NBA: A Betting Exchange
By: Theo Christakis & Xavier Naraine
The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.
Primer on the NBA
The National Basketball Association (NBA) is the fourth largest sports league by revenue in the world, garnering hundreds of millions of views across the globe every year. With 29 of the league’s 30 teams based in the United States and over 50 per cent of television revenue coming from domestic viewers, it is evident that the NBA’s main cohort of fans reside in the U.S. However, with only one per cent of all NBA fans ever stepping into an arena, the league is looking for ways to improve the fan experience outside of the physical venue in order to boost fan interest and engagement. In the age of technology, engaging fans for an entire two-and-a-half hour game is becoming increasingly difficult with many other forms of media taking away viewers’ attention. Efforts currently underway to increase avenues for fan engagement include the introduction of a virtual reality (VR) platform and a live fantasy game called InPlay. The combination of declining ticket sales for certain teams and the resulting proportional decline in merchandising and concession sales mean that the NBA should look even further for opportunities to engage new and existing fans.
Going Forward
One particular area that the league has indicated it looks to involve itself in is sports betting. The Commissioner of the NBA, Adam Silver, has commented on the league’s pro-gambling stance, citing that complete legalization across the United States would bring an increased level of security and legitimacy to the industry. The NBA is currently lobbying to have sports betting uniformly legalized and regulated across all 50 states, as dealing with varying legislation and governing bodies increases costs and prevents the league from delivering a cohesive product offering.
The State of Sports Gambling in the U.S.
Currently 13 states have regulated sports betting industries, with another 29 states actively pursuing new legislation and just eight not yet in the legalization process. The NBA has attempted to capitalize on this opportunity by partnering with four different sportsbook operators to date, the most recent partnership formed with the U.K.-based sportsbook William Hill. These partnership agreements allow the sportsbooks to use the NBA’s official data and marks across the various platforms and books it operates. On the other side of the arrangement, the NBA will promote the sportsbooks across its multitude of digital outlets, including the league’s official website, mobile app, and social media platforms. While this is a reasonable first step for the NBA to enter the sports betting sphere, they have the ability to capitalize on another area that could captivate fans even more: betting exchanges.
Betting Exchanges
In addition to traditional sportsbooks, a betting exchange is an alternative betting platform that allows fans to place peer-to-peer bets. Whereas a traditional sportsbook allows you to choose from odds set by the sportsbook, a betting exchange differs in that the market is made on both sides by individuals looking to make bets. Essentially, a certain bet that someone wants to make needs to be taken on the other side by somebody else in order for the bet to exist. By partnering with an existing sports betting exchange, the NBA could allow fans the opportunity to bet on a greater number of outcomes, be more engaged in games via live betting, and have the league gain access to a new subset of data. Additionally, having partnerships with both traditional sportsbook operators as well as betting exchanges gives fans the option of a league-sponsored platform for either method.
Exchange betting, also known as peer-to-peer betting, takes place between members who are either offering or taking bets from other exchange members. The biggest advantage with an exchange when compared to more traditional platforms is the reduced fee required to make your bet. Traditional sportsbook profits are generated on the basis of a vigorish, also known as a vig. A vig is the cut or amount charged by a sportsbook or bookie for taking a bet from the customer. This is done by bookmakers to guarantee turning a profit regardless of the outcome of the bet. On the other hand, fees at betting exchanges may range from zero per cent to five per cent and are only taken on winning bets. Overall, exchanges take the edge away from the house allowing users a much more level playing field. The main hindrances facing betting exchanges include legislation and competition. The market for exchange betting is massive, with one of the larger exchanges (Smarkets) having processed over $15 billion in bets.
