What to expect when entering the US market: unpacking the benefits and challenges

2021 heralds a new era for iGaming in the US market. To call it a “gold rush” is probably an understatement; online casino, sportsbook, daily fantasy sports, and esports betting brands around the world have embraced the enormous opportunity that arose when the federal ban on online gambling was lifted in 2018. The race for supremacy is on.

Despite having only just started, with its sheer size and tech-hungry population, the US gaming market is growing rapidly, with no end in sight. The overall gambling revenue in the country was $96 billion in 2019 and $119 billion in 2020 – an increase of 21% year over year – and this is expected to grow steadily. 

Based on market research, Internet Vikings Chairman Jesper Kärrbrink believes that the US has the potential to surpass the more mature European market and soon become the world’s most lucrative iGaming market.

But for gaming companies, “getting in while it’s hot”, is not as simple as it might appear at first glance. Much like in Europe, where each country sets its own rules, in the US each of the 50 states is a separate legal jurisdiction where the state legislature has the mandate so as to choose whether or not to allow various types of online gambling. State regulators set the rules that must be adhered to by operators and gaming-related suppliers alike.

On a broader level, based on their own level of understanding of how the gaming market functions – in combination with the perceived will of the voters, legislators dictate what types of betting are allowed. In other words, in certain states any form of betting is illegal. In others only sports betting is permitted. Others also allow daily fantasy sports. However, there are some where online casino gaming is legal.

Another factor, which varies to some degree from state to state, are the rules about the operators’ business arrangements with third-party marketing partners (commonly referred to as “affiliates”) and the tactics which they may utilise in order to reach potential new players and thereby broaden their customer base.

State regulations also affect the IT infrastructure setup that operators and B2B suppliers can make use of. In some cases, servers holding player and financial data and running gaming transactions must be located within brick-and-mortar casinos, whilst in others it suffices that they are located within state borders. In addition to this, electronic gambling may not take place between one state and another, as stipulated in the Federal Wire Act 1961.

This means that operators and suppliers have to be licensed within each state in which they choose to offer their services. To complicate the situation even further, the licensing process and the requisite licensing fees – whilst often similar from state to state – are not normally identical, meaning that each must be seen as unique and dealt with individually.

Fortunately, you can apply for two or more licences at the same time, and states provide temporary licences that allow your business to go live within two to six months after providing all the essential paperwork.

Internet Vikings recommends that all operators and B2B providers seeking to enter any given state market should first consult with a gambling law expert and preferably work with a checklist of items in order to ensure that all of the essential licensing and technical requirements are met.

Is navigating this fragmented regulatory landscape worth it? If one looks at the stats it most certainly is. New Jersey is a pioneering example of just how successful online gambling can be. Despite having a population of less than 10 million, New Jersey is now the world’s third largest regulated online casino market, after the United Kingdom and Italy.

Furthermore, with a population of around 13 million people, Pennsylvania has risen to become one of the top five online casino markets in the world, just over a year after online gaming began in July 2020. It is only a matter of time before the majority of states are fully legalised. But how does a foreign operator choose which state markets are most suitable and their best bet?

The catch here is that online brands must generally partner with a brick-and-mortar casino, and each state limits the number of “skins” that are available (that is to say, the number of brands that can be associated with each physical facility), thus creating a finite number of opportunities to operate in any given state market.

These opportunities in the more established state markets have generally already been snatched up by the larger operator brands. In other words, operators with sufficient financial resources to make serious skin arrangements as well as establish brand awareness, gain online traffic, and pay the relatively high Cost Per Acquisition fees to their third-party marketing partners – as much as $500 to $1000 compared to as little as €200 in Europe. They can sometimes lower these expenses by mining partners’ membership-based loyalty program databases for prospective new player conversions.

However, due to the mammoth potential of the national market, we expect to see a growing number of EU providers and smaller operators competing for a share in the market. This can be achieved in the larger state markets, if skin deals are to be found, as taking even a small percentage of the market share could be valuable enough to warrant such a significant investment. But it would be a mistake to overlook smaller state markets such as West Virginia, where the costs of entry, the level of competition for players’ attention and the deposits are much lower.

When it comes to business relationships, many operators with their focus on the US are looking to Europe for B2B suppliers, since they are well versed in the technical aspects of online offerings and can provide operators with tried and tested software platforms.

Internet Vikings established its presence in the US in 2020, bringing European expertise to the table as an EU-based global leader in cloud hosting and B2C marketing solutions. For operators and B2B suppliers alike, Internet Vikings can assist in charting a course for the licensing and technical requirements in each state jurisdiction.

Elena Kvakova, Head of US Expansion at Internet Vikings, notes that: “What we have heard from our clients so far is that the licensed hosting options are very limited as well as costly and something that operators have to figure out, in addition to everything else. So what we are trying to do – in a few key states right now – is to reconsider that setup and offer hosting services which are just as reliable and secure, but also more nimble and cost effective.”

Importantly, as more and more states legalise online gambling, Internet Vikings continue to acquire the necessary supplier, and in many cases the vendor licences that allow them to satisfy their clients’ fully compliant operational hosting needs in each jurisdiction.

This article was authored by the content team at Internet Vikings, with contributions from Chairman Jesper Kärrbrink and Elena Kvakova, Head of US Expansion.

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