In July 2022, we published a piece focused on trends in sports tech we were anticipating in the second half of 2022. By way of recap, since sports has many categories that are each significantly driven by technology (media, fan experience, esports/gaming, athlete performance, data analysis and analytics, etc.), we decided to focus on four areas we thought would continue to impact the broadest parts of the sports business the rest of 2022 and into 2023. Two are hotly discussed (Web3 and Sports betting) and two less so, but equally important (Cybersecurity and Cloud technology).
Here’s a summary of what we thought over the summer, and how that perspective has changed, if at all.
Back in July, we said “Web3 has emerged as both a force and a farce.” We stand by that and by the notion that while the promise is there, technical maturity and adoption will take time. The initial sports “NFT craze” has cooled to essentially the same subset of sports fans who focus on collectibles; true utility that can be integrated with Web2 platforms is a work in progress. Blockchain-based technologies are simply not ready for enterprises like sports leagues to adopt yet due to both corporate inertia and the need for more rigor in standards, testing, and security.
But there’s opportunity for Web3 technologies in sports that could be significantly more disruptive – a change in the ownership model for sports leagues. Enter DAOs (decentralized autonomous organizations), which are legal structures with no centralized governing body, management, or hierarchy and are designed for members to share a common goal and to act in the best interest of the entity. DAOs carry both the ethos of Web3 (decentralization) and technology foundation (a blockchain). All discourse is public (i.e. voting), making the actions of users fully transparent. The closest model in traditional sports is the publicly held structure of the Green Bay Packers where the Board of Directors represents the interest of the over 500,000 stockholders. The reality is that the Packers operate more like a traditional public company than a DAO.
Today, Jon Patricof’s Athlete’s Unlimited has removed much of the hierarchy that traditional sports leagues are based on and given the players a prominent voice, and, back in Spring 2022, a DAO has purchased a team in Ice Cube’s Big3 basketball league. While it’s probably impossible for a structure like this to upend existing leagues, startup leagues have begun exploring ways to shift the model and seek to rebalance control of ownership and control between fans, players, teams and leagues.
We highlighted that the U.S. sports betting market will grow to almost $6 billion by 2023, but despite this scale, the path to profitability for the big U.S. sports betting remains challenging. FanDuel CEO Amy Howe projects the total addressable market for online gambling, including sports betting, will grow to over $40 billion by 2030, and Fanatics CEO Michael Rubin announced they will launch sports betting operations by fall of 2023. Of the 59 sports betting operators in the U.S. in 2022, only FanDuel, DraftKings and Entain have double-digit market share, with Fan Duel at a dominant 42%. Smaller operators, like MaximBet which ceased operations in November 2022, likely see consolidation or failure in this hyper-competitive environment where small margins and macroeconomic headwinds threaten all but the strongest businesses.
We also took the position that micro-betting will play a huge role in the adoption of sports betting as it surfaces smart betting opportunities that make sense to sports fans. Although technical progress has been made by companies like SimpleBet and nVenue, the true promise of heavily adopted micro-betting may be further away than we believed. The combination of complex technology development and deployment, dependencies on integration with sports books and an uncertain economy all play a role in this. It will be interesting to see what advancements in micro-betting surfaces for fans in 2023.
We believe there will be a heightened focus on cybersecurity in 2023. When we wrote that cybercriminals can penetrate 93 percent of company networks, 71% of which are due to credential compromise, the large attacks in Australia that took place this fall hadn’t even taken place yet. Since then approximately 14 million customer accounts of the country’s largest health insurer, Medibank Private Ltd, have had data hacked - equivalent to 56% of the population. Coincidently, Australian cybersecurity insurance premiums rose by an average of 56% year-on-year in the second quarter of 2022, according to Marsh & McLennan Companies Inc.
Practically speaking, a cyber attack on the power grid would feel much like a natural disaster, with potentially millions of people losing electricity and with it, food storage, and water access. This type of attack could completely crippled the sports industry as venues go dark, tickets and other credentials cannot be properly authenticated, and commerce is disabled. In this sense the industry would face a security dilemma significantly more disruptive than COVID-19 where teams eventually were competing in ‘bubbles’ without fans. There can be no competition if there are no lights for basketball, ice for ice hockey, or communication between coaches, game officials and league officials.
For all of these reasons, cybersecurity remains high on our list of technology that impacts the broadest parts of the sports business.
We are also doubling down on the notion that the move to the cloud will continue to be a story to watch in the sports business moving forward. It’s no secret that sports rely more on data now than ever. As security needs increase, the ability to provide proper surveillance (both in person and online) and the reliance on data for both technology platform operations and in-venue increases. Realtime data is also needed for sports betting, better fan experiences, and the analytics that are required to improve player development. The sports analytics market is expected to grow from $2.5 billion in 2021 to $8.4 billion by 2026.
Sports organizations need low-to-zero latency data access and scalable storage that older, traditional technology infrastructure simply cannot support. Cloud solutions (a combination of both private and public cloud infrastructure) will account for almost two-thirds (65.9%) of spending on application software by 2025.
As the sports industry’s move to the cloud continues, the “big 3” - Amazon Web Services (AWS), Microsoft Azure, and Google Cloud, will vie for their seat at the table with sports organizations. Long the leader in the space, AWS has developed long term partnerships with organizations like the PGA TOUR and remains the clear leader in the space. The big 3 companies account for over 60% of cloud spending and AWS represents more than half of that.
For sports organizations, access to certified specialists in cloud technology (i.e. AWS Certified Cloud Practitioner, Microsoft Azure Fundamentals and Developer Associate certifications) and/or advanced certification in DevOps and Cloud Computing will become more and more important as cloud technologies continue to play a larger role in their technology spending.
That’s a quick recap of some of technologies we know will remain critical to digital and IT executives. For more, download our 2023 Industry Outlook report, highlighting these (and other) trends we believe will be crucial to the sports technology industry in 2023 and beyond. As we mentioned in Summer 2022, there’s a ton to focus on, and it’s not getting easier.