Taking a break from our Grande Vegas online casino fun for a moment, let's look at the booming sportsbook realm.
In the four-and-a-half years since the United States Supreme Court gave the go-ahead for retail sports betting to operate legally in the United States, sportsbooks have spent billions on marketing. Major league games are flooded with commercials, sports stars act as influencers to promote different sports betting platforms and luxury hotels splash information about sports betting opportunities around their lobbies.
For sportsbooks, however, the huge investment in marketing begs the question, “is it worth it?” For the first few years that sports betting has been legal in the United States, the idea that the money invested in marketing today will be more than compensated for in future profits seemed to be reasonable.
Recently, however, the willingness of shareholders and top executives to making marketing such a priority has waned and today, decision-makers in the industry are starting to act more cautiously when it comes to marketing their sports betting platforms.
Numbers
For some, it all comes down to numbers. Early projections indicated that, over the lifetime of an average bettor, the sportsbook will clear several thousand dollars. Since a large percentage of these bettors are young, well-educated and well-employed, that seemed to be a reasonable proposition for the sportsbooks.
Today, with more than half of US states having legalized sports betting, sportsbooks are beginning to reconsider the policy of paying now for a hoped-for future payoff.
Despite the fact that, over the course of the last 4 years, Americans have placed upwards of $150 billion in regulated bets, a number of sportsbooks are backing away from the supersized advertising model. Other than FanDuel, no other publicly traded company has turned a quarterly profit nor have they been able to make a dent in FanDuels 47% market share.
Sixty Operators
There are currently 60 sports licensed sports betting operators in the United States today. Many are looking at FanDuel’s $1 billion 2021 advertising/promotions spend and the advertising budgets of other frontline sportsbooks (DraftKings and BetMGM control an additional 35% share) and are coming to the conclusion that it’s more important for them to work within their means than to try to compete. Media consumers can expect to see fewer sportsbooks’ ads in the near future.
Bottom Line
David VanEgmond, a former executive at Barstool Sportsbook and FanDuel and is now leading the Bettor Capital investing group comments, “You’ve seen the industry pull back and say, ‘Wow, fighting for market share got pretty ugly in terms of losses.’
Industry observers are already seeing the move towards change. Caesars Entertainment was, until recently, one of the industry’s most hard-charging spenders. Today the company is leading a marketing retreat. It has already cancelled more than $250 million in planned marketing even after announcing a two-year, billion-dollar plan to promote its mobile app.
According to McKinsey partner Dan Singer, the shift in focus away from acquiring customers towards making money is common among emerging markets. “When a market opens up, you’ve got to get out there and start acquiring,” said Singer, “because being the first book that someone downloads gives you roughly twice as much action as being the second or the third.” He noted that it’s cumbersome to sign up for a sportsbook and most bettors join only two or three.
Targeting
There are already signs that gambling operators have begun to work on targeting customers instead of throwing their advertising dollars into the wind. Many have begun looking to Europe for guidance where operators generally spend 15% - 20% of their revenue on marketing. Singer concurs with this type of planning, noting that it may be time for operators to shift their marketing focus from acquisition to retention.
FanDuel, for one, isn’t worried about its competitors. FanDuel CEO Amy Howe has no doubt that her company will retain its leading share of the US online sports betting market and even believes that the company can widen the gap with its competitors. FanDuel projects that by 2030 the market will grow to $22.6 billion as more states legalize it.
Addressing the issue of competition, Howe said, “It should be clear that new entrants that are entering now at this point may face a real challenge taking on scale players who have more than a four-year head start.”
Howe has a point. A number of the smaller players, some with less than 2% of the market, have started to cease operations. MaximBet cited “challenging macroeconomic conditions and increasingly cost-prohibitive marketplace” as the reason for its decision to exit the Colorado and Indiana market where it had been operating. FuboTV is also closing its sportsbook. Mike Raffensperger, FanDuel’s chief commercial officer, told CNBC “It’s hard and size matters a lot in the sports betting industry.”
PointsBet
While the conversation about the pros and cons of sportsbooks investing above and beyond moves ahead, PointsBet has made the point that advertising can, if done right, achieve its goal.
The company saw engagement increase notably after it released a recent ad which has come in for its share of criticism. The ad featured Drew Brees, former NFL quarterback (LA Chargers and New Orleans Saints) standing in Catatumbo, Venezuela (a remote lake “where lightning strikes 1.6 million times per year”). As Brees promotes PointsBet, he is, it seems, struck by lighting and the video abruptly stops.
By the time that Brees came back online to tell everyone that he was fine and wanted to continue “promoting the company’s lighting bets promotional deal,” outrage was all over the media and social media was full of the story.
Which, of course, was exactly what PointsBet wanted…..free publicity. Visitation to their site drew more attention than ever for the brand and they brought in a significant number of new customers. According to sports marketing expert Joe Favorito, “If the goal was to generate buzz, they score big points. There’s no way you can argue with that”.
