If people can’t access legal sports betting onshore, they might opt for an alternative.
So suggests data recently compiled for an investment bank depicting a surge in offshore wagering amid the potential for increased restrictions on certain players at online sports betting sites.
JMP Securities analyst Jordan Bender wrote Tuesday that the offshore sports betting market has existed for decades. Part of the pitch to legalize wagering onshore, Bender noted, has been to redirect offshore action toward the mainland, where it can be overseen and taxed.
Those efforts are so far a success, as there is substantial wagering going on in U.S. state markets and significant legal revenues generated for operators and governments.
Nevertheless, a good deal of that revenue stems from more recreational players, and sharps are increasingly subject to restrictions on their play, such as limiting or bans.
“Operators have been vocal around building an offering that is tailored toward appealing to a more casual player, a success so far considering the [12 million] monthly active users we expect during [the first quarter of 2024],” Bender said in a note to clients. “Sharps/ whales (more educated bettors) are getting boxed out of the legal market as gaming companies have improved technology, and these players are migrating offshore at a higher rate compared to pre-2021, targeting faulty lines and fewer restrictions.”
Pretty fascinating sports betting report published by JMP Securities today, which uses data compiled by @juice_reel. In short, offshore sports betting sites have seen business pick up over the past year or so amid increased restrictions for sharper players. pic.twitter.com/WoDn8swD5b
— Geoff Zochodne (@GeoffZochodne) October 24, 2023
The note cites data provided by Juice Reel, a bet-tracking and analytics platform. Juice Reel says it can sync bets for more than 300 sportsbooks and betting websites both onshore and offshore, giving it a lot of insight into bettor behavior.
One of the insights is that better risk management technology and the winding down of sports betting’s “free money” era — on which sharper bettors pounced — is nudging smarter players back toward the offshore market.
Now, more than 50% of wagering by players in the Juice Reel database is handled by offshore sportsbooks, up from 30% to 35% before the Spring of 2022. Approximately 40% to 55% of bets are taken offshore as well, the JMP note said, compared to around 20% a year ago.
“In the early days of sports betting, more educated players would take advantage of the inefficiencies in technology, including the inability to identify smart money,” Bender wrote. “The data also suggests these players participated in the legal market when free money, including risk-free bets and sign-up bonuses were abundant prior to Spring 2022. That said, the improvement in underlying technology (risk management), and the free money dissipating resulted in players migrating back offshore as more restrictions were placed on wagering to minimize the book risk.”
Pushing it to the limit
The findings are another data point suggesting the complaints about banning and limiting sharper bettors at sportsbooks are not necessarily overblown, and that such practices may even undermine the legal wagering market. By turning away sharps, operators may be driving demand for offshore betting sites and otherwise, inflating the illegal market the regulated industry wants to stamp out.
But curtailing sharp play and promoting higher-margin products — such as same-game parlays, which lose more often than straight bets — is commonplace now in the sports-betting industry. Furthermore, publicly traded operators are pushing hard for profitability and state governments want to realize as much revenue as reasonably possible.
Permitting sharper play can seemingly run counter to those goals, even if it ultimately proves to be short-sighted. That is despite bookmakers such as Circa Sports finding success with a low-hold, high-volume model that welcomes sharp action.
“Educated bettors tend to make single game wagers (75% of onshore vs. 90% of offshore), and with an offshore bet size double that of the legal market, books would be taking on more risk given the lower implied margin from these players,” JMP’s Bender wrote. “On one hand, taking action from educated players will support higher levels of handle and improve data, but would overall hurt the margin story playing out across the sector.”
Offshore on the radar
For example, some of the sharpest sports bettors in the world call Nevada home, and the state’s bookmakers regularly report a lower hold than newer wagering jurisdictions. Nevada’s win rate for August was 4.2%, while the U.S. average was 9.1%, according to VIXIO GamblingCompliance.
The gaming industry so far seems more inclined to lobby for a crackdown on offshore sportsbooks than to cater to sharper players. At the same time, technological improvements could continue to help bookmakers identify smart money and escort it from the digital premises. Innovation could help operators accept more sharp action as well, although whether it does remains to be seen.
“The offshore market remains a large opportunity for legal operators where the American Gaming Association (AGA) estimates illegal sports books and casinos generate >$150B on an annual basis,” Bender wrote. “Several catalysts we see to bringing players onshore include: technology improving to better manage sharps through improved pricing and risk management, the DOJ cracking down on illegal operators, and a younger generation of bettors recognizing legal name brands and operators in their state and no longer get to the point of researching illegal books.”
