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Welcome to the sports betting Royal Rumble

Insight | Analysis

The rise of sports betting in the US shows no signs of slowing down, with 27 states now allowing wagering. As the market becomes more saturated, iGB looks at whether operators late to the party stand any chance of gaining a foothold. By Nosa Omoigui

An almighty scramble involving several competitors competing in a slightly confined space, with the ultimate goal of being the crowd’s favourite.

The parallels between wrestling’s Royal Rumble and the US sports betting market are easy to see.

In a traditional Royal Rumble match, the newer participants have a theoretical advantage owing to their relative freshness, and in turn they can pick off others. In the betting world, the reverse is true; the longer you’re in the market, the longer you have to build your brand and acquire customers.

Companies that enter the market late are starting off on the back foot and have to play catch-up from the get-go. So how do they go about closing the gap?

Mind the gap

For starters, newer companies need to make the most of their time on the sidelines, according to Kwiff chief executive Charles Lee.

“New companies have the advantage of taking in all the information and innovation that’s gone before them in the market,” he explains. “Some companies will be gathering their own data, some will be on third party platforms, others will be finding that bridge between the two. It depends on how many people they have looking at that.

“But if you can understand what the customers are telling you, how they’re playing with you, how you’re acquiring them, registration flow, conversion, you can target your money in the right way and compete where you think you’re effective.”

Lee also attests that having a flexible product could be crucial for companies looking to gain a solid footing in the market. “State by state you’ll have different server requirements, different technological requirements based on the regulations within states. You have to make sure your cost is scalable with your customer base, rather than a huge upfront cost, as you’ll probably want to put a fair amount into marketing.”

From this starting point, there is an advantage to be gained from tailored products, he explains. “Things like personalisation, giving the correct content to the right audience, and also being adaptable overall as a company. Being agile is important.

BetitRight CEO and co-founder Henry Newman concurs that having a unique product is crucial for newer companies looking to acquire new customers as quickly as possible. The form this takes can vary, whether that’s offers, content or a different experience.

“Betting is an experience rather than a single action. People want more than just placing a bet, they want justifications for it and supplementary content around that which is engaging.”

Companies boasting a unique offering have the opportunity to cross-sell players into betting. Lee points out that FanDuel and DraftKings transitioned into betting from daily fantasy sports, while Penn National, through Barstool Sports, and theScore have been building out a sportsbook base from media brands.

“Their potential customer base is enormous as they have a non-paying customer base just sitting there and they can slowly acquire them that way. FuboTV has streaming,” he says.

“A different way of acquiring customers relatively cheaply and then converting them over to your product – that’s probably the best way you’re going to compete, by growing organically.”

This, however, requires deep pockets. All of these companies have spent significantly to acquire those assets, and it is hard to gain a USP through a third-party solution.

“[Whether] you can distinguish yourselves among the competition will be harder using a third party,” Lee adds. “If someone can come in with their own technology – slightly different product, different innovation – you’ve probably got a better chance.”

A product that can convert site visitors to bettors, such as daily fantasy or media, could therefore be key along with the timing of market entry. “[Even] now there are operators who aren’t playing the acquisition game of thousands of dollars per customer so they may well have a stronger business at the end of it, but they might not have the scale,” says Lee.

Getting the customer

Customers are the fuel that powers the sports betting juggernaut. However, they’re much harder to come across than petrol and they’re far more expensive. Lee believes that acquisition costs currently sit at thousands of dollars per customer – and that’s without knowing whether the market has hit its peak yet.

“Acquisition costs for players are currently $1,000-$2,000,” he estimates. “Maybe £1,000 would be the peak in the UK but you’re not going to find that for much longer.

“You can see certain companies pulling out and falling by the wayside and other companies leaning into it even further. I would say it’s going to be close to the peak but it’s impossible to say.”

MaximBet chief strategy officer Paul Leggett is convinced the US market is at its peak. As a result the operator has tailored its strategy to avoid getting dragged into expensive acquisition battles.

“Our digital-first marketing approach combined with our unique brand awareness strategies like events, access, merch and experiences allows us to acquire customers without getting into expensive battles like our competitors,” he says.

“We entered Colorado over a year after it opened and we are seeing incredible growth, beyond our initial expectations, and we are looking forward to rolling out in many more states this year.”

Caesars Entertainment has experienced first-hand the value of a new punter. Following its 2021 earnings call, chief executive Tom Reeg pointed out that newly acquired customers are worth significantly more in the wake of a state’s launch.

