May 18, 2022 Casino, Marketing, Results

Marketing gone mad: too much per customer?

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As operators spend mountains of cash on customer acquisition, Gaming America speaks to industry experts to find out if this apporach is sustainable.

Mobile sports betting’s debut in New York at the beginning of this year was the most anticipated since the overturning of PASPA in 2018. Following the playbook used in states across the country, sportsbooks made a mad grasp for customers, offering deals and spending on marketing in a manner that defied the laws of economics: Caesars Sportsbook would match your initial deposit up to $3,000; FanDuel promised to refund losses of up to $1,000; at WynnBet, first-time bettors were able make a $10 deposit, place a $10 bet or parlay wager, and then receive $200-worth of free bets; and the list goes on.  

 Such methods are effective ways for sportsbooks to bring in customers, to establish a relationship with a bettor so that they will keep coming back. But these methods are also very, very expensive. On average, a major sportsbook using this heavy-handed marketing will spend $100-$150 per customer. And still the results are dubious: DraftKings, for instance, dropped $1bn on marketing over the course of 2021 yet is still not profitable. Its share price may sustain itself, but its profit/loss margin remains in a stale, slumping funk.

It is so expensive that sportsbooks across the nation – even in ludicrously active markets such as New York – are struggling to cut a profit. Some have already started adjusting their marketing strategies. Caesars, for instance, spent wildly after New York went live in January to claim a market share on par with what is normally achieved by the big two – FanDuel and DraftKings. The gambit worked. Caesars was second in New York, behind only FanDuel. But its place came at a steep price, a fact not lost on shareholders: within hours of announcing that it would be curtailing its advertising spend, the company’s stock price was up by 6%.  

Defenders of these marketing ploys are adamant that these are temporary measures, put in place to try and stake a claim in what is still a fledgling industry, a Wild West-like market that is yet to reach full maturity. No one, after all, really knows what the future of the industry looks like. But for how long can this marketing madness continue? What purpose does it serve? Is it creating a mirage, whereby marketing dollars prop up the entire sports betting industry? And, since it is indeed unsustainable, what comes next?

Kyle Scott Laskowski, who as VP of North America Sports for large affiliate XLMedia, is uniquely positioned to detect patterns and project future trends in the industry. He is adamant that there is no mirage and that, thus far, the marketing has been adequately fulfilling its purpose. But, seeing the issue in terms of loan-to-value (or how much is spent against the worth of your holdings), he concedes that the verdict is still out surrounding how well it works.  

As Laskowski told Gaming America: “If the primary goal of the ad spend is to acquire customers, and that is in fact what happens, then the effort is successful. It all depends on loan-to-value, and at this point, I’m not sure anyone really knows long-term    player value.”

In order to play the game, you must take the long view. “If you listen to DraftKings talk, they claim to be profitable by year 3 or 4 in New Jersey and Pennsylvania. That means that short-term losses, even large ones, will break even in a few years.” 

It is a sad irony, though: just as the major sportsbooks need to be trimming their sales and spending less on advertising is also when attracting new customers is going to be increasingly costly. Much of the initial spike in sports betting came from people who had been placing bets for years, albeit illegally and in an unregulated market. Now that they are on board, how will the customer base continue to grow? 

Bill Miller, the President of the American Gaming Association, summarized this conundrum neatly to Gaming America: “We saw last year that there was a huge spike in the early weeks of the NFL season; but then, as the season went on, you saw a decline. Once you get the low-hanging fruit, the early customers, all of a sudden it becomes harder and harder to convert someone who is watching an ad into a customer.”

Some, though, emphatically disagree with this indiscriminate marketing. Some even scorn it. Enter Thomas Rosander, CEO of Real Luck Group, an esports stalwart out of Europe that has also ventured into the much-hyped Ontario sports betting and iCasino market. He was blunt when asked by Gaming America if this aforementioned marketing approach was sustainable: “No. I think companies have very little imagination, this is what they know – they have the money – so they are trying to gain as large a market share as they can.”

Rosander sees a better way. It is a way, however, that requires not just adequate data models, but also control over that data, something which the big players in the field most certainly have. It’s also about having a relationship with traffic sources, i.e. affiliates of the European mold. He goes on: “What we do is buy traffic and then make sure we have a margin on it; because there are a lot of traffic sources out there. They are mainly interested in the smaller brands. They send traffic to the big ones, too, but it’s all about conversion and retention. If you develop your conversion/retention together with traffic sources, it’s of course better than just having a big black box where you send your traffic. This way is more concentrated and coordinated.”

With these targeted methods – and not the heavy-handed acquisition of customers – Rosander believes he has the right vision: “For us, I see an opportunity. There is a chance for us to do what we want to do. I see a lot of panic now in the business. For instance, we saw Penn National buying theScore for an insane amount of money. That is such a clear indication that they are thinking: this is so expensive, what are we going to do? Ah, we will buy a big user base.”

Laskowski agrees that marketing must become more data-driven if betting operators are to be viable in the American market: “At XLMedia, we own and operate and network of websites, along a network of partner sites, and work with sportsbooks to refer them players. We are only paid when a player signs up a deposit — this is a much more efficient and trackable route than spending millions on a TV ad. So I think you’ll see more targeted spends over the long term.”  

The general verdict is that this ‘spend large’ model will continue to be the status quo, especially with states that are newly arrived on the market. It helps to remember that sports betting is active in just over half of the states in the country, and that there are still major markets – some would say the major markets – to come on board. 

NASCAR Sports Betting Managing Director Joseph Solosky noted: “As states legalize, and this is not a fully mature market in terms of where you can be and where you can operate, it will continue to ramp up; especially in states like Texas and California, whenever they legalize. But it will definitely taper down over time and we’re already seeing that in terms of individual cases.”

There is still a final element to this debate: the issue of problem gambling. This avaricious marketing, detractors claim, encourages sports betting in an irresponsible manner. Here is $1,000 in refunds, $300 to spend on sign-up, let us get our tentacles wrapped around you while you are still vulnerable and unsure. Let us plaster you with ads before a championship game which, previously, you had never thought to bet on. Scruples inevitably emerge. And this is something that gaming companies must worry about because, despite any stereotypes, problem gambling is not good for business. 

Keith Whyte, Executive Director of the National Council on Problem Gambling, firmly believes in the negative potential that aggressive advertising can have on the bettor.

“Unfortunately, the culture of the United States is such that this advertising has very few restrictions. For instance, language around risk-free bets is incredibly popular. We don’t support that language. We think categorizing that language as ‘risk free’ is highly misleading. We do see marketing spend tamp down once a market starts to mature. And I don’t know if these offers are going to be here for a long time, or if they’re necessarily sustainable; but, at the moment, many Americans who are new to sports betting are being bombarded with ads that may have sufficient negative impacts because of the way they’re characterizing sports betting.”

So, the dialogue appears to be evolving. There appear to be two approaches to marketing. The first is the marketing blitz that comes as states go live. This approach is marked by great expense, one which cuts into the ability for major operators to turn a profit. As well, the specter of problem gambling rises with this blanket marketing. The second is far more targeted and data-driven. It seems to be showing a path to what marketing will look like in a more mature market when, hopefully, sportsbooks will figure out how to be profitable.

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