Has US marketing finally rationalized?

On DraftKings’ Q1 earnings call earlier this year, chief executive Jason Robins reflected on how his business had approached marketing since legal online sports betting launched in the US.

“We always stayed disciplined,” Robins said. “We never went nearly as far as we saw some of our competitors going with the aggression of new user offers.”

Robins was discussing the results of a quarter in which DraftKings spent $321.5m on marketing.

But his comments weren’t way off—DraftKings’ competitors’ spend was at least comparable. In the US, the definition of “disciplined” spend has been loosened significantly.

As Lloyd Danzig of Sharp Alpha Advisors explains, the repeal of PASPA was almost a perfect storm for an unprecedented level of marketing activity in the early years of legal sports betting.

“The size of the built-in sports betting audience, which was unlocked by PASPA’s overturning, fueled a customer acquisition gold rush in which competitive forces drove marketing expenses up significantly,” he said. “The importance of gaining initial market share, staggered state rollouts, and the expected lifetime value of customers has helped sustain high levels of customer acquisition costs.”

So now, when investment is harder to come by and those that do invest want returns quickly, what does it mean when operators say they’re entering a new era of more disciplined spend?

Certainly, operators have started talking about slowing down their marketing outlay.

For example, PointsBet announced a number of marketing hires this year that it said would lead a strategy to pivot away from “promos and ad blitzes.”

Caesars, an operator that was ultra-aggressive in its marketing in 2021, announced at the start of this year that it would “dramatically curtail” ad spend.

Even DraftKings, arguably the face of the ad-heavy strategy of US operators, said it had “dialed back” its marketing and promotions in the second quarter of the year.

But what does this new era of advertising look like?

Have operators now found cost-efficient and creative ways to attain and keep customers, or is it much the same as before, with the promotional dollar cannons merely dialed back down from 11 to 10?

WHAT DOES THE DATA SAY?

Data on advertising spend from media monitoring giant Nielsen suggests that if not a slowdown, there has at least been some kind of plateau. In the first quarter of 2021, operators spent $153.6m on television ads alone.

Meanwhile, in the full year up to July 31 2022, Nielsen representatives told iGB that spend reached $618.7m.

That’s almost exactly level with the Q1 2021 run rate, despite new states coming online, and suggests peak spend likely came at some point during the past year, before a slowdown in recent months.

But it’s still pretty high—especially when you remember the amount spent on all of the various other forms of marketing.

For comparison, in just a couple of years, the sports betting industry rose from virtually no advertising to almost match the beer industry, which spent $870.7m on television ads in the same year. Betting is still a long way behind the very top advertisers such as automobile manufacturers, which spend around nine times as much, but the sharp rise has been jarring to many.

Why the high spend? Well, the customer profile of US sports bettors plays a part, as does the number of people interested.

“The usual betting customer falls more in a high-income bracket,” Jon Stainer, managing director of Nielsen Sports in the Americas, says. “About a quarter of the US adult population has some form of interest in betting. And obviously that interest skews higher among those that are fans of sports.

“And where they’re targeting now is the non-bettor, and seeing how they can turn them into casual bettors.”

But beyond that, a key factor is that betting customers are naturally more likely to be engaged with sports. That relationship means that operators know where to find their customers, so they may see greater returns on their advertising dollars.

“The betting operators will be thinking hard about target audiences and the best way to reach them,” Stainer says. “There’s a laser focus on them to reach young, high-household-income men who are tech-savvy.

“What it all comes down to is that these operators will be taking a really forensic view. And they’ll be looking at all the data on that.”

Stainer does acknowledge that operators might now be pulling back from classic sources of advertising like television ads. But, he says, the next phase may still involve heavy spend, merely put towards different channels.

“I think it’s going to be super interesting here in the US, because we’ve gone from betting companies coming onto the scene and pushing awareness, but now we’re going into the second phase because we need to keep customers sticky and in our book,” he says. “In those markets where it’s legal, we’re entering stage two now.”

That covers traditional ads, but what then of bonuses?

