Conversion corner: Getting a handle on US sports betting hold

With Q3 financial reports and the discussions about profitability, this past football season was a mixed bag of success and challenges for the industry. At the core of the challenges are customer acquisition and the costs associated either with the marketing spend or the products available for new and casual customers. The industry is also looking at profit­ability more closely as some books close due to mediocre performance without much hope in sight. Here, we will investigate the handle and holds from the operators and states to evaluate the changes that are occurring in the industry. We will also evaluate the tools operators use to acquire and retain customers and how that has changed from years past to now.

Many state reports reveal how the operators in the respective states are performing and we tend to see how important the football season in particular is to the overall performance of the betting industry in the US. Some states provide far more information than others about handle, hold, sports of interest, and bonus money spent. However, we will focus on the information available across the US and try to compare apples to apples as much as possible.

Handle and hold by state

Let’s start with the growth of the handle/hold from 2021 to 2022, as shared by the AGA (American Gaming Association), where hold is up 78% over the first three quarters of 2021. This is certainly an impressive increase over the previous year, but it may be more important to look at the states that have legalized sports betting and provide the new sports betting states to be able to compare organic versus new state growth. That takes us to states like New York as a new sportsbook market and Pennsylvania, Michigan, Arizona, and Colorado as states that have been operational since the start of 2021.

• New York: New York launched online betting in early 2022 and already accounts for 10% of the total gross gaming revenue (GGR) earned in the US since PASPA was repealed in 2018. The launch of New York was notorious for the excessive bonusing for the first few months. In fact, 11 months later, New York has proposed a bill to reduce predatory bonusing. Nonetheless, the figures out of New York are impressive.
• Iowa: One pattern we see is that those states that have had sports betting for three years or more have seen a reduction in handle during the football season. In one of those states, Iowa, we see reductions in handle from 2021 to 2022 that are in line with many of the other states that have had sports betting for more than a couple of years. New Jersey, the state that was first to legalize betting after PASPA, is in a similar situation.
• Colorado: Colorado has seen margin increases in handle of 10% but an over-indexed hold increase for 2022 over 2021. It is on a trajectory to increase hold by more than 20%. This clearly indicates the operators’ requirements to increase profitability.
• Michigan: Surprisingly, Michigan hasn’t seen the growth from year one to year two in handle, but we have seen growth in hold. Handle growth was only around 10% in 2022 but the hold growth is over 20%.
• Illinois: Illinois has seen growth in both the handle and hold during the 2022 football season. They are both continued to grow at an unusually great rate in 2022 considering the rest of the market. Customer acquisition will certainly be a focus for the operators as the market continues to grow.
• New Jersey: New Jersey, which has been running for a long time, shows the deceleration of growth both in handle and hold from 2021 to 2022. Some of this may be attributed to New York’s legalization but most of it is the reduction of bonuses that prop up the handle and hold figures.

Bonus tracking

To better understand the profitability discussion though, we need to look at those states that track bonus money. While there are so many levers that should be considered in the profitability of the operators and to adequately discuss customer acquisition costs, the analysis of the amount of bonus money spent to achieve certain levels of handle varies depending on the competition within the state (I’m sure there is a research paper in the future that discusses all of these variables) and the numbers do tell an interesting story about the operations in the respective states.

What we are seeing is that the early bonus levels in some states indicate a greater path to profitability should the operator be able to retain the customers. Caesars is a notable example though of how a sub-par product may have affected their long-term GGR, as customers came to Caesars early but then moved to other books, primarily FanDuel.

With the land-based casinos having an epic year, there are so many opportunities for them to be patient and win the online player through loyalty (as per BetMGM and PENN Entertainment) that is closely tied to their land-based casino. These loyalty programs enable the respective land-based and online brands to bridge the retail and online gap. These strategies should be able to reduce customer acquisition costs and enable most brands that have integrated a loyalty program well to achieve breakeven in 2023.

We saw some books decide not to operate anymore, which could be attributed to the inability to find a customer acquisition strategy that could be translated into an operational plan to sustainably allow them to achieve operational breakeven inside their shareholders’ timelines. With Fubo TV and MaximBet closing operations, and additional brands pulling out of certain states, operators are finally realizing that their operations may not coincide with their shareholders’ timelines for breakeven.

There were a few interesting Q3 results that directly address customer acquisition. There were also plenty of common discussions about profitability, loyalty, and products new customers will enjoy. However, not all of the results were positive, as outlined below:

• Monthly active users (MAUs) from Rush Street Interactive from Q2 to Q3 went from 133,000 to 130,000 having spent $45m during Q3. Losing MAUs demonstrates the challenges major operators have to acquire customers.
• Caesars is expecting its interactive division to contribute to the whole company’s bottom line for Q4 2022.
• PENN Entertainment’s launch in Kansas saw its mychoice loyalty program members contribute 45% of its sports betting handle.

Analyzing the state handle and hold figures from the football season is showing just how difficult it has been to grow the industry. It has been hard for the industry to grow the handle, yet often states are earning higher margins than previous years. This is most likely due to the higher number of parlays offered by the operators. Bonuses are slowed, which impacted some of the state handle numbers, but that is simply to try and achieve operator profitability. The land-based casinos have loyalty programs that can assist with reduced customer acquisition and higher profitability, especially so when considering how successful the casinos have been in 2022.