Wynn Resorts is the biggest name so far to suggest the marketing battle in US sports-betting is unsustainable, but earlier in the current results season, it was already evident that the pressure was telling.
What Kindred and PointsBet had to say about their respective US businesses showed how the barrage of marketing witnessed since the NFL kick-off is making life very tough for brands sitting below the top tier.
For Kindred, its Unibet brand is currently available in six states. But in none of them has it managed to establish itself as anything other than a marginal player.
Its first US bet was taken in May 2019 when it launched in New Jersey, where it is one of Hard Rock’s skins alongside bet365.
The New Jersey data shows it is struggling to make much headway. Between the two skins, total GGR in the year-to-date stands at $10.1m and even being generous and suggesting Unibet is worth half that amount, that is still only $5m.
In the third-quarter results the company said its US business pulled in £5.8m ($7.8m) of gross win revenue.
But with cost of sales and admin coming in at £7.2m and with £6.2m of marketing expenses, it meant the business cost the company £7.6m in negative EBITDA.
Vanity project
Kindred’s Unibet brand is sub-scale in the US and it is hard to see how it can turn this around.
Yes, someone could probably suggest spending multi-million more on marketing but to what effect?
If the US venture is about convincing shareholders Kindred can grab a slice of the US opportunity, then the results so far suggest it is failing. Alternatively, as sources suggest, the whole exercise could act more as an advertisement for what Kindred can do operationally. In this scenario, a small presence is better than none, goes the thinking.
PointsBet’s dilemma
Kindred has a relatively simple solution open to it. Cut the losses, exit whatever market access agreements the company has in place, and shut the operation down.
Such a quick kill is not an option for PointsBet.
On the face of it, it is in a far better position than Kindred. It’s US operations saw sports-betting gross win climb 197% to $29.2m in the third quarter with new sign-ups hitting over 185,000.
It has, moreover, got one of the spots in New York.
Where Pointsbet falls down, however, is that its market share in each of the six states where it is established fell during the quarter in the face of that marketing blitz from its higher-spending rivals.
These falls left PointsBet struggling to hit its previously stated target of 10% in each state it entered.
On the call, CEO Sam Swanell was keen to stress that in a market which might grow to $50bn over time, a 5% market share would still be attractive.
But this is plucking figures out of the air. Whether it is 10, 5% or 3.9% (its share of handle in New Jersey in the three months to September) what ultimately counts is whether you are on course to make a profit.
PointsBet is as far away from this as ever. The company didn’t divulge its US losses for the quarter, but in the last full-year its combined Australian and US business net losses of A$187.1m (US$137m).
A retreat turning into a rout
We’ve all watched enough war movies to know that once an enemy has been turned, the likelihood is that a rout will follow and such appears to be the case in US sports-betting right now.
The winners – at least in terms of market shares if not actual profitability – have thrown all they had at the market this football season and it appears to have worked. They have either maintained or extended their market share leads.
The rest of the market resemble the demoralized hordes in the films who, realising the opposition is about to make mincemeat of them, turn and take flight.
For PointsBet, the issue is how do they hold the line in the face of continued slings and arrows.
The company will counter that it has the tools available, notably via its relationship with NBC, to both maintain the current customer base and attract more numbers.
It does have a brand name and, arguably, brand positioning. But as the market share stats suggest, it is plainly struggling to maintain that.
The New York problem
Then there is New York. Truly, the warning ‘be careful what you wish for’ comes into play. Make no mistake, New York will cost every participant a bundle.
Not only will it represent another leg of the marketing bun fight. But with the tax rate as it is, hopes of actually making a profit there are slim for the foreseeable future.
How long will PointsBet be able to keep up the spending even while hopes of profitability look further away than ever?
The pressure to call it a day
The situation for both Kindred and PointsBet, and potentially others, is as Wynn’s departing CEO Matt Maddox said, unsustainable.
“Competitors are spending too much to get customers,” he told the analysts on his last earnings call as CEO. “The economics are just not something that we’re going to participate in in the short term.”
As far as the market leaders are concerned, however, if they maintain the pressure the likelihood is that they will soon be seeing the departure of some competitors.
Strategy-wise, it would make sense for them to continue applying pressure and if New York is the market that tips the balance, then so be it.
Whether that gets them any nearer to profitability – well, that is a very different question.
