ECONOMY - 21 AUG 2017

How Did Nigeria's Sports Betting Industry Grow?

How Did Nigeria's Sports Betting Industry Grow?
Gambling houses alter the offered odds to factor in a small margin, ensuring they pay out less than they take in.

In many parts of Nigeria, finding a sports betting shop close to you is a safe bet these days, a reflection of the industry's staggering growth in recent times. Yet unlike many other examples of Nigeria's booming services landscape, the sports betting business model was wagered on the attainment of this extraordinary level of growth.   

Betting on sports has gradually expanded, from traditional domains such as horse racing, to football, and even to virtual sports or non-sporting events such as the return of the President. And Nigeria has not been left out of a global industry that has doubled in size since 2001; the first sports betting operators only appeared in 2007, but by 2014, 60 million Nigerians were betting nearly ₦2 billion a day

Although innovation has played a major role in the penetration of the industry, it is an element of manipulation that has proven critical to the expansion of sports betting, both at home and abroad. 

 

Where do the profits come from?

Manipulation is a harsh word, but it reflects the nature of the way the industry relies on statistical manipulation to ensure profitability.

To see how, imagine if you took a hundred bets on a football match where Team A had a 50/50 chance of winning (i.e. no draws). If you bet on Team A all the time, you can expect to lose every Naira you win. As a betting shop takes the other side of every bet, they too can expect to break even from the sequence. So how do betting firms make a profit? By altering the offered odds to factor in a small margin, ensuring they pay out less than they take in. 

So in our example even though actual probabilities state that companies should pay out ₦100 for every ₦100 bet, they would pay ₦98 for every ₦100 bet. After 1000 bets, factoring in the 50/50 actual odds, they will pay out ₦49,000 and receive ₦50,000, making ₦1,000 in profit, while we lose ₦1,000 overall. The margin, in this case, is small – 2% to be exact – but when accompanied by a large volume of bets, it presents a very profitable proposition.

In reality, this computation is a lot more complex but is still done. Sports betting companies use sophisticated models to estimate the real probability of a game's outcomes before accounting for the margins described above. And once you and I begin betting on a match, these firms can adjust the given odds to attract and influence interested punters to back the same teams at higher or lower odds. The inflow of subsequent bets will eventually contribute to the company being able to almost guarantee a profit irrespective of the result; a concept known as green booking.  

 

Three Growth Drivers 

So by applying the power of statistics and technology, sports betting firms are able to nearly secure their margins. But their profitability is hinged on something else: volume. This is why the industry's growth was not just impressive, but imperative. 

Previously, I discussed how Micro-Franchising empowered the sports betting industry to achieve the desired volumes, but the growth of the industry can be attributed to three primary drivers.

The first, technology, is where micro-franchising fits in and also houses mobile and internet penetration in Nigeria. Together, these factors have driven significant growth in online betting and also led to a higher number of physical betting shops. Advances in mobile payments also allowed sports betting companies expand their reach, in some cases, by reducing the process of placing bets and topping up accounts down to a simple text message.

Meanwhile, perverse as it may sound, the sports betting industry may have benefitted from Nigeria's prolonged economic slump. With unemployment at ridiculous levels, particularly for the youth, many have turned to sports betting as a source of income. The turn to gambling does not only present an opportunity for Nigeria’s unemployed to win big but also provides a source of distraction from the day to day hardship of job seeking. Naturally, this raises serious questions about the dangers of gambling addiction, an issue that I will explore later. 

Finally, the third category consists of “Nigerian” factors, factors that are unique to the preferences of Nigerians. There is no doubt that the Nigerian obsession with football benefits the sports betting industry as betting is a complimentary service. The industry has successfully piggy-backed off the growth of sports broadcasting in Nigeria, which has in particular contributed to growth in domestic sports. Additionally, clever marketing strategies that employ local celebrities, as well as patriotic brand names such as bet9ja and Naijabet, have contributed to the allure of the industry. As competition heats up, it may not be long before we see a Nigerian version of Kenya’s Sportspesa’s record setting sponsorship deal.

 

Applaud with caution

The discussion of manipulation and the realisation that the house always wins makes it easy to see sports betting companies as the enemy, especially with how aggressively these firms shut down the few who beat the house. But two caveats apply here. Firstly, we must remember that these companies have operating costs that must be covered – explaining the discrepancy in their margins. Moreover, sports betting provides an extended source of entertainment and excitement to sports lovers and as we have seen, can contribute to the growth of domestic sports, if channelled properly.

Nonetheless, as much as sports betting companies may be justified in tilting the scale in their favour, checks and balances must still apply. Many people have first or second-hand experience of the illness that is gambling addiction, so as much as we should the industry's growth, we cannot afford to take a gamble on vulnerable Nigerians. 

Keleenna Onyeaka

Keleenna Onyeaka

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