Is the US still the land of opportunity or is the river running dry?

Drought in river
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It was a monumental period when PASPA was repealed by the Supreme Court of the United States in May 2018, opening the doors for millions of American sports fans to legally wager on their team. In the years that have followed, global operators flocked into the country as 37 states opened their doors to legal sports betting. 

Seeking the pot of gold at the end of the proverbial rainbow, these operators spent millions of dollars in marketing. After all, sportsbooks must demonstrate the features of its product to attract users in an extremely competitive field. 

Yet, over five years on, the pot of gold remains elusive, with only the top operators even having a whiff of profitability. As for making back those losses, well – that’s a long way down the road. 

High customer acquisition costs, driven by the intense competition in many states, have made making money a difficult endeavor for most. The quest of getting as many users as possible through the door has caused marketing budgets to swell.

But the challenge for many operators is the dominance of FanDuel and DraftKings as the firm top two operators in the country has meant that chasing even 5% of market share in a state is viewed as a laudable achievement. 

As two former DFS sites, FanDuel and DraftKings had the riches of vast customer data sets of active sports fans who showed interest in gaming. It made for a perfect recipe to onboard sports bettors. But despite their dominance, the two market leaders have spent hundreds of millions acquiring players and it is only very recently that FanDuel recorded a profitable quarter. The Flutter brand expects to hit full year profitability in 2023 but will be alone when it does so.  

So, what does the future of US sports betting look like now that the dominant forces are firmly established?

And what for newcomers to the market? The emergence of new operators such as Betr and Fanatics has made a lot of noise in the last few months, but do these second movers really have an advantage over those who set the market’s precedence? 

Sky high marketing costs

The price of acquiring sportsbook players in the US is notoriously high. It is not uncommon to see bonuses offering players $1000 in bonus bets, while estimates suggest that the price of onboarding a sports bettor could be up to $1000 per user. 

Clearly, it is a high-stakes game that even the big operators are struggling to keep up with. Earlier this year, Jette Nygaard-Anderson, the now former-CEO of Entain, admitted that bonus credits were taking its toll on BetMGM’s bottom line, but that to keep up with competition, it was necessary.

“We’ve been implementing bonus optimization measures through most of 2022 and then of course into 2023, ensuring that we are rewarding and retaining the valuable customers we have all built on the Entain data analytics experience, to focus on maximizing the player metrics here,” she told investors. 

Meanwhile, DraftKings spent over $389m on marketing and sales costs in Q1 of 2023, even higher than in the same period in 2022, showing the lengths that some operators are going to secure new users.

But for some, it is simply too much to keep up with. European operator Kindred which owns the Unibet Sportsbook and Casino brand has announced that it will exit all North American markets by the end of Q2 of 2024, citing the high costs of operating in the US. 

Nils Andén, Interim CEO of Kindred Group explained: “The cost reduction actions announced today are both necessary and decisive. While it is never a desire to inform valued colleagues of redundancies, this puts us in a stronger position to secure long-term growth for Kindred across our locally regulated core markets. 

“We can now focus our resources and tech capacity towards strategic initiatives and selected markets where we see clear potential to grow our market share.”

Affiliate woes 

Core to the entire notion of acquiring customers, affiliate marketing firms are also sensing that a bubble has somewhat burst stateside. XLMedia reported to investors that the lack of state launches in 2023 is hampering its business, giving it weaker comparisons with 2022 when states like New York went live. 

XLMedia stated: “North America saw several operators limit their marketing spend, reducing customer acquisition activity around the Super Bowl and the offseason, as they reviewed marketing tactics in the evolving US market. Together, the Massachusetts and Ohio launches did not reach the same scale as New York’s launch did in 2022.”

Meanwhile, Catena Media, which has shifted its entire business focus towards North America, endured a 29% revenue decline in the region during Q3 of 2023, citing the changing of its contracts from CPA to rev share deals. 

But with state launches drying up in 2023, operators have not allocated as big budgets towards player acquisitions as in previous years, meaning CPA rates are in decline. 

With 37 states now having legalized sports betting in some way, there will naturally be fewer state launches, which are ripe for customer acquisition, which puts affiliates at risk going forward. 

Justin Stempeck, Chief Regulatory Officer of Compliable, recently pointed to some affiliate risks: “Recent regulatory trends point towards further and tighter restrictions on advertising across the board. More regulators will take a critical eye towards the specific language used in promotions compared against broad regulations on unfair and deceptive advertising, as well as valid responsible gaming concerns.”

Second mover advantage? 

As aforementioned, Fanatics is making its move into the sports betting market years after its competitors, and many onlookers are intrigued as to whether the sports merchandise firm can be a true disruptor in the sports betting space. 

CEO Matt King raised eyebrows at SBC Summit North America earlier this year when he revealed that the firm had a database of 95 million users, as opposed to just eight million when he was FanDuel CEO in 2018. 

He told the audience in New Jersey: “We have 95 million sports fans in our database. We can reach those with no real cost so our philosophy is one which, as opposed to paying a media broadcaster or Google or Facebook to acquire customers, the money we would spend acquiring customers and reinvest into rewards. 

“The reality is that the vast majority of sports bettors are already in our database, but what is actually as important as the database is also the brand.”

Another self-styled disruptor to the space is Betr, run by Joey Levy and social media star Jake Paul. Paul, with millions of online followers, generated interest in the brand, which is now live in Ohio, Massachusetts, Maryland, and Virginia. It has also rolled out its fantasy picks game titled Betr Picks in over 20 states as it seeks to leverage the Paul brand nationwide.

However, even Betr with its star pull of Paul is having to spend to attract users. In Ohio, Betr generated $700,000 in handle in May, yielding $54,000 in revenue. However, it spent over $116,000 in promotional credit to acquire users in Paul’s home state. 

So while the market’s second movers can claim to have learned from the mistakes made by the incumbents, it is clear that the path to making money is blocked by prohibitively high acquisition costs. Whether Fanatics can make inroads in its quest to break the current duopoly with its mammoth database is yet to be seen, but you can bet your house they will try.