FREE MONEY

In terms of bonuses, few pay more attention to the environment than Ozric Vondervelden, co-founder of bonus consultancy Greco. Formerly the mastermind of a large bonus abuse operation, Vondervelden has since turned gamekeeper, helping operators to reduce their potential exposure to bonus abuse.

And bonusing in the US is the highest he’s seen.

“I think it needs to be contrasted to other markets, and what those markets have experienced in the past,” Vondervelden says. “So the US is offering far more value than I’ve seen anywhere else, and looking at what I’ve seen in other markets, this level of incentivization can manufacture its own problem.”

How big are we talking?

“We did some analysis across New Jersey recently, and it turns out that the combined value of all welcome offers was over $18,000,” Vondervelden says.

New Jersey would offer more bonus value than most, thanks to its large number of operators and it being one of the few states where online casino is legal. But combined bonus values well into the thousands are common across the nation.

In addition, Vondervelden says that it’s not just a few operators with large cash reserves firing bonuses: it’s virtually the whole industry.

“I think a marketing culture has been built where you have to compete on this playing field,” he says. “I think that’s driven by investors who want to see player bases growing. But I think that even besides bonus abuse, it can promote disloyalty. There’s no incentive to play with an operator when you can just go and take another offer from another operator.”

But is it starting to change? Vondervelden says there might be early signs of the tide turning.

“I’ve seen some of the bonuses reduced,” he explains. “It seems like we are at that turning point where there’s more of a focus on retention.”

The problem is that it may not really matter: the damage has already been done. A number of customers who see these large bonuses will be incentivized to learn how to exploit them. Even when the figures come down, substantial bonus abuse will continue, he argues, because of the number of people who will initially join those partaking in the activity.

“What comes from high value, is generally the bonus abuse community grows as people upskill. In the US, it’s a very small leap from playing a casino offer to then realizing that you can just play similar offers with other operators,” he says. “There’s an incentive there for people to upskill and learn how to exploit those processes, and that’s a skill that doesn’t go away, so it becomes a long-term burden.

“So in the UK as an example, we had similar value to what you’re seeing in the US, but not as much. And now 20 years later, we’re still dealing with the consequences of that, despite the value having dramatically reduced over time.”

And it’s not just American players learning how to take advantage of bonuses.

“What we’re seeing is that there’s a lot of European players—in fact there’s a whole forum of European players moving to the US to take advantage of this value, or finding ways to remotely access US computers to take advantages of the bonuses there.

“When you’re talking about this kind of money, there are people more than willing to relocate.”

CREATIVE SOLUTIONS

But while most operators have talked about toning down marketing spend, one of them has remained steadfast in keeping its ads on TV. And that brand is the comfortable market leader.

FanDuel—helped by the cash reserves of the Flutter Entertainment behemoth—has attempted to take advantage of the reduced demand for ads, hoping to acquire an even larger share of eyeballs.

“We’re driving very hard on customer acquisition and we’re very happy with both the acquisition costs and lifetime value dynamics,” Flutter chief executive Peter Jackson said after the group’s Q1 earnings report. “So we’re continuing to push really hard on acquisition. Other people seem to be stepping back but we’re seeing big opportunities and we’re really leaning into it.”

Not only has the business earned a 51% market share in markets where it is active, but it reported a positive earnings contribution in Q2 even after accounting for its marketing costs.

But its strategy isn’t something that easily translates for businesses without that kind of scale.

“The path to profitability is much clearer for industry leaders with significant market share who can take advantage of economies of scale, national marketing campaigns and robust cross-selling opportunities,” Danzig notes.

While a Flutter-owned brand can reap the rewards of just continuing to advertise, it’s not so easy for other operators, which have instead tried to find new approaches.

Maximbet, for example, has attempted a strategy based on experience-led events, such as VIP parties featuring celebrity guests.

MaximBet vice president of brand marketing Doug Terfehr says aiming for something different to acquisition bonuses wasn’t enough; instead the business looked for marketing strategies that very specifically rewarded loyalty.

“Our entire position is specifically about benefits beyond that first bonus. The aim is retaining [and] sustaining customers with courtside seats, amazing parties with celebrity guests, experiences like that.”

