Why is it so hard to start a new gambling business?

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Over the past three years or so we have met well over 100-plus founders of various startups at multiple conferences such as ICE, EIG or the Amsterdam Affiliate Conference, as well as over coffees after receiving or sending cold emails to ‘see if there’s any way we can work together’. Myself and my co-founder Ronan Ryan have kept note of most of the ones we’ve met or come across and have tracked their success, or lack of it.

One key point here is that I’m in no way criticising any of the ideas or companies. We’re doing it ourselves in terms of a betting-related business. Most are solid ideas and great products but the sector is just a very tough nut to crack. And I’m not saying none will make it. But my conclusion is that the success rate for gambling related startups is appalling.

As witnessed by the recent Betcade closure, there have been some high-profile failures. You can see my full research on my LinkedIn post (https://www.linkedin.com/pulse/betbutler-betcade-badugi-all-failed-why-so-hard-start-carrick) but overall the situation looks bleak for starting your own venture in the betting space, especially if you’re looking to get going with a successful B2C platform. Indeed, the research shows that starting a B2C fantasy sports, pools or betting site seems risky as of the 100 or so we’ve been following 61% of them are already closed down, which is madness. The failure rate for B2B’s is certainly a good bit lower at 39% though this is complicated by another evident factor; of the B2B companies we’ve come across many originally started out with dreams of building the next big B2C app or site that would attract millions of players only to resort to B2B to pay the bills.

So why is it so hard to start a gambling company from scratch? Well, there are many reasons but here’s what think are some of the core ones:

One: No access to government funding
Taking Ireland as an example, where we’re based, most early stage companies get their startup capital from the state through an investment vehicle such as Enterprise Ireland. Sounds good right? Not really. The government (and most governments) have a flat ban on investing in anything relating to gambling despite it being one of the country’s largest employers. The same is true in many countries such as the UK. Essentially if you have a license you cannot get funding! B2B suppliers have been successful in state funding.

Two: Angel investors are scared of betting
Another major source of funding in early-stage companies is an angel investor. For a B2C focused company looking to take their own payments and own their own players this requires a license, and here’s where the problem starts. Obtaining a license in the UK requires a lot of red tape. Any significant investor (over 10%) needs to hand over a ridiculous amount of info to the UKGC such as accounts, assets and liabilities, judgements etc. which most investors are not willing to hand over, or is ultimately just too much hassle.

Three: You get shunned
Early-stage companies can often get valued press coverage, cash and investment from competitions, awards and pitching events. However, if you’re a gambling company don’t bother even applying as the judges for the applications or at the events themselves will have little or no understanding of betting and are very unlikely to give you the nod to participate or to win the event.

Four: Margins are incredibly tight in betting as you'll realise
Sure, every B2B supplier starts out with dreams of being integrated into 50+ operators within the first 2 years. Unfortunately in most cases this doesn’t happen as the bookies don’t really care about anything outside doing what they know best, which is acquiring players through affiliates, Adwords and Facebook. Like anyone who works in an operator knows they get a ridiculous amount of B2B proposals thrown at them, and even if one operator does integrate it’s up to the marketing team to push it, which they very well might not. There is definitely a bit of a bit of a chicken and egg situation in the market as if you have some nice traction with a B2C platform of your own then operators are more likely to integrate a B2B version of it.

Five: Surprisingly the bookies are very risk averse
The betting sector sees very little innovation and does not even really entertain new incomers to the marketplace. Sure, when you're flogging a B2B or trying to sell your fantasy site and players they’ll meet you, read your deck and ask you tonnes of questions. They’ll then likely follow this up with months of silence and unanswered emails as they decide whether they can build your product themselves. The problem here is that unlike other sectors the big players aren’t really interested in what the early-stage companies are doing.

Six: Acquiring players is ridiculously expensive for B2C
Acquiring players in the betting space for any company running their own consumer facing app or site is crazy expensive with the average CPA pushing as high as £70 or £80. It’s pretty much impossible to start a straight-up sportsbook, fantasy or pools betting platform and compete with Bet365 or Paddy Power for players as they've got hundreds of millions to spend, and you don’t.

Surely there’s some success stories right? Yes, there is. But they are almost exclusively all B2B providers. Fresh8 Gaming is a B2B supplier that is making excellent progress since launching only a few years ago. They’ve nailed partnerships with multiple large bookies such as Sky Bet, Bet Victor, Coral, etc. It’s also been a nice few years for Race Caller with games being launched for Sky Bet as well as with Paddy Power’s Hotshot Jackpot 7. Lots more in the pipeline also I presume. Bernard Marantelli’s Colossus Bets has been smashing it for the last few years with now over 40 integrations in operators all over Europe with its Super-6-game equivalent. A £10m prize is certainly lucrative for players of the game.

The B2C successes few and far between and we haven’t come across any major B2C successes over the past few years. Get in touch with GamCrowd if you think there are other reasons why it’s so ridiculously hard to nail starting your own gambling business.

By Graham Carrick, chief executive and co-founder of RunLastMan. Graham Carrick is chief executive and co-founder at Dublin-based RunLastMan that utilises a fun real-money pools prediction game based on sporting events. The company is both B2C and B2B.