Skill games are the next frontier as online betting legalization slows

The past six years have seen widespread legalization of online sports betting in the United States. Over the past decade we have seen slow but actual progress in the legalization of online casinos.

But as 2025 nears, the future of market expansion is in doubt:

• The adoption of sports betting in so many states has left expansion up in the air. The largest states – California and Texas – are underdogs to legalize statewide online sports betting in the near future. Progress in the states that have not yet legalized will be tough to come by and comes with a small addressable market.
• While there was reason to be bullish about online casino expansion as recently as a couple of years ago, that optimism has faded greatly.

The result? Current companies in the online gambling space are forced to deal with the new reality that growth is no longer coming from expansion. The options writ large fall into a few buckets: 1. Steal users from other operators 2. Attempt to convert new users. 3. Increase your addressable market in other ways.

Of course, all of that’s easier said than done. But 2 and 3 are the route the gaming industry is taking right now, in a variety of ways:

• Fantasy pick’em – Fantasy pick’em is offered either as an against the house game or peer-to-peer for real money in dozens of states. If you include free-to-play, it’s in upwards of 40 states. A lot of these states don’t have legal online sports betting, including California and Texas, where you can play for real money.
• Sweepstakes casinos, sportsbooks and poker sites – These comprise the biggest growth vertical in the gaming space right now, using a sweepstakes model to offer cash prizes. (See Chumba Casino, Fliff.) Most operators serve more than 40 states.
• Skill games – Peer-to-peer and other types of skill gaming have been around for awhile but are seeing growth both a freemium and real-money products.

All of these verticals have their pros and cons.

Fantasy has faced regulatory pushback in the past year, and it’s getting harder to unseat incumbents like PrizePicks, Underdog and Sleeper. But it allows operators to offer something akin to sports betting outside of the regulated sports betting space. Sweepstakes is just now facing some regulatory pushback but again allows operators to avoid onerous regulation and taxation.

Of the three verticals, skill gaming seemingly faces the least risk of regulatory pushback, and it’s already done in a meaningful way by a regulated operator (See FanDuel Faceoff).

The moral of the story is this: Real-money games are going to continue to grow outside the regulated sector. It’s just a matter of who is going to benefit from it.

Dustin Gouker, Closing Line Consulting