How a Betting Exchange Partnership Benefits the League
One of the main goals that the NBA is attempting to achieve is increased fan engagement. An average NBA fan watches 48 minutes of a two-and-a-half-hour game; the massive array of content accessible to consumers makes it extremely hard to win over a fan’s interest for the entire duration of a game. Partnering with a betting exchange offers increased engagement as it lets fans interact with each other when setting bets, creates markets for niche bets unavailable elsewhere, and drives increased interest in the games they bet on. A Deloitte study indicated that fans across multiple demographics are far more likely to watch a game that they have placed a bet on; the study also concluded that even the smallest bets of $10 garnered as much interest in watching the game as large bets such as $50. In this manner, having more fans bet on games and bet specifically on what they’re interested in will only increase engagement.
Betting exchanges can also help the NBA monetize the portion of its viewers that illegally pirate and stream games. These streams are growing in popularity and are predominantly viewed by younger adults that lack the interest in subscribing to cable television, or the discretionary income to afford ticket prices. Since 54 per cent of current NBA bettors are between the ages of 18 and 34 and sports betting is a lower monetary commitment, a betting exchange allows the NBA to engage more of these fans in a legitimate manner.
In terms of monetary benefits, the NBA holds a significant amount of leverage in this relationship and should be able to collect a portion of the commissions paid to the exchange. This creates an additional revenue stream and incentivizes both parties to grow membership on the platform.
What the NBA Can Offer Exchanges
The benefits in the partnership are not limited to the NBA, as the partnering exchange is likely to benefit in a few key areas also. Firstly, exchanges rely heavily on volume in order to be successful, given their commission-based revenue model. Becoming the first exchange to officially partner with the NBA will likely be one of the most effective ways an exchange can increase publicity and traffic to their site.
A partnership with the NBA can also help betting exchanges overcome the difficulty of deciding which types of bets to offer. The majority of exchanges predominantly offer three types of bets for NBA games: Moneyline, Spread, and Over/Under. With the vast amount of data the NBA possesses combined with the influx of users the league could bring to the platform, the market liquidity of niche bets would be drastically increased. More users would be drawn to the platform because there is a higher likelihood someone will take the other side of their unique bets.
The Road to Implementation
The work necessary to achieve a successful partnership between the NBA and a betting exchange is no small task. The NBA can start by seeking out potential partners and assessing them based on market reach, stability of revenues, and cultural fit with the NBA brand. Once a suitable exchange is partnered with, the league should continue lobbying efforts for states that have yet to fully legalize sports betting and also begin marketing the new platform effectively. Marketing strategies can include ticket giveaways for a random bettor every night for an introductory period, social media recognition for the most niche bet to succeed, and having various fan prizes up for grabs when the platform reaches a certain threshold of users. In addition to these methods, the NBA should also focus on laying out the specifics of the platform through some form of video demonstration to its fan base—many of whom may be unfamiliar with exchange betting. Simply informing unknowing fans about how the platform works and the many types of bets that can be made will be especially key in driving adoption.
Promoting the interactivity of the exchange with the NBA’s recent initiatives, InPlay and a VR platform, can help the league encourage early adoption. NBA InPlay lets fans choose a live game to draft players from, similar to fantasy sports, and win prizes based on how well those players perform each quarter. If a fan’s selected player is doing extremely well, the InPlay app should offer a link to the betting exchange app with an option to make a proposition bet on that player in real-time. The VR platform allows fans with VR headsets to experience the game as if they were sitting courtside. Going forward, combining the exchange app functionality within the VR experience can allow fans watching with their headsets to select individual players, shots, or stats in real-time “on the court” to make bets on. This may be forward-looking and contingent on the various platforms being compatible with each other, but the main point remains that having a betting exchange potentially integrate with the league’s existing interactive features can offer fans a more seamless and unique betting experience. Furthermore, the NBA should create a formalized pipeline for the collection and analysis of data received from the platform in order to successfully make implications about fan betting interests.
A Gamble Worth Making
With increased legalization across the United States, betting exchanges could become a widespread means to place wagers on topics such as politics, current events, and other major sports. As a first mover, the NBA would have an advantage over other sports leagues’ future attempts to enter the industry, securing its share of the American consumer’s appetite for betting.