It\u2019s been nearly four years since the Supreme Court repealed the Professional and Amateur Sports Protection Act (PASPA) and opened the door for legal sports betting.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.<\/p>\n
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.<\/p>\n
For instance, the two most significant states (representing more than 20% of the entire US population) have yet to legalize sports betting. And we\u2019ve already seen a shakeup, as BetMGM has gone from also-ran to potential number one in short order \u2013 a feat other operators will undoubtedly replicate.<\/p>\n
So, while it\u2019s fun (and necessary) to report on and pontificate about the early results,\u00a0 understand that we\u2019re watching a team jump out to a 14-2 lead three minutes into an NBA game. It\u2019s a little too soon to declare victory.<\/p>\n
US sports betting operators are splitting into two distinct camps in the US market.<\/p>\n
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.<\/p>\n
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\u2019s, PointsBet, and WynnBet are good representations of tortoises.<\/p>\n
In some cases, a company\u2019s 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.<\/p>\n
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<\/a>. The other hares (DraftKings, FanDuel, and BetMGM) have benefitted from Caesars\u2019 decision to pump the marketing brakes.<\/p>\n Other operators have chosen the tortoise strategy and stuck with it.<\/p>\n PointsBet CMO Kyle Christensen derided the \u201cscorched earth policy\u201d in March, telling the SXSW audience,<\/a> \u201cI\u2019m afraid it\u2019s bringing some bad consumer habits. In New York, they handed out thousands of dollars of free bets – and I\u2019m afraid it will turn into promo-chasing, and we\u2019ll see a lot of churn.\u201d<\/p>\n This scalpel-like approach is an increasingly popular talking point among operators.<\/p>\n As Bally\u2019s Chairman Soo Kim told CNBC<\/a> in regards to the company\u2019s decision to delay its New York sports betting launch:<\/p>\n \u201cBut we think that actually, the current version of sports betting is not a great business. It\u2019s a fine business. It\u2019s 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.\u201d<\/em><\/p><\/blockquote>\n Nor is this talk new or limited to marketing spend. In 2019, Yaniv Sherman, then head of commercial development for 888, made similar statements<\/a> when discussing market access deals:<\/p>\n \u201cWe\u2019ve 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.<\/em><\/p>\n \u201cAnd most importantly, not all of the States that legalize are commercially viable in the near term or even mid-term.<\/em><\/p>\n \u201cWe\u2019re trying to find the ideal combination of size and a more commercially viable structure.\u201d<\/em><\/p><\/blockquote>\n But few have been as forthright as Christensen, who summed the situation up thusly at SXSW:<\/p>\n \u201cAt the end of the day, we can\u2019t compete with DraftKings, and we also don\u2019t want to.\u201d\u00a0<\/em><\/p><\/blockquote>\n Attracting the \u201cright kind of customer\u201d 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\u2019t exist. In that case, the slow and steady approach has no chance of winning against the scattershot strategy deployed by the hares.<\/p>\n There is precedent for this approach, most notably, SkyBet\u2019s success. As Robin Chhabra, then CEO of FOX Bet, said in 2019<\/a>, \u201c60% of Sky Bet\u2019s customers are exclusive to Sky.\u201d<\/p>\n But Sky is the exception and not the rule. Other attempts to replicate its business model have fallen flat or, if we\u2019re being honest, have never been fully implemented.<\/p>\n 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:<\/p>\n 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 \u2014 that's an unsustainable business.<\/p>\n — Matt Primeaux (@mattprimeaux) August 6, 2020<\/a><\/p><\/blockquote>\nScalpels and Machetes<\/h2>\n
Not All Customers are Equal<\/h2>\n
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