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What is a successful strategy for entering the highly competitive US sports betting market?

Insight | Data

Attractive revenue potential has drawn many companies to the sports betting market. The two standout leaders – DraftKings and FanDuel – represent approximately 80% of the US market, making it extremely difficult for newbie operators to gain traction. Russell Karp of DataArt explains the best way to enter the highly competitive US sports betting market.

Entering and surviving in the ultra-competitive US sports betting market is a risky proposition. There are strategies abound regarding the best way for new entrants to make an impact. That is why it is critical for each new competitor to choose the path that aligns with their strategy and can meet their desired goals.

Though companies like DraftKings and FanDuel had significant advantages due to their fantasy sports foundation, there are still opportunities for newcomers to attain market share and thrive.

Significant user base

One of the reasons why DraftKings and FanDuel are successful in the US market is because they were able to convert their already significant user base from their profitable fantasy sports products to their respective sportsbooks.

In hindsight, this seems like this was their strategy all along and has paid dividends in terms of customer acquisition.

Additionally, they market very heavily, have numerous partnerships with media companies and leagues, and both have a very intuitive product. Summing all these factors up, it is no surprise that they currently lead in market share and app downloads in the US.

Other companies, such as Fanatics, planning to go live soon, and Barstool, live in multiple states, also entered the market with a significant previous base of followers built up around their respective industries.

Fanatics is a full-scale international online sports retailer and highly praised consumer brand that started as a basic e-commerce company two decades ago and now is a conglomerate in the world of sports memorabilia and team gear across all major US sports. They are about to finally enter the igaming and sports betting world with the strategy that their retail clients will follow.

Even though they are in a good starting position with an immense, 100 million customer database, Fanatics is now looking to make an immediate splash in the market. The company’s go live plans have remained unfulfilled due to its evolving launch strategy from buying a third-party platform to acquiring a betting company with a proven technical stack.

Barstool started with a massive base of media followers. It began in 2003 as a print publication distributed in the Boston metropolitan area and offered gambling advertisements and fantasy sports projections, but later expanded to encompass other topics. Barstool Sportsbook was launched in Pennsylvania on September 18, 2020 with $11 million in wagers during the first week.

Though they have an extremely loyal fan base and an immense social media presence, their success has been limited. Some reasons include launching strategy in new states, app usability, and allegations against executives.

Even having an existing base of users (such as followers and clients.), operators still need to know how to successfully convert them to active sportsbook bettors. In such a competitive environment, new operators must have a solid strategy with differentiators to successful penetrate the sports betting market in the US. Finally, the longer they wait to enter, the more challenging it will be to acquire users.

So, is there a way to gain market share for new sports betting operators? The short answer is yes, though it does require careful planning and precision. Below, I share strategies on gaining a competitive advantage when entering the US sports betting market.

Using technology as a competitive advantage

Sports betting is a highly complex domain dealing with large amounts of data from significant events, like the World Cup or NFL games and constant odds changes, that require lightning-fast decision making and updates. At the same time, sportsbooks strive to launch a successful betting solution in a relatively short time frame. Looking for an efficient and cost-effective way for leveraging technologies, sportsbooks have several choices to bring their product to market:

  1. Build a custom solution from the ground up
  2. Use a third-party technology (“Off the shelf” product, white label)
  3. Acquire a company who already has a stable, working betting platform

Building custom sport betting solutions can be complex, depending on desired feature sets, and can take a lengthy time to launch if not managed properly. In fact, 40-60% of IT projects fail; according to DataArt tech experts, these are often internal process failures rather than issues with technology.

On the other hand, third-party technologies are not always reliable and you, as a sportsbook, are completely reliant on your licensed solution. With usage extremely high (especially during major sports events), technical issues can arise which sportsbook have little control over.

That is why acquiring a company with an already proven betting platform and solid technology stack might be the most reasonable solution whether it’s custom build or “off the shelf”. Through acquisition, sportsbooks can get a working betting solution almost immediately with an existing base of users (and add more features gradually).

That was DraftKings’ strategy when they decided to change Kambi’s third-party technology platform to their in-house engine powered by SB Tech. DraftKings became a publicly traded company through a reverse merger with SB Tech and special-purpose acquisition company Diamond Eagle Acquisition Corp in April 2020.

As I mentioned above, Fanatics is another company that decided to change its betting product strategy from buying third-party technology to acquiring an already working betting platform. Initially, Fanatics acquired source code from B2B supplier Amelco. Yet, so far, none of the betting operators who bought Amelco’s source code have made a huge impact on the US market.

Additionally, building an in-house technology is more of a long-term investment that involves many resources and raises technical challenges. Therefore, Fanatics is currently engaged in negotiations with Tipico.

