The slot machine-like nature of digital trading card packs could offer gambling firms a new avenue for growth, Bank of America analysts wrote in a research note on Wednesday.
Virtual card packs, known as digital rips, bring the age-old act of opening a pack of trading cards to customers' mobile devices. Users pay as little as a dollar or as much as $500 to "rip" a pack that contains a single trading card. They then choose to have the physical card shipped to them or immediately sell the card for its market value and use that cash to rip another pack.
It's been a fast-growing space.
"Pack-ripping apps have grown weekly active users from 50K a year ago to more than 1.7M today, and we estimate the category has already grown to $2B in annualized revenue," Bank of America's Julie Hoover and Shaun Kelley wrote.
Barron's previously reported that digital rips meet the standard definition of gambling: Users pay for a random chance to win a prize worth real-world money. But digital rips operators argue that because the prize is a physical object, it's closer to "gamified commerce."
Most of the early players in the space are small private companies, but bigger businesses in the gambling sector are getting in on the action: FanDuel launched a partnership with pack-ripping site Arena Club to gauge user interest in digital rips; daily-fantasy-sports apps PrizePicks and Underdog each have a digital rips product; cryptocurrency brokerage Crypto.com launched digital rips this week, and Coinbase has also teased a launch.
Bank of America noted that digital rips' slot machine-like mechanics could allow operators to access untapped demand for casino-style mobile gambling.
"Just as prediction markets expanded the [total addressable market] for sports betting, rips could be the next big expansion for gaming and lottery mechanics," the analysts wrote.
That's a significant growth opportunity. iGaming -- online casino games -- generated $1 billion in gross revenue in August, according to the American Gaming Association, on par with the $1 billion generated by sports betting that month. But iGaming has been legalized in eight states, with seven currently operating markets, while sports betting is legal in 39 states and Washington, D.C.
Bank of America said that, in the way that prediction markets blurred the line between investing and gambling, "we think pack rips could find a similar niche to bridge between gambling and collecting."
The line between gambling and collecting is already blurring, even in physical trading card packs. Unique cards inserted into packs can be sold in the secondary market for millions of dollars. Social media content created by trading card manufacturers shows people celebrating finding rare cards like they might celebrate finding a winning lottery ticket -- and the odds of landing a top prize in either can be long.
The digital rips space operates outside the licensing and oversight applied to regulated online casinos. Barron's reported last week that advertisements from Triumph and Packed, another digital-rips site, promote gambling on their apps as a way to pay for everyday expenses, like food, fuel, and rent.
Regulatory attention could be on the way, Bank of America points out: "As the category grows, it could also come under greater legal scrutiny, especially given the popularity of trading cards with kids."
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