US sports betting – the next stage?

As with any land grab, there comes a point where the participants in the race begin to assess exactly what it is they have gained through their efforts, what territory has been grabbed and what degree of control has been achieved. That stage, it can be argued, has now been reached in the battle to gain market share in US sports betting.

Nearly five years on from the epoch-making decision on the part of the US Supreme Court to end PASPA, the issue that now dominates the landscape is one of profitability. But while the widely held assumption among analysts is that this second stage of the US sports betting opportunity should by rights be accompanied by less elevated levels of marketing spend, many within the sector are not quite so sure.

According to this view, hopes for a more mature product offering might have to wait for the market as a whole to wean itself off its addiction to marketing. “User acquisition is the most important part of this; that is the key because the price paid for new accounts across the industry has been very excessive,” says Peter Laverick, chief executive at digital marketing services provider InclineBet. “They have been spending unheard of amounts and somehow that became normalised across the US.”

He adds that to justify the outsized costs, there would need to be a significant uplift in lifetime values. Evidence of which, he suggests, is absent. “I think there are some people who think that paying $600 for a new customer and getting back $800 gross win is profitable, but it really isn’t,” he says.

“The only way to change things in the US is to make the marketing more efficient,” he continues to argue. “If they were all able to extremely cut back – meaning if they cut out all their promotional spend for six months – then it could be profitable quickly. But the levels of player acquisition and gross revenues are going to fall.”

He suggests the example from Europe is instructive. “Other markets around the world are not like this. When one person comes into the market and starts spending higher, though, then the price goes up for everyone. We’re still at this point; DraftKings are still spending, and most people are following them.”

Josh Swissman, founding partner at consultancy firm The Strategy Organization in Las Vegas, explains this is an “evolving situation” and that some operators “may still feel they have to grab market share”. He also notes that the European markets went from land grab to “something much more sustainable”. “It makes a lot of sense to look at the European market,” he adds. “The US is getting there, but it is nowhere near the European side.”

Still, change has to come from somewhere. The current loss-making state of affairs cannot persist given the macroeconomic backdrop and the effect it is having on those providing the monetary backstop for all the lavish marketing and promotional spend.

Neale Deeley, commercial director at odds provider Sports IQ Analytics, comments: “Operators are being buffeted on all sides by cost-cutting measures and, with Wall Street now not lavishing cash for land grabs, the starting point here is that operators are looking to do what they do already, but do it better.

“So as the land grab fades into memory, and with the market demanding profitability, one of the paths is being more efficient about what you do,” he adds. That pathway to efficiency leads, eventually, to the product.

Something’s gotta give

“We have been at this for over three years. It is a complex new problem. The way to do this isn’t what came before.” So says Mark Nerenberg, COO at micro-betting provider Simplebet.

He is talking about the challenge of bringing the company’s product, the newest innovation in the US sports betting space, to the market. To date, it has had some success, with a deal in place for some time with DraftKings and a recently signed agreement with Caesars. It also has a co-ownership relationship with new micro-betting challenger Betr, which recently launched in Ohio.

“It is a new tech challenge that requires a lot of focus,” Nerenberg says of the company’s product. “So, we just have to keep pulling ahead. We have all the data, so we know about the patterns and see how to fix up the models and get the timing right.”

For Simplebet, as much as for other suppliers to US sportsbooks, the shift towards a focus on product – getting it integrated and launched – aligns with the market conditions and the wider economic situation. “There is more urgency on the product and an obvious desire from operators to at least reach parity with the opposition in this area,” he says.

“Where there was previously a strong bias to do everything in-house, operators are now shifting their mindset and looking at where it makes sense to outsource,” the Simplebet COO adds. “The ability to choose the right third parties will play a critical role in determining the winners and losers in the space.”

Addressing the same issue, Matt Howard, chief executive of sports betting back-end startup OrbitalBet, points to the example of theScore (initially independently and now under the stewardship of PENN Entertainment) and says it shows how companies both can and do press on successfully with their own back-end developments.

“TheScore definitely proves the point that you need to have some independence when it comes to the technology,” Howard says. “You just can’t improve the product if you don’t own the tech.”

But he notes there is a “cut-off point” where it does not make sense economically or functionally to own the tech. The ultimate decision is driven by which way the operator assesses two competing business needs. “If you really want to grow and acquire users, you need to offer a good product – your own product,” he says. “But on the other side of the coin, these businesses are already huge enough that if you own your open tech, would it be more profitable? Ultimately, the CFO will decide on this.”

