NIGC letter. This is to help ensure the sovereign nation is fully responsible when it comes to setting the trading and liability protocols.

Market entry approach

Everywhere you look, signs point to a “time is of the essence” feel in the industry. The fact of the matter though, is that we’re still on the precipice of massive change after the first wave of regulated states launched. Now, operators can evaluate their potential partnerships knowing regulation is on the horizon.

First, tribal operators should take stock of their current regional brand offering and determine the best competitive approach for their unique situation. A smaller operator may choose a more compact route, building out minimal in-venue amenities (e.g. a kiosk or two), or pooling risk with other operators in the state. On the other hand, larger operators may look to invest in the long-term, immediately upgrading their property technology suite, opening the doors to omni-channel wallet and sports betting that connects slot cabinets, table games, bar tops, over-the-counter-betting terminals, kiosks, mobile devices and property-wide TV display technology that promotes sports betting across the entire casino floor, hotel and dining areas.

The partner selection process

From there, the strategy discussions shift into short-term benefit vs. long-term upside. When choosing a partner, weighing the costs and benefits should always be a top priority. Admittedly, finding a supplier is easy enough—in fact, most of them are probably already knocking on the door of every licensed gaming property in the US.

In many states, brick-and-mortar casino operators hold the keys to the sports betting castle. Each operator will likely be approached by one of two types of sportsbook partners. First, there are the B2C sportsbook operators, boasting distinguished sports operational experience from Nevada or Europe. In addition, they will bring with them their own brand, participation of in-venue buildout costs and their own marketing dollars behind the ambition of becoming a household name across the US.

These B2C operators need the Native American casino’s license to obtain market entry, so they can grow their own business into that region of the country. Next, there are the B2B sportsbook suppliers. These partners will also have distinguished platforms, data services and recruited operations teams with experience from operators in Nevada and Europe. In this type of relationship though, the supplier may assist with the execution of the business and strategy, and the tribal casino will fund its own marketing budget and drive its own tribal casino brand to expand its own player base.

As each tribal casino’s size and competitive regional market is unique, there’s no definitive answer that satisfies the needs of every operator. On the upside, partnering with a B2C operator may remove many operational headaches and make life easy by simply collecting a monthly royalty check.

However, taking this approach may negatively impact the viability of long-term casino business. Keep in mind that land-based casinos generate massive amounts of traditional casino gross gaming revenue (GGR) in other mature markets. More importantly, with respect to their bottom line, the profit margin on casino GGR is usually higher than that of their sports business. Thus, buyer beware. When contracts expire, tribal casinos may see their player base follow the B2C brand that has found a new in-state partner willing to accept lower commissions.

Alternatively, selecting an experienced B2B supplier may require a more strategic risk reward assessment by the Native American operator. The downside is that the operator will need to fund the upfront costs of launching and marketing its own brand. However, the right B2B supplier can help handle operations, giving your organization the competitive edge it needs while still granting it the time to slowly grow in-house capabilities as your market matures.

More importantly, in this scenario, the long-term value chain is preserved. The tribal operator maintains ownership of the player (in both online casino and sports GGR) as well as the vast majority of the upside with respect to the revenue share split between operator and B2B supplier.
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