It’s been nearly four years since the Supreme Court repealed the Professional and Amateur Sports Protection Act (PASPA) and opened the door for legal sports betting. The US has become a focal point for the sports betting world, with every legislative advancement, operator launch, and revenue report scrutinized like the Zapruder film.
That (over)analysis has resulted in numerous declarative statements, particularly when it comes to winners and losers. However, the US sports betting industry is still in its infancy, and no one knows how it will shake out in five or ten years.
For instance, the two most significant states (representing more than 20% of the entire US population) have yet to legalize sports betting. And we’ve already seen a shakeup, as BetMGM has gone from also-ran to potential number one in short order – a feat other operators will undoubtedly replicate.
So, while it’s fun (and necessary) to report on and pontificate about the early results, understand that we’re watching a team jump out to a 14-2 lead three minutes into an NBA game. It’s a little too soon to declare victory.
Two Radically Different Approaches
US sports betting operators are splitting into two distinct camps in the US market.
On one side are the hares. These are the companies willing to spend whatever it takes (and suffer massive early losses in the process) if it means they can position themselves as a market leader. The hares include companies like DraftKings, FanDuel, BetMGM, and Caesars.
Opposite the hares are the tortoises. The tortoises are more attuned to the bottom line and have a hard time justifying the eye-popping marketing spend of the hares, preferring a more targeted approach. Bally’s, PointsBet, and WynnBet are good representations of tortoises.
In some cases, a company’s financial sheet determines its approach. Still, the truth is that solid arguments exist for both strategies, and some operators like Caesars have toed a fine line, starting as a hare before morphing into a tortoise.
Caesars was the early market leader in New York, thanks largely to its massive promotional spend. Since the company turned off its advertising spigot, its market share has begun to evaporate. The other hares (DraftKings, FanDuel, and BetMGM) have benefitted from Caesars’ decision to pump the marketing brakes.
Scalpels and Machetes
Other operators have chosen the tortoise strategy and stuck with it.
PointsBet CMO Kyle Christensen derided the “scorched earth policy” in March, telling the SXSW audience, “I’m afraid it’s bringing some bad consumer habits. In New York, they handed out thousands of dollars of free bets – and I’m afraid it will turn into promo-chasing, and we’ll see a lot of churn.”
This scalpel-like approach is an increasingly popular talking point among operators.
As Bally’s Chairman Soo Kim told CNBC in regards to the company’s decision to delay its New York sports betting launch:
“But we think that actually, the current version of sports betting is not a great business. It’s a fine business. It’s not a great business. We think that there will be a wave of consolidation that will rationalize promotions. But more importantly, I think people will stop competing with just free money, but people will start competing with product.”
Nor is this talk new or limited to marketing spend. In 2019, Yaniv Sherman, then head of commercial development for 888, made similar statements when discussing market access deals:
“We’ve seen a lot of deals out there that are sort of giving almost instant access across many markets, but we feel some of these deals are very expensive.
“And most importantly, not all of the States that legalize are commercially viable in the near term or even mid-term.
“We’re trying to find the ideal combination of size and a more commercially viable structure.”
But few have been as forthright as Christensen, who summed the situation up thusly at SXSW:
“At the end of the day, we can’t compete with DraftKings, and we also don’t want to.”
Not All Customers are Equal
Attracting the “right kind of customer” is the centerpiece of the tortoise approach. Suppose this type of customer (an entertainment-driven customer that values product and service and rewards operators with their loyalty) doesn’t exist. In that case, the slow and steady approach has no chance of winning against the scattershot strategy deployed by the hares.
There is precedent for this approach, most notably, SkyBet’s success. As Robin Chhabra, then CEO of FOX Bet, said in 2019, “60% of Sky Bet’s customers are exclusive to Sky.”
But Sky is the exception and not the rule. Other attempts to replicate its business model have fallen flat or, if we’re being honest, have never been fully implemented.
Matt Primeaux, the executive managing director & president at Hard Rock Digital (and formerly of PokerStars and FOX Bet), posted a terrific Twitter thread in August 2020 on the complexity of creating an entertainment-first ecosystem:
9/ If it costs $100 to acquire a new player, they deposit $100, are stacked after $5 in attributable rake, and the remaining $95 is withdrawn from the system — that's an unsustainable business.
— Matt Primeaux (@mattprimeaux) August 6, 2020
The gist of Primeaux’s thread is that operators need to calibrate multiple dials to make an entertainment-focused ecosystem succeed.
The PokerStars Example
And Primeaux would know. PokerStars overhauled its business model in 2015 to protect entertainment-focused customers from predatory customers (a problem in the peer-to-peer environment of poker).
Unfortunately, it’s difficult to tell how that approach worked for PokerStars, as the company implemented the strategy soon after Amaya Gaming acquired it. The acquisition ushered in a period of tumult and ended the “poker-first” mentality.
That period began with an investigation into Amaya CEO David Baazov for securities fraud. The Stars Group acquired and was acquired multiple times in the ensuing years. The Stars Group acquired Sky Gaming in 2018, and Flutter Entertainment acquired The Stars Group in 2019. As PokerStars morphed into “All-Types-Of-Gambling-Stars.”
PokerStars’ attempts to create an entertainment-driven player base also occurred against the US sports betting explosion backdrop, making it a backburner issue and destroying any opportunity to gauge how well its strategy worked.
Operators Have Different Goals
Of course, not every tortoise is hell-bent on becoming a Top 3 or even Top 10 operator. Instead, many of these companies are simply looking to use sports betting to improve acquisition and retention. They also want to provide customers with another product, and, if possible, see positive revenue flow.
They won’t get much press, but any operator with positive sports betting outcomes is a success story.
