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Blackstone, an American private equity group, is one of the largest investors in the global gambling industry and owns casinos across the Las Vegas Strip and elsewhere.
But in 2021, the company, which has $1 trillion in assets under management, saw an opportunity in America’s new and booming online gambling industry in the form of a little-known Canadian technology company called GeoComply.
Before gamblers in the United States place a single bet online, they must first verify their location to ensure compliance with the complex state-specific laws that govern the market.
Although GeoComply serves customers in a highly competitive $15 billion per year industry, it has a near-monopoly in providing this service. The company processes an average of 1 billion location checks each month and charges a small fee each time. The company’s customers include FanDuel, DraftKings, BetMGM, Caesars Entertainment, and ESPN Bet, which account for more than 90% of U.S. online sports betting.
People close to the company said the company’s huge market share in a rapidly expanding industry meant it looked like a winner for Blackstone, which had already cashed in on some of its investments with big profits. The company’s founders are currently considering listing on the stock market, according to people familiar with their thinking.
But while GeoComply is far ahead for now, competitors are lining up to challenge the market. The business has also come under scrutiny for lawsuits and restrictive covenants that have helped maintain its lead.
Founded in 2011 by David Briggs and Anna Sainsbury, GeoComply began developing geolocation services tailored to the gambling industry well before the 2018 U.S. Supreme Court ruling opening up the industry. We tested the product in New Jersey, where online casinos are located. Legal since 2013.
“Ten years ago, we founded GeoComply at a time when resources were scarce and skepticism was rampant. Many rejected the potential of our product and target market,” said GeoComply Chief Executive Officer. Mr Sainsbury told the Financial Times.
BillionNumber of location checks that GeoComply processes each month
The legalization of online sports gambling in the United States has been a game-changer for the industry. Until now, gambling was only allowed in casinos in Nevada and a few other states. Since the 2018 Supreme Court ruling, Americans have bet nearly $300 billion online.
Consultancy Eilers & Krejcik Gaming predicts that total annual gaming revenue for US online betting operators will increase by another 60% over the next four years to $24 billion.
GeoComply was able to capitalize on this significant growth, boosted by a minority investment from Blackstone in March 2021, the company’s debut $4.5 billion growth equity fund.
Blackstone was attracted to the size and speed of growth of the online gambling market, as well as the important role location data plays in meeting the industry’s regulatory requirements, according to people familiar with the company’s thinking. GeoComply is one of the growth equity funds’ best performing assets.
But competing geolocation companies are also attracting investor attention. Of these, geolocation companies Radar and Xpoint raised about $80 million in their latest funding round in 2022.
Xpoint (which counts Raine Group, an early backer of DraftKings, among its investors) last year secured a deal from its first top 10 online betting operator, with a deal in at least one of six U.S. states. It has agreed a deal with UK-based Bet365. It works. Xpoint is currently licensed in 16 states and has 19 clients, mostly startups.
In an effort to maintain market share in this corner of the gambling industry, GeoComply has pursued litigation with rivals and entered into strict contracts with customers, raising concerns among some customers, competitors and antitrust experts. is occurring.
GeoComply filed a patent infringement claim against Xpoint, but in 2022 a judge granted Xpoint’s motion to dismiss and invalidated GeoComply’s patent. GeoComply is appealing this decision.
The FT also examined a deal between GeoComply and a top five sports betting operator that effectively prevented the operator from exploring rival services for a time.
The agreement, which has been in effect since the beginning of 2021, states that during the first 30 months of the agreement, the client “shall not accept or solicit, directly or indirectly, the provision of the Solution or any services similar to the Solution.” It was stipulated. [provided by GeoComply]”.
According to the agreement, violation of the exclusivity clause entitles GeoComply to increase all fees retroactively from the inception of the agreement, resulting in significant fines.
GeoComply imposes similar terms on operators across the industry, according to three people familiar with the agreement.
In late 2022, GeoComply served its client BetMGM with a $4 million infringement notice accusing it of failing to fully migrate to the GeoComply platform and working to replace some of its technology with its own products. Ta. BetMGM declined to comment.
Nick Patrick, CEO of Radar, which processes billions of location checks for brands such as carrier T-Mobile, said GeoComply’s exclusivity clause is “something we’ve never seen before. ” he said. . .and it puts [GeoComply’s] Customers are in a difficult position as it will be very difficult to make the switch. ”
Barak Orbach, a professor of law and business at the University of Arizona, said GeoComply appears to have achieved monopoly with “a superior product and business acumen.” “There is nothing illegal about the monopoly that has emerged in this way,” Orbach said. However, “exclusivity clauses used by monopolistic companies may be intended to intentionally impede market advancement,” and therefore amount to “an unlawful monopoly or unlawful restraint of trade under U.S. antitrust law.” It is possible,” he added.
“If this wasn’t gambling, I think enforcement officials would view this as a pretty serious antitrust violation, because I don’t think there’s any business rationale for it.” [clause] It’s about more than exclusion,” agreed Peter Carstensen, a senior fellow at the U.S. Antitrust Institute.
People close to GeoComply say it’s not uncommon for technology companies acquiring new customers to offer periods of exclusivity in exchange for large upfront payments to ensure they recoup initial implementation costs.
They added that the company has always had customers who use multiple geolocation services. GeoComply’s Sainsbury said the company welcomes competition, saying: “We’ve had to compete to win from day one. Competition is constant and it gives us an edge.” It is a driving force that strengthens the overall market.”
Gaming industry expert Christian Good said the largest sports betting operators may seek alternatives to GeoComply to monetize next year, especially once GeoComply becomes available. said.[over-exploits] Pricing power as a de facto monopoly. ”
In the first year of its deal with GeoComply in 2021, BetMGM spent at least $7.8 million on the service on net gaming revenue of $842 million, according to FT calculations based on internal documents. “It’s effective, but it’s expensive,” said an executive at a major sports betting company.
Unlike GeoComply, which charges customers a fee for each geolocation check, Radar charges customers a flat fee based on the number of monthly active users gambling in a particular location. Radar’s Patrick said he expects his company’s products to be 50 to 90 percent cheaper than GeoComply’s products. However, GeoComply emphasized that “our total cost of everything combined is actually lower than the alternatives.”
For now, GeoComply enjoys first-mover advantage and dominates this corner of the US gambling industry.
New investors have come on board, including sports specialist Arctos Partners, which invested in French soccer club Paris Saint-Germain last year. Blackstone still owns just under a fifth of the company’s shares, according to people close to the company.
“No one expected that [the US online gambling industry] It’s going to be as big or as successful as it is now,” GeoComply co-founder Briggs said in a recent podcast interview.
“I never dreamed it would be this big. . . . I was okay with making plans thinking it was a pretty big dream, so if it came true, I’d take care of the rest later.” that’s what I thought.”
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