Russell Karp of DataArt explores how leading US sportsbooks spend their marketing dollars, examines their strategy and results and looks for a path to profitability.
Fall and winter are intensely hot seasons for sports betting with NFL, NBA, college football and basketball, NHL and MLB post-season action. So it’s no surprise that the last three months of the year became the most expensive in terms of advertising.
BIA Advisory Services forecasted that up to $1.8bn would be spent in 2022 to promote gambling products online, with a sizeable chunk going towards sports betting. In the first week of the year alone, ad spending by the four biggest sportsbooks rocketed to a lofty $24m.
But how do these heavy marketing investments impact the sports betting business? And are sportsbooks getting a return on their investment?
Where does the money go?
To acquire as many users as possible, as early as possible, sportsbooks invest heavily in marketing. A larger share of voice, paired with attractive promotions, correlates to securing more first-time depositors. Once a customer signs on with a sportsbook, research shows they tend to stay with them.
Betting operators look for more exposure by signing deals with sports teams to have their logo displayed in arenas, stadiums and on scoreboards. The channels receiving the most marketing dollars are, unsurprisingly, TV, digital and radio.
Flooding TV screens
The more states that legalise sports betting, the more spending goes into national TV. The TV sphere, however, is dominated by several players. The data shows that there are five operators combining to hold at least 82% of market share in every state. In Michigan, where 14 operators are fighting for a piece of the market, the top five own a combined 90%.
The competition for TV exposure is even more intense when factoring in the restrictions sportsbooks face. For instance, the NFL allows only six sportsbooks to run ads across television and Amazon Prime for each game, with one ad airing before kickoff, another at halftime, and one during each quarter. There are presently five advertisers approved by the NFL: FanDuel, DraftKings, Caesars, BetMGM and FOX Bet. You do the maths; the competition for these slots is fierce.
From September 2021 to May 2022, US sports betting operators spent an estimated $282m on TV advertisements, according to an iSpot.TV report released in June 2022.
The combined advertising generated more than 18 billion impressions and, iSpot noted, over one-third of sportsbook advertising impressions were local ads. This validates our previous position that a state-by-state marketing approach is imperative due to the advantages of localisation.
Dominating online channels
Following television, digital ad spending is the second-largest medium for gaming companies. According to Pathmatics, in January 2022, FanDuel, DraftKings, Wynn, MGM and Caesars jointly spent $25.6 million on streaming, display and social advertising.
Digital is an attractive channel: user tracking and easy campaign execution allow for clearly attributable ROI and most platforms enable advertisers to minutely target their ideal audience.
However, there’s more to it. Retargeting ads allow sportsbooks to build up engagement with prospective customers over time, draw them into their own media ecosystem and then convert them into paying customers.
The ability to reach niche, targeted audiences is a key strength of online advertising. Not only does it statistically improve conversion, it also offers sportsbooks a way to demonstrate responsible marketing and abide by each state’s regulations in order to stay compliant.
Concerns about problem and underage gambling have grown as sports betting is legalised in more states and the number of users continue to grow exponentially. In fact, the American Gaming Association (AGA) published a set of voluntary standards this year, the Responsible Marketing Code for Sports Wagering, to extend “its compliance commitments” in response to these concerns.
Digital advertising, and its audience targeting features, offers sportsbook operators a degree of security in this climate.
BIA Advisory Services increased its radio ad spend forecast for sportsbooks from $150m to $164m for the year. According to Inside Radio, during the week of 5 September (the start of the 2022 NFL season) three sportsbooks were ranked among the top 100 advertisers. DraftKings led the field and were ranked ninth with 28,945 AM/FM spot occurrences, the most radio ads run by a sportsbook advertiser ever. FanDuel ranked 52nd with 11,268 ads and Caesar Sportsbook was at 86th with 6,766 messages aired.
Do large investments in marketing lead to profitability?
Rather than make a sweeping statement, let’s answer this question by looking at a few selected operators.
FanDuel spent more than $1 billion on marketing and promotions last year, and, according to parent company Flutter Entertainment’s latest financial report, has a 40% market share in the US. Flutter also noted that it gets an average one-year return of 1.2 times the cost of customer acquisition.
In fact, FanDuel is the first US sportsbook to report profitability during a single quarter, according to these reports. The company closed Q2 2022 with $22 million in earnings before interest, taxes, depreciation and amortisation from its sports betting and igaming operations. Finally, Flutter Entertainment expects FanDuel to be profitable in all of 2023.
Other operators, however, haven’t been as successful when it comes to profitability – yet.
The high spending on advertising and customer acquisition affects the margin and makes it difficult for operators to turn a profit in the first few years of operation. Sportsbooks tend to believe that it takes two to three years to become profitable. As markets mature, we expect to see greater ROI across the board.
There is urgency and pressure to become profitable.