The benefits of hyper-localization

Sportsbook’s profits directly depend on the number of placed bets so the strategy should be to target several states simultaneously and not just focus on one; assuming they have licenses in multiple regions.

New York is a special case. With a 51% tax rate, going local in this state may sound like an uphill climb. However, New York has the largest online sports betting market in the US. Although some operators like BetMGM have limited their exposure to the New York market by scaling down on the wagers they offer, I still advise targeting this market because of the number of users and potential revenue that it can eventually bring.

Multi-state operators need to have hyper-local strategies to gain a competitive advantage and acquire fans. Some of the strategies for going hyper-local include affiliates like Chalkline and local associates, who work on local content strategy in social media, and partner with local sports teams and media outlets.

In our recent video discussion about effective customer acquisition strategies in the sports betting space, Daniel Kustelski, co-founder and CEO of games-as-a-service provider Chalkline, stated the importance of localization: “There’s a lot of national coverage for brands, but really what it comes down to is what is working on a state-by-state basis. We’re seeing lots of, certainly, above-the-line advertising. But then down at its more regional and local level, it’s really about figuring out who in each one of these states is interested in sports betting and/or maybe has bet illegally in the past and how do you acquire those customers.”

Rush Street Interactive follows the localization strategy and offers market-focused sports betting audio and video podcasts across the US. These CityCasts air on multiple platforms to deliver news, analysis, and insights to help bettors make more informed wagering decisions. Additionally, each CityCast sources area talent and production staff to ensure a local lens for each city’s content.

Localization can be also done via social media. An example of a good content strategy is PointsBet’s Twitter account, with their cheeky commentary and engaging content on Twitter for US and Canada.

“Being local is incredibly important,” says the CEO of PointsBet, noting that while there are parallels between Canadian and US sports fans, it’s not just about how and why audiences watch sports, it’s about what they watch, “and we want to be on top of that.”

Forming valuable partnerships

DraftKings has continuously said that its aggressive marketing spend is based on a two to three-year profitability window after a state goes live. New Jersey is the only state to reach that checkpoint so far, and DraftKings has turned profitable there, delivering on its promise to shareholders.

The natural way to look at this spending is from a customer acquisition cost (CAC) and lifetime value (LTV) perspective. For example, it cost DraftKings about $370 to acquire a customer last year which came with a lifetime value of $2,500. The question here is whether every customer will produce the anticipated value.

The industry hasn’t been around long enough for sportsbooks to battle test average revenue per user (ARPU). That is why investors (and sportsbooks) have concerns about a customer’s long-term retention, stickiness, churn, and profitability.

To remedy this, one of the options to acquire and retain new bettors, in addition to boosting brand awareness, is partnering with sports teams, retailers, stadiums, media companies, and other entities or industries. The most fruitful partnerships are usually with leagues and sports teams.

As the tables illustrates below, both DraftKings and FanDuel have made tremendous strides in partnering with leagues and teams.

When it comes to media partnerships, DraftKings deals include DISH Network, Bleacher Report, MLB, UFC, NASCAR, Madison Square Garden, the Staples Center, Bleacher Report, and ESPN, among others. FanDuel, in turn, has formed exclusive partnerships with Turner Sports, Bleacher Report, The Ringer, WAVE.tv, SportsGrid, Entercom, and Minute Media. FanDuel also has a strategic alliance with Tel Aviv-based startup WSC Sports, a technology company that leverages artificial intelligence to generate highlights from live sports broadcasts.

Among other types of partnerships are collaborations with retailers – Hooters and DraftKings, Buffalo Wings and MGM; collaboration with stadiums – Fubo Sportsbook and MetLife Stadium, BetMGM Sportsbook at Nationals Park, DraftKings at AT&T Stadium – and many more.

Final thoughts

The sports betting business is concentrated in relatively very few hands. However, there is still ground to explore. Those who want to participate (and survive) must own cutting-edge technology, focus on local markets, and establish smart partnerships. Otherwise, they will face an uphill climb against industry giants such as DraftKings and FanDuel, who have many years in the business, deep gaming experience, significant market presence, and, above all, followers.

Russell Karp is vice-president of media and entertainment at DataArt, a global technology consultancy that designs, develops and supports unique software solutions for its clients. Recognised for deep-domain expertise and superior technical talent in creating new products and modernising complex legacy systems, DataArt has been partnering with global sports betting companies for almost a decade. During that time, the firm has helped operators significantly change the sports betting market by offering broader choices and better pricing to their customers. Clients include Paddy Power Betfair, Evolution Gaming, Glück Games and Playtech.