Take me down to the ball game

Of central importance to the micro-betting proposition, whether that comes from Simplebet or from other providers and operators, is that US sports offer a particular opportunity for chopping the game up into ever smaller micro-markets. “Micro-betting is uniquely suited to US sports,” says Nerenberg. “The micro-markets we produce are built around the things that people want to talk about and ultimately then want to bet on.”

However, no matter how much each individual game across at least three of the big four are suited to this type of slicing and dicing, the fact remains that for all that, there is still a lack in terms of absolute games across the US sports betting calendar.

“Everyone has been thinking about the big four leagues,” says David Sargeant, managing director at consultancy firm iGaming Ideas. “But it is the secondary sports that will fill out the schedule,” he explains. “This will be about college and minor leagues; the content window needs to be filled with America-flavoured content. That’s a big play. The WNBA, for instance, is in a great place to take advantage but they haven’t engaged so far.”

Sargeant notes that for round-the-clock betting operations, what is needed isn’t just the high points of the sporting calendar. “You need every stage,” he suggests. “The next minute, the next hour, the next afternoon.”

Brad Weitz, chief executive at AI-driven betting and gaming content house Data Skrive, agrees that there is an “untapped market in second-line sports”.  He points to the reality of the current market. “Ohio just opened up and, in reality, there are four or five books that are pretty much guaranteed to get 70% of the market – and probably closer to 85%.

“Everyone else is competing for 15%. So, ok, where is that going to come from? That won’t come from marketing on the NFL because you can’t out-market the top four or ‘out-product’ them around the NFL either.”

The margin call

For Laverick, the big miss in terms of the current product suite for US sportsbooks is horseracing. “Content is a big issue; on the East Coast you have nothing to bet on until 7pm during the week. But if you could get horseracing properly integrated, then that could solve a lot of content and lifetime value issues.”

Notably, both FanDuel and DraftKings late last year announced partnerships with Churchill Downs for multi-year content deals, although only FanDuel has integrated the product into its main sportsbook app while DraftKings has launched a separate ‘HORSE’ app. “Horseracing betting will have to be integrated at some point,” says Laverick with regard to the rest of the US sportsbooks.

Horseracing could be key to filling the US sports calendar’s ebbs and flows

“The average customer just isn’t served in the same way in the US as in Australia and the UK. The operators should be able to do this, so I would say watch this space because, by all accounts, FanDuel is getting close and it could be the game changer since the LTVs with horseracing are extremely high due to the margins.”

Indeed, it is margins that might yet also be a driver of product innovation. Deeley at Sports IQ suggests that, as it stands, the US is at the stage of Europe with algorithmic trading where everyone follows the consensus. But he suggests there are efficiencies to be sought beyond that level of market-wide pricing. “There is elasticity in the customers,” he adds. “The next level of sophistication would be to say there is value being missed by not continuously optimising your pricing for your customer base.

“As US tech companies get more involved, which is bound to happen, they will look at introducing sophistication around algorithmic targeting. There has to be some value in optimising pricing at the particular bookmaker or even within a segment of a bookmaker’s base.”

Alex Kane, chief executive and founder at New Jersey-licensed sports trading operator Sporttrade, agrees that the level of sophistication in the US around pricing isn’t yet up to European levels, despite his company’s efforts in New Jersey to push the idea that exchange betting offers a better return.

Alex Kane, Sporttrade

“I don’t think the understanding of the importance of pricing has happened yet,” he says. “For regular retail customers they are going to bet with a book because they offer a profit boost. That ‘feels’ better for the customer despite the fact that it might not be great value in the long term.”

He adds that “maybe 5%” of the US sports betting customer base is price-sensitive. But for him, the biggest draw for his sports trading product is having liquidity to get in and out of markets in-play. “I would say that there is a moment in the Sporttrade journey where the customer has that lightbulb moment; when the customer sees the magic,” he suggests. “That could be the first in – play bet or someone betting in and out of a market.”

A big wave

In part, we simply don’t know yet what innovations will be truly transformative. It might be micro-betting, it might be sports trading, or it could be something else entirely. But the likelihood is that ‘something’ will emerge that could well change the nature of the game.

“It’s only a matter of time before the wave of innovation takes place in the US,” says Swissman at The Strategy Organization. “US innovation will be turbo-charged. It is less of an unknown; the US has a roadmap, that is the catalyst for the innovation choices, about the decisions they make, because they have a good case study ahead of them from Europe, and they can therefore innovate more quickly.”

That could be the moment when, as Kane at Sporttrade puts it, the customer “sees the magic”. It will also likely be the point at which the US sports betting market majorly departs from the course set in its inaugural years. Land grabs necessarily come to an end when there are no more worlds to conquer. Then the empire building begins.