At the same time, the business has also aimed to focus on smaller-scale influencer marketing, having offered a name, image and likeness deal to every female college athlete aged 21 or older in Colorado, in the hope they will become brand influencers.

“It helps working with influencers your customers trust,” he says. “I don’t have to give you some impossibly good deal to sign up if there are people that you follow and you trust telling you that they trust MaximBet.”

Even then, though, Terfehr notes that some degree of bonus strategy will always be a requirement.

“We still have to compete with some bonuses and offers and odds boosts—it’s like having a value meal at a restaurant. So we still compete to some extent but it can’t be the only thing,” he says.

“The benefit though was when we came in, we had a different approach, so we weren’t setting an expectation of a huge bonus.”

PERFORMANCE FOCUS

Danzig, meanwhile, says that one major change in strategy is an increased focus on affiliates as operators look to be more cost-efficient.

“Marketing spend is down significantly year-over-year, resulting in expanding gross margins,” he says. “Investors are far more focused on profitability and unit economics than they were at this time last year.

“In particular, expenditures on betting promotions and bonuses as well as celebrity spokespeople have been reduced. Most operators are increasingly focusing on performance marketing campaigns and affiliate relationships from which a direct line can be drawn to revenue generation via new users.”

But even the affiliate space is crowding. The demand for Google ad space for any popular keywords is high, leading to high costs. Climbing to the top of the SEO ladder for any meaningful search terms, meanwhile, takes enough work that again the costs represent a major challenge to many.

“Usually, what I see in performance marketing especially is that when all the players want to go into the market at the same time, the auction goes a little bit crazy,” Asbjørn Bieling-Hansen, director of paid media at Gaming Innovation Group (GiG), says. “And it’s the land of opportunity, so everybody goes in thinking ‘This is going to be the next big thing’ and they invest a lot.”

The challenges, he notes, are exacerbated by the fact that affiliates also compete in the most popular spaces with many of the operators they work with, who also hope to gain customers organically.

So affiliate businesses like GiG Media have also been looking for alternative ways to reach customers. The business revealed in its Q2 earnings report that it had found a great deal of success from alternative acquisition channels, such as advertising on audio streaming platform Spotify.

“I have this sort of mantra in performance marketing: it’s about money in and money out. Even though we maybe have smaller margins than the operator, it’s about trying as many things, in as many places, and seeing the fallout.

“And it’s very exciting to me when something like TikTok blows up, because I start to think, ‘How can this be monetised?’”

Finding these channels can be made a little bit trickier, tho ugh, by the fact that affiliates may not always have the tools to find out all the details behind each channel’s performance.

“Because of the way affiliate marketing works, we’re probably a little bit behind many other industries on what we can do data-wise, tracking-wise,” he says. “I think for the operators that’s no problem, but it requires a lot for an affiliate to understand.”

On the other hand, though, it means that working out which channels can be most effective can almost be an interesting kind of puzzle for Bieling-Hansen.

“It’s kind of like a Sherlock Holmes thing, thinking of how we can capitalize,” he says.

FUTURE INTEGRATION

So has marketing spend decreased? It definitely seems to be the case.

“I think if you talk to anyone in the industry [who] was a part of the early adoption of sports betting here in the US, there would be a general agreement that the initial investments were tough to sustain,” Terfehr acknowledges.

“The category overall is starting to right-size. The promotions and offers that are being offered to players—ourselves included—are smaller now.”

But the figures are still high. Will it continue to slow down and hit levels more in line with other markets?

Danzig thinks that instead, we may see an entirely new movement—a world where sportsbooks start to look more like media businesses such as ESPN.

“Over time, operators will start to look more like media companies themselves as they seek to vertically integrate user acquisition funnels,” he says.

FanDuel has already taken steps in this direction, announcing the launch of a new TV network.

“They’re thinking a lot about this,” Stainer says. “They’re launching their own TV network and OTP platform. There’s going to be a big focus around driving content, driving familiarity and driving education.”

If that view of US customer acquisition comes to fruition, questions like, “Are sportsbooks advertising too much?” may not even be relevant.