Today’s guest columnist is David Nugent, CEO and co-founder of the technology services company Next League.
It’s been quite a year so far in sports technology.
We went into 2022 still coming out of a pandemic with a sports industry that was evolving more quickly than it ever has. The race to Web3 and the legalization of sports betting drove much of this, but sports technology, already a very complicated topic, is not getting simpler any time soon.
Because sports has eight to 10 categories that are each significantly driven by technology (e.g., media, esports/gaming, athlete performance, and data analysis and analytics), we decided to focus here on three areas we think will continue to impact the broadest parts of the sports business for the rest of 2022. Two are hotly discussed (Web3 and sports betting), and one is Web2 and less sexy, but equally important (cloud technology).
Web3 has emerged as both a force and a farce. The potential of blockchain-based technologies is undeniable, and there are already great companies being built around the blockchain, some specifically in the sports space. That said, the lack of maturity for enterprises, charlatans posing as “experts” (who actually know no more than you do), and the speculative areas of Web3 (NFT marketplaces, cryptocurrency) have dampened some of the excitement.
At the recent #SportiConference, my partner Mike Grushin recently cited Web1 vulnerabilities such as SQL injection as examples of things we needed to get past as the web matured. Similarly, there are gaps in the technical rigor required to make blockchain-based tech ready for enterprise use. The promise is there, but technical maturity and adoption will take time.
In sports technology, many of us have moved away from the speculative nature of cryptocurrencies in favor of the potential of blockchain technologies focusing on NFTs for things like loyalty rewards, ticketing, and even media rights and licensing. More broadly, we look to the concepts of tokenomics and decentralized autonomous organizations (DAOs) as the foundation of new types of companies and ownership models. We feel strongly that these areas have great promise and will create real momentum for sports organizations as 2022 winds down.
The sports betting market had about $1.5 billion in revenue in 2020 and will grow to almost $6 billion by 2023. It was $3.8 billion in 2021. The industry is massive, but none of the big sports betting companies are making any money yet. According to US Betting Report, the “handle,” the total amount wagered regardless of a bet’s outcome or what happens to that money later, was $57.75 billion in 2021, approximately twice as much as 2020. Despite that size, the aggregate “hold” for sportsbooks, the percentage of money kept for every dollar wagered, was only 6.64% (handle divided into revenue) in 2021.
FanDuel, Caesars Digital and DraftKings all reported hundreds of millions of dollars in losses in 2021. Startup and customer acquisition costs (CAC), which include expensive marketing and advertising campaigns, are cited as the primary drivers for the losses. The big sportsbooks seem to now be taking a more conservative approach to their businesses.
As we highlighted in a previous Sportico OpEd, micro-betting should play a huge role in the adoption of sports betting as the machine learning/AI required to quickly deliver smart betting opportunities to fans matures. J.P. Morgan estimates there will be more than $9 billion per year spent on U.S. sports betting by 2025, with almost $7 billion of that on in-play betting and micro-bets.
The pandemic’s push to remote work accelerated the trend for organizations to migrate more applications to the cloud to support staff. Gartner research indicates 51% of IT spending in application and infrastructure software, business process services and system infrastructure will have shifted from traditional solutions to the public cloud by 2025, compared to 41% in 2022. Almost two-thirds (65.9%) of spending on application software will be directed toward cloud technologies in 2025, up from 57.7% in 2022.
Access to certified specialists in cloud technology (e.g. AWS Certified Cloud Practitioner, Microsoft Azure Fundamentals and Developer Associate certifications) and/or advanced certification in DevOps and Cloud Computing will become increasingly important for sports organizations as cloud technologies continue to play a larger role in their technology spending.
There has been tremendous growth in team valuations in the past few years. The entrenchment of billionaire ownership and the addition of private equity stakes in sports teams has left many of these entities very well-funded, and these owners will build more sophisticated enterprises to continue to maximize the value of their assets. A huge part of this will be investment in technology, most of which will reside in the cloud.
These are just a few of the topics and technologies that will remain critical to digital and IT executives in sports as we head through 2022. For many, it seems that just as they had laid a technology foundation, the industry’s attention shifted toward new opportunities like the ones referenced above. Market volatility, in both traditional markets and emerging ones, will almost certainly slow the fervor around less familiar opportunities, but these new platforms aren’t going anywhere. There’s a ton to focus on, and it’s not getting easier.
Before co-founding Next League, Nugent served as chief commercial officer for Infront X, a subsidiary of Infront Sports & Media, and was a co-founder of sports technology company OMNIGON. He recently published Zero Sales, a book on revenue and partnerships for technology services companies.