“The reason that you go after those brand-new customers as avidly as you do is because the customer that you find in the first quarter post-launch is worth something in the neighbourhood of two times what you find afterward.”

Keeping the customer

Acquiring a customer gets them to place their initial bets. But the enduring brands are the ones that keep them playing year after year. And when the focus shifts to retention, having a strong product is vital. PointsBet CEO Sam Swannell admitted as much during the company’s 2021 earnings call.

“We don’t have the brands that some of our competitors have, and we don’t have the database that some of those have,” Swannell said. “But history would tell you that some consumers will gravitate to the best product.

“And it’s not just us saying that within the sector. If you listen to DraftKings, I think they use exactly the same line, FanDuel and others always use that line. It’s been proven in Australia, it’s been proven in Europe – products will ultimately win out.”

It seems too easy to say that operators just need to get a better product, when ‘better’ is a wildly subjective term. Just like the size of the betting market, the tastes and interests of US customers has evolved since the first market launched.

There are several schools of thought about what is actually popular with the average American bettor in 2022. “I don’t think a standardised […] betting app is what the customers are looking for,” says Lee.

“Since Covid brought about a lot of remote working, desktop is a relatively big product for a number of operators.”

MaximBet has noted a tendency among bettors to gravitate towards parlay betting and is looking to capitalise on this market in the near future.

“Americans’ appetite for same-game parlays has been incredible,” Leggett says. “We’ve had to adapt to offer these products and make sure our odds can be responsive across all products. In-play is also gaining in popularity.

“We’ve going to be offering a lot more same-game parlay products across more sports as well as many more micro markets this year.”

From a data perspective, BetitRight believes that customers are increasingly looking for products that integrate statistics into their offering, so as to gain a more informed perspective before parting with their money.

“Something that is naturally ingrained more in the US public when compared to Europe has been the desire for statistics and analytics,” adds Newman. “Anything to facilitate justification for decision making or interesting information to comprehend what’s going on on the field.

“I think that’s a key driver to what’s important for operators in the US. Not just being able to deliver a seamless bet execution experience but also an engaging content experience which supplements and complements the bet execution experience.”

Newman has found that operators are incorporating such statistics into their betting offerings with increasing frequency. Be it through providers adding ancillary offerings to their existing price feeds and sportsbooks, or third parties producing standalone feeds complete with live stats and data visualisations, the modern bettor has never been as informed as they are today.

Tapping out

Developing the product, whether that’s the underlying technical infrastructure, taking new content from suppliers, or building the solutions in-house and striking the supply deals for the data to power it all, costs money. For some the outlay required, after hefty investment in customer acquisition, may be a step too far.

While it will not address rumours that WynnBet is for sale, Wynn Resorts was the first to be blunt about what it considers to be the “unsustainable nature of the current competitive environment in sports betting”. This ultimately saw it scrap plans to spin off its interactive arm through a special purpose acquisition company (SPAC) combination. It has since dialled down its marketing to focus on proven performance marketing tools to reduce losses.

Even Caesars is rethinking its tactics. As it turns its focus to making its digital business profitable, Reeg says its commercials “will disappear from your screens”.

“You are going to see us dramatically curtail our traditional media spend effective immediately. We have accomplished what we set out to do; we set out to become a significant player and it’s happened significantly quicker than we thought.”

Churchill Downs has gone even further, announcing that it was to exit the sports betting and gaming space within six months. CEO Bill Carstanjen explained that it had looked to make its technology the differentiator while staying disciplined in its marketing spend to make the business profitable from the outset.

“However, the online sports betting and online casino space is highly competitive with an ever-increasing number of participants that the states have licensed,” he said on its 2021 earnings call. “Many are pursuing maximum market share in every state with limited regard for short-term or potentially even long-term profitability.

“This isn’t the result we wanted when we started this business back in late 2018, but it is the prudent next step forward for our company.”

Both will remain active in some capacity. Churchill Downs will focus its attention on the horse race betting arm TwinSpires, while Wynn CEO Craig Billings said there was “a logical place” for the operator in igaming, though the market was not large enough currently.

The fact that one of the most enduring brands is phasing out of the market and two others are dialling down spend could be seen as a sign of just how difficult it can be for newcomers to make their presence known. Equally, it could be viewed as carving out a space for a few wildcards to enter the fray.

And unlike wrestling’s Royal Rumble, there does not just need to be one winner. The companies that manage to find a profitable niche can still view that as a success.