Back in March, LSR detailed why US sports betting was proving so sticky.
BetMGM and DraftKings said during Q1 earnings season that US customers had massive lifetime value (LTV) because of that stickiness. Likewise, FanDuel said US bettors were 80% more valuable than their European counterparts.
As a result, it makes sense to invest heavily in customer acquisition through bonusing and marketing, the companies said. But there’s been some dissent to this opinion in recent weeks.
Is LTV being misunderstood?
At Penn National’s own Q1 results call, CEO Jay Snowden argued that industry LTV figures were not that accurate.
“Lifetime value is something that’s thrown around a lot,” Snowden said. “And it’s interesting because people are calculating lifetime value as if that customer is going to be loyal to you forever.”
He argued that switching costs and friction were coming down across the sector as the market matured.
“This is not like switching cellphone,” Snowden added. “This is not going from your Apple phone to Android, where Apple touches every element of your life. Switching sports betting apps takes about three minutes. You download the app, you register, you deposit and then you gamble.”
Different US sports betting markets?
It is a departure from the typical industry discourse. But it makes sense, as there are arguably two US sportsbook markets at present.
On one hand, you have the new states coming online like Michigan or Tennessee. Sports bettors in these states are early adopters. And early adopters of any tech are the most avid and therefore the most valuable – as operators have been saying
They might open five accounts for the bonuses, then decide which one they like best. That leads to a more fragmented market.
Trending toward maturity
“This is a consistent trend in digital consumer products, and part of a market’s transition towards maturity,” said 888’s US chief Yaniv Sherman.
Or, as venture capitalist Jason Bornstein put it in a recent blog: “Your customer acquisition cost doesn’t matter. The brands of the next decade will win with loyalty, not acquisition.”
Fragmentation is not really showing up in the US data just yet. The market share of the top three operators in New Jersey is the same over the last 12 months (80%) as in the total period since launch.
It is a similar story in Pennsylvania, with the top two holding a relatively stable share of handle:
But these markets are still far from maturity. They are growing rapidly and key operators have yet to play their hand.
More fragmentation on the way
Fragmentation is a familiar path in other gambling markets too. In UK sports betting, the average customer has three accounts, and 56% of players have more than one account, per UK Gambling Commission data.
Even the largest operators in the UK struggle to get much above a 20% market share.
“We expect more fragmentation once Barstool, Caesars, and Bally’s begin to more aggressively contest the market,” said Eilers and Krejcik analyst Chris Krafcik.
What does this shift mean for operators?
For Snowden, it means the winners will be those with “real structural advantages.”
What does he mean by that? He offered three examples:
- Daily fantasy sports database
- Casino database
- Loyalty via a media asset like Barstool
Snowden added: “Those are the companies that are going to have bulletproof market share as time goes by. And all of this aggressive spend on commercials and linear, I don’t think that’s going to be the business that sticks around. I think that’s going to be the business that continues to jump from app to app.”
Alternative view on US sports betting
It is worth noting Snowden might be talking his own book somewhat. Barstool Sportsbook has proven effective at entering a market and gaining immediate share, presumably thanks to the Stoolie database.
But the product is still a notch blow the “very top-tier of apps,” according to a recent Eilers and Krejcik product review.
And product is what will drive market share in mature states, according to Sherman.
“Once the initial hype dust settles, then starts the real grind of retaining players,” Sherman said. “We’ve focused on product at 888 because product is sticky. Especially if you offer a consistent experience across multiple vertical and platforms.”
It seems other operators are thinking similarly. PointsBet’s $43 million deal for Banach Technology was all about product.
DraftKings too promises product innovation once it moves to its own platform at the end of Q3. Flutter is also moving entirely onto its own platform this year, while BetMGM has made strides on product, according to the Eilers & Krejcik analysis.
Two tiers of US sports betting
It is often said “US market” is a misnomer, that it is actually a collection of individual state markets.
But in the coming years, we might see those states split. In new markets, success will be about customer databases, marketing, and acquisition. In mature markets, the battle will be fought on product.
And the winner and losers might look very different.