Conversion corner: Customer bonusing in key betting states

The majority of US states do not currently share operator bonus expenditure in their monthly revenue reports, but for those that do, including Pennsylvania and Colorado, the stats make for very interesting reading.

Before taking a closer look at the data, it is worth making this point: At such an early stage for the industry, operators and affiliates are pushing the boundaries when it comes to bonuses and promotions.

This means many are A/B/C/D testing bonuses and the channels through which they are offered to properly understand what is working and try something new if necessary.

Some of the customer cultivation flows they are considering are:

• How do I get customers to sign up?
• How do I encourage them to deposit any amount?
• What type of bettor am I looking to target?

For some, it might be a focus on simply getting players to deposit a small amount and place a wager, such as the chance to bet $1 and win $100, while for others it might be a deposit match bonus up to $1,000 or a $1,500 risk-free bet.

Colorado

Colorado took its first legal sports bet in May 2020, but when the state opened up there were very few markets for bettors due to the global sports blackout resulting from the Covid-19 pandemic.

With table tennis among the limited markets available, players bet more than $25m in handle in its first month of operation.

We believe this quick take-up of online betting was down to a number of nuances, including:

• Colorado was the first major state to launch west of the Mississippi
• Online sports betting was legal from day one and didn’t require in-person registration

Online casino is not legal in the Centennial State and doesn’t look like it will be anytime soon, which means average customer lifetime value will remain in the region of $1,500-$2,000/player.

With 20+ online operators now live, competition is fierce – betting volumes have increased but bonusing has not slowed down.

The graphs here show bonus spend across all operators live in the state as a percentage of handle and bonus spend as a percentage of hold from May 2020 to February 2021.

The data shows that approximately 64% of operator GGR has gone back into bonusing since May 2020 and there are clear acquisition drives in September and February when the football season gets underway and when the Super Bowl takes place.

Bonus as a percentage of handle is levelling out at around 4% in Colorado. Sixty percent of GGR is very aggressive and while it does not seem sustainable, right now I don’t see an end in sight. There is a major land-grab underway and operators are spending big bucks.

Bonusing at such a high rate of hold certainly creates inflated handle numbers for Colorado. I expect this to be the case for the next two years at least as more operators enter the market due to its open licensing regime.

Pennsylvania

Pennsylvania also tracks bonusing costs but actually breaks them down a little further so that we can see what operators are spending month by month.

In total, operators are allocating half as much (in terms of bonusing as a percentage of handle) as they are in Colorado, but with similar spikes in September and February.

The state operates online casino as well as online sports betting, so customer lifetime value will be much higher than Colorado and cross-selling will occur.

The graphs here show bonus as a percentage of hold and a percentage handle from January 2020 to February 2021. Looking at the graphs, approximately 31% of GGR has gone back into bonusing since January 2020.

That figure is increasing and in the first two months of the year it hit 39%. Peaks in bonusing spend occurred at the start of the football season (September) and around the Super Bowl (February).

Some operators are aggressively bonusing up to 40% of hold, while others are taking a more measured approach at around 10% of hold. Some new market entrants are bonusing to the extreme, pushing back 100% of GGR into offers and promotions.

Similarities and differences

There are clear similarities between how operators are bonusing in Colorado and Pennsylvania, most notable is the spike in spend around the start of the football season and the Super Bowl.

The numbers also show that both states have operators that are increasing gross bonuses and that bonus as a percentage of GGR is slowly rising. But that is where the similarities end – if anything, the data shows there are some major differences between how operators in each state are approaching bonusing.

One such example is Colorado operators are spending more than double the amount (relating to bonusing as a percentage of GGR) of those in Pennsylvania. Colorado has been live for less time than Pennsylvania, but even in the first nine months of Pennsylvania being live operators were not bonusing at anywhere near the same rate.

Pennsylvania has fewer betting operators than Colorado, so less competition, yet a greater population to address.

Looking elsewhere Virginia and Michigan regulators also report bonus expenditure and while both markets are very new, interesting trends are already starting to emerge.

Combined, operators in Virginia were bonusing at more than 100% of hold in January and February, which shows just how aggressive they are to secure the first-mover advantage.

The same can be seen in Michigan where, in the first two months of the market being live, operators spent $37m on bonusing compared with the $22m generated in hold.

In Michigan, this would suggest that sports betting is a loss leader for online operators at the moment.

Of course, there are discrepancies between operators, but one brand has been bonusing at 20 times its GGR since entering the Michigan market.

While only a handful of states break out bonusing expenditure, I think the trends we are seeing in Colorado, Pennsylvania, Virginia, and Michigan will apply to all regulated states.

This is most certainly the case when it comes to ramping up spend around major sporting events as well as the aggressive bonusing being undertaken by some brands in order to secure an early lead.