Based on its latest financial disclosure, DraftKings has total debt of around $1.2bn. Shares fell roughly 27% following the company’s last quarterly report where it expect continued losses into late 2023 before turning positive on EBITDA towards the end of 2023.
After a bullish entry into new markets and large spending on marketing activity designed to win new customers, DraftKings’ Q2 ad spend increased 16% to $197.5m.
While still an impressively large number, this was down dramatically from a 270% increase the year prior. However, there is still significant investor concern and their timeline to profitability with their plummeting stock price as evidence.
In February, Caesars CEO Tom Reeg said the company would cut back its ad spending after a whopping billion-dollar customer acquisition campaign in the preceding months.
Caesars had run a generous promotion to entice new bettors: a deposit match up to $3,000, plus a $300 bonus. That campaign led to a 40% market share in New York, but was quickly followed by big marketing budget cuts and a concurrent drop in market share. Plans to cut several hundred million dollars in ad spending were announced a month after that promo dropped and less than a year after launching a billion-dollar, two-year plan to promote its mobile app.
The costs of fending off competition spiraled in late 2021 and early 2022, resulting in some initial impressive gains. However, as the dust is settling, analysts are questioning the sky-high marketing spending, with some saying the companies’ timelines to profitability are looking longer than previously expected.
Self-regulation and oversaturation issues
There is another issue which needs to be looked at. We are currently seeing a gold rush in terms of acquiring and retaining new bettors. Stiff competition necessitates omnichannel presence and aggressive promotions to grab sports fans’ attention – and hold it.
However, with promotional claims of “risk-free” betting and other enticing but, perhaps, factually inaccurate campaigns, came harsh public backlash.
Over the course of the year, we’ve seen big-name operators dropping the controversial term “risk-free” in favour of more accurate language acknowledging that gambling cannot be completely free of risk.
This about-turn came after sportsbooks campaigns were heavily scrutinised and, in some cases, criticised as misleading. The claims of low-risk betting and the sheer volume of advertising messages in the market have some people worried that these campaigns could lead to higher rates of gambling addiction. Industry players are also voicing concerns about increasing public backlash leading to government restrictions on advertising, similar to what has happened in Europe.
In fact, some states have passed bills to regulate advertising language around “risk-free” betting, so operators need to be wary of public perception as well as state legislation in this area.
Sportsbooks should listen to what bettors want and reach them through targeted advertising. They should be assertive and disciplined and, at the same time, not spend irrationally.
How to lower marketing costs and go profitable
With increasing pressure to turn a profit, operators seem to have shifted focus throughout 2022 from expensive acquisition campaigns to retaining customers. The looming inflation and economic uncertainty are also sure to have contributed to operators’ calculations – and will continue to do so as we go into 2023.
The good news is that there are tried and tested tactics to cut acquisition costs and boost retention. Engagement and retention go hand in hand and existing promotional playbooks can easily be adjusted to drive both metrics.
PointsBet found an innovative way around those earlier-mentioned murky “risk-free” promotions as well as ensuring new users engage with their product. It offers new customers five consecutive days of $100 second-chance bets. “You have five straight opportunities to get to know the product,” the company’s executive vice-president of marketing and strategy Rick Martira is quoted as saying.
In fact, the old adage that it’s cheaper to retain customers than acquire new ones holds true for sportsbooks. And the playbook for doing so shouldn’t surprise anyone: in-game betting, social media activity, educational content and live streaming are just some of the tactics proven to drive engagement and, ultimately, retention.
Increasing fan participation through an interactive and multi-layered experience – chat, play, compare, learn, etc. – has fast become one of the priorities for US betting providers.
In mobile solutions, operators can engage users with data-driven push notifications. Based on historical betting data and playing interest, they can segment users and send them personalised, highly relevant and timely messages. By partnering with online ticket vendors, operators can include notifications about upcoming events and allow players to book tickets on the go from the app itself. Also, real-time notification pushes based on location can offer exclusive deals on live events.
And it doesn’t stop there. A technically relatively simple addition of a newsfeed to the mobile versions of sportsbooks’ websites can educate users as well as create regular touchpoints with them.
Step in the right direction
In 2022, sportsbooks spent a massive amount of money on customer acquisition campaigns. This made sense at the time as new markets opened up and the mood of investors was buoyant. The projected growth of the betting industry meant there was plenty to go around.
But as the economy soured and one sportsbook after another adjusted their projections for profitability, marketing spends have been slashed. This is not to say the heady days of old won’t return; the US betting industry continues on its stellar growth trajectory as digital projects lower the entry barrier for first-time bettors and more states go live.
In the meantime, we are noticing a greater focus on customer retention. This should be celebrated because greater focus on customer engagement means greater focus on an amazing customer experience – this is a space where we should expect exciting innovations in the future.
To answer the question posed in the title of this article: Marketing spend will almost certainly turn to profitability – but it may be the less flashy customer retention marketing approach, rather than the highly expensive acquisition campaigns, that drives that profit.