FanDuel, DraftKings and BetMGM are the top three online sports betting brands by gross gaming revenue. According to Eilers & Krejcik data, they collectively controlled 77% of the market over the trailing 12 months (Aug ’21 to July ’22). So while it’s fair to suggest they are among the industry’s winners to this point, it’s premature to declare the other two dozen or so companies competing for a piece of the national market losers.
“Impending consolidation and the ongoing shift from aggressive acquisition to lifetime value and retention, combined with more states legalizing and rolling out sports betting and online casino, and [the next phase] gets really interesting,” Howard Mittman (president, 888 U.S.) said. “The real race hasn’t even begun.”
It also depends on how the operator defines winning. While some need to finish in the top three to justify their marketing spends, others are likely to be content with having a profitable business at a smaller scale.
JWS’ Take: Sports betting and online gaming remain nascent industries in the U.S.—in internet terms, they have passed the end of 1.0 and are approaching 2.0, according to Mittman—and consolidation is expected in sport betting’s next chapter. Some of the smaller operators are likely to be swallowed up by larger companies seeking scale, while others may voluntarily exit the market after concluding the juice is not worth the squeeze.
That will change market dynamics at the base of the pyramid. “It’s important to remember that consolidation doesn’t necessarily result in corresponding share gains,” Chris Grove (co-founding partner, Acies Investments) said.
The ongoing industry-wide pivot away from the growth at any cost will have a similar effect. “Brands that have focused on spending for market share are going to have to make a shift to spending for profitability” in this next phase, Mittman said.
As we have written, operators are increasingly taking content-based approaches to reduce cap costs, enhance engagement and build IP; big states such as California and Florida are likely to legalize online sports betting at some point, too. But the biggest change coming in 2.0, according to Mittman, is the rise of online casino products.
“Sportsbooks are the appetizer, casino is the entrée. That is where the money is,” Mittman said. “Roughly 70% of gross gaming revenue for operators globally comes from casino, not sportsbook.”
Sports betting is now legal in 36 states, while online casino is live in just six. And yet, Eilers & Krecjik Gaming data shows sports betting revenue ($4.3 billion) only slightly outpaced online casino and poker revenue ($3.9 billion) in 2021.
One of the reasons the online casino opportunity is so great is that operators are not beholden to the sports calendar. While a sports fan may watch a game a day, a blackjack or poker player could in theory play hands around the clock. There are also more opportunities for an operator to engage a casino player in-app. Online casino has also generated larger profit margins for most at-scale European and U.S. operators to date.
To be clear, we are not suggesting that a changing of the guard is on the horizon. Betting 1.0 winners are likely to continue eating up the bulk of the market share in 2.0.
But in an industry as large as gaming is, meaningful businesses can be built by niche players.
While FanDuel, DraftKings and BetMGM will likely continue dominating the bulk of the market share as sports betting moves into 2.0, there’s still space for meaningful businesses to be built by niche players.
“[Smaller operators such as 888 are trying to] beef up their offerings and build credibility, brand, and presence until online casino goes live in more states,” Mittman said. “When that happens, it will be game on.”
888 believes it can take online casino market share by delivering a better product than its competitors without frenzied launches, wild bonusing and multi-million-dollar marketing campaigns to acquire players. But 888 is not competing to be the market leader. It is fighting for respectability, market share and a chance to be profitable, which exists because the business model is comparatively light on marketing spend.
“We think we can do some things nobody else is doing and give ourselves a real, significant chance to compete in the space,” Mittman said. The operator plans to roll out a series of original games, offerings and experiences in the months ahead. The company is also avoiding what it deems to be vanity states, such as New York, California and Illinois.
888’s goals include profitability and reaching a market share level on par with operators such as PointsBet, Barstool and BetRivers. “FanDuel, DraftKings and MGM have 84% of the market share in Virginia,” Mittman said. “But the remaining 16% left is still a lot. If we can be one of the three or four brands out of the other 11 operating in the state, it is a home run.” The company is currently running sixth among that group.
The operator believes it has identified a brand and strategy approach that it can ride on its “march to the middle.” 888 is targeting the 40-plus fan who bets casually or hasn’t traditionally been a bettor at all. This audience has higher household incomes, reads Sports Illustrated and are loyal users, meaning they are not chasing bonus offers.
“From an ARPU standpoint, and a lifetime value standpoint, we make significantly more money on customers 40+,” Mittman said. “We make a really good amount of money, 40-60. We make great money 60+.”
Of course, 888 is not the only brand targeting the 40+ demo. The retail databases of BetMGM and Caesars, along with several other brick-and-mortar casino operators, are likely heavily populated with older members.