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Sunday, May 19, 2024

U.S. Sports Betting Companies Jostle Over a Key Moment for the Industry

  • U.S. sports betting companies are entering a period of incredible opportunity and risk.
  • Industry experts foresee consolidation and some major players entering the market.
Megan Mendoza / USA TODAY NETWORK

There’s never been a better time to be a U.S. sports betting company.

With college football and the NFL underway, this is “Christmas, Hanukkah, New Year’s, Thanksgiving, and your birthday all rolled into one,” said Patrick Keane, CEO of Action Network.

GeoComply reported 103.1 million geolocation verifications performed by sportsbook operators using its service from the NFL’s first regular-season game on Thursday, Sept. 8 through midnight of the following Sunday. That figure was up 71.5% compared to Week 1 of 2021.

This will also be the first full football season in which New York will allow mobile sports betting, one of 22 states to do so, plus another nine that only allow in-person betting, per Action Network’s tracker. An additional four states have legalization pending.

The stars are aligning, but that doesn’t mean it will be easy — or even profitable.

Income Incoming?

This fall, industry giants like DraftKings and FanDuel have the opportunity to make an immediate splash, while others like MGM, Caesars, Penn Entertainment, and European giant Bet365 can also show what they’ve got.

Now more than ever, sportsbooks have the chance to actually turn a profit, but it’s something that has largely eluded them to date.

  • Ireland-based FanDuel parent Flutter Entertainment claimed 51% of the U.S. sports betting market, notching $1.18 billion in first-half revenue and an adjusted EBITDA loss of $148.5 million in the country.
  • DraftKings brought in $466 million in revenue in Q2. The company projects $2.13 billion for the fiscal year and an $800 million loss.
  • BetMGM, a sports betting venture owned 50-50 by MGM Resorts and Entain, took a $71.2 million loss in the second quarter.
  • Penn Entertainment’s interactive segment, which includes online sports betting and iGaming, brought in $154.9 million and lost $20.8 million in the second quarter.

“The most pressing challenge this season for operators is finding a way to target returning customers, as well as acquiring new ones, without breaking the bank,” said Matt Rybaltowski of Sports Handle. 

After a year in which sportsbooks dangled generous promotional offers, many are dialing back acquisition spending, and we’re starting to see divergence in their strategies, many of which are focused on building — or buying — a community.

Different Profit Paths

FanDuel acquired horse racing-focused cable channel TVG, rebranded it to FanDuel TV, and hired big name talent like Kay Adams and Bill Simmons to broaden its audience. DraftKings has sought to build out its own roster of recognizable sports media names, including Mike Golic Jr. and Dan LeBatard.

“You think of traditional casinos that operate out of Nevada,” said Jon Cohen of Frequency. “They’re trying to get people on site to gamble. What do they do? They have Cirque du Soleil, great in-house residents. It’s about getting people in the door, and content is the best way to do that.”

While FanDuel and DraftKings are setting up somewhat conventional media operations, Bally’s, which has begun to roll out its Bally Bet sportsbook, struck a deal with Sinclair last year to rebrand 19 regional sports networks to its name.

Penn Entertainment, meanwhile, took a different approach by acquiring Barstool Sports for $550 million.

“Barstool is such an interesting play,” said Cohen. “[Penn’s] whole premise is, we don’t have to spend all these big marketing bucks because we have so much brand loyalty through our community.” 

The question is: Which of these models actually leads to efficient acquisition and retention of customers?

“I’ve always been skeptical of a product company or a brand that tries to become a media company,” said Ken Dorward, chief growth officer at XL Media. “As an operator, you need a good product, period. In the long term, those who have a good sports betting product will win.”

Waiting in the Wings

In my conversations with industry analysts and insiders, one name came up several times without prompting.

“The most fascinating thing happening on the operator side, to me, is Fanatics coming into the market,” said Dorward.

“They have a whole customer database already that I’m sure they’ll try and use for their marketing spend. So you don’t really have to market, right? They already have a name. They already have customers, and it’s just a bolt-on.”

Disney is likely to join the fray as well, though perhaps just through licensing the ESPN name.

“It looks like Disney is going to go more of the rent-the-brand route and get a big check,” said Keane.

And then there’s a big company that already has certain key elements already in place. In fact, there’s a good chance you’re reading this on one of its devices.

“When you start thinking about the robust ecosystem that Apple has with their payments and credit card, and the connectivity of the phone to the big screen,” said Cohen, “I think you’re going to have in-game betting going on the television.”

The tech giant scooped up 10 years of MLS streaming rights in a $2.5 billion deal and has a deal to stream a package of Friday night MLB games. For the latter, Apple incorporates odds on certain events that could occur during the at-bat, updated with each pitch (which you should probably take with a grain of salt).

“I don’t think there’s any other reason for them really to go get sports rights other than to help their subscription service and make more services revenue,” Cohen added. “And I think gambling is a big part of it.”

The Long Game

Right now, it’s easy to find generous entry offers designed to lure bettors to their platform. But to make that play worthwhile, the book has to keep that customer around for a while.

“Most books that we talked to say that they need to have these users be profitable in two years for them to be the kind of attractive bettors that they want,” said Keane. “For that [promotional money] to come back, that user is going to have to bet not just with high frequency, which is a key for these operators, but also high redeposit rates.”

Then again, the sportsbook itself doesn’t have to be the end of the customer funnel: Revenue is generally steadier in iGaming.

“A lot of the sportsbooks are going to rely on converting a sports bettor over to certain casino games for long-term profitability,” said Dorward.

Golden State Rush

While New York has taken the lead among sports betting states in revenue and handle, California could surpass it before too long — depending on the preferences of myself and 40 million or so of my neighbors.

Two ballot initiatives put before voters would legalize sports betting in California — a fact I am reminded of by relentless banner and YouTube ads.

  • Proposition 26 would legalize sports betting, but people would only be able to place bets on tribal lands and at racetracks. That would make sports betting legal but logistically challenging for many residents of the state.
  • Proposition 27 would allow mobile sports betting anywhere in the state. Operators would be required to work through tribes.

Spending on the props has already topped $400 million with six weeks to go.

That seemingly hasn’t been enough: A September poll from the Public Policy Institute of California found that Prop 27 is well underwater with 54% opposed to 34% in favor. Should sportsbooks be able to turn public opinion around, they will open up the biggest market in the U.S., but they face long odds.

Legalization bills in Texas, the second-largest market in the country, failed to gain traction in 2021 but could get another look in 2023.

Change Coming

As multiple powerful companies make a play for the same market real estate, it’s fair to wonder if the players in the game right now will be the same ones we see in a few years.

“I’ve been frankly surprised that there haven’t been more mergers and acquisitions,” said Keane. “There’s a lot of blood in the water, if you will, of books trying to acquire customers, acquire them profitably, retain those users, and get them to continue in the platform.”

Each of the major players is placing a high-stakes wager on a certain approach to this nascent industry. Even in this wide-open market that can grow by an entire state with little warning, it’s unlikely that every sportsbook will play the lines the right way, especially with the high cost of betting on sports betting. 

The house always wins — except when the houses are playing each other.

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