Football season drives the sports betting business, so it’s notable that as the 2022 NFL slate gets ready to kick off, operators are dialing back on the four-figure bonuses and celebrity-focused marketing campaigns prominently featured over the last two seasons.
“[The industry is] definitely seeing an expenditure reallocation away from outsized promos and celebrity spokespeople and towards performance marketing and content-based approaches,” Lloyd Danzig (managing partner, Sharp Alpha Advisors) said.
Within the last month, FanDuel announced plans to become the first sports betting operator with its own linear television network and OTT streaming service, and Penn National Gaming announced it would exercise an option to acquire the balance of Barstool Sports.
JWS’ Take: The public markets have rotated away from cash-burning growth equities over the last year, pushing publicly traded sports betting operators to rethink their approach to customer acquisition. “Two years ago, as the market started to open in all of these states, it was about getting as many customers as you possibly [could],” Patrick Keane (CEO, Action Network) said.
Today those same operators are focused on profitably acquiring customers through content. “You saw that in the Q2 [earnings] results,” Jed Kelly (managing director, equity research, Oppenheimer & Co.) said. “DraftKings had much better EBITDA. FanDuel had a positive Q2. And you heard Caesars and MGM say in their earnings calls that they are taking a more measured approach towards advertising into football.”
The pullback appears to be impacting celebrity ambassador deals and risk-free promotional offerings, not overall marketing expenditures. The capital is being reallocated to performance marketing and content-based strategies. “The spend is the same,” said one legacy sportsbook executive who was not authorized to speak on behalf of the company. “It is just how operators are spending that has changed.”
To be clear, efforts to lower CACs with a content-based approach is not new in the industry. Penn National Gaming initially bought into Barstool Sports back in January 2020, and since then, there have been a host of other notable content-related deals announced.
While operators are optimistic content can help reduce the CACs, which range from $200-$500, there is limited evidence to date to support the notion that large-scale investments in content result in more efficient CAC metrics or greater market share than other means of marketing.
Keane explained how SEO is crucial for this type of content, because much of the audience for these articles, videos or podcasts find the content—and the embedded promo—through search. But much of that traffic belongs to affiliate networks, not the operators themselves.
That does not mean companies making investments in content are necessarily burning cash. “If revenue from sports betting doesn’t have to be your primary KPI, then you can be pretty dangerous in the space,” the sportsbook executive said. In theory, an operator may be able to leverage the programming to drive another meaningful revenue stream.
Many operators believe content can be used to retain customers too. “The reality is, if you’re a moderately sophisticated bettor, you’re going to bet with the best price and odds. You’re not really brand loyal at all,” Keane said.
Logic suggests a differentiated experience could help address that issue. An operator at least has a chance “to have a bit of potential brand loyalty if [it has] some content assets that people enjoy and use,” Keane said.
While that may be true, even an operator with brand affinity must deliver competitive pricing and odds along with a positive user experience if it wants to earn and re-earn a bettor’s business. “What you’re starting to see in our space is that the product is the most important thing,” the sportsbook exec said.
That helps explain why Penn National—despite Barstool’s large, rabid following—has less than 10% of the market share in states where it has gotten an equal start.
It is also helpful for an operator to diversify user-acquisition funnels. “The most efficient, scalable, and sustainable marketing approach appears to be a finely tuned mix of strategies across several channels and styles. This includes original content, live events, traditional advertising, and personalized messaging,” Danzig said.
The sportsbook exec noted his company is moving away from content focused on lines and picks and towards media with broader entertainment value. “When you make good content, the paid social media variation and companion pieces are nearly endless,” he said.
Celebrity endorsements deals are coming to a halt because marketing folks have come to realize they are largely ineffective in getting users to sign up for or use a sports betting product. Instead, operators should seek out authentic influencers who have proven capable of engaging an audience in the sports betting space to promote the product.
A quick sampling of various sportsbook’s promos in the days leading up to the NFL season would suggest there is going to be a lot less above-the-line spending this fall. But Keane isn’t convinced it is going to remain that way. “The reality is [sports betting] is a huge market, it’s a big opportunity and it’s the first full NFL season for New York State.”
Despite the state’s high tax rate, Keane believes operators are still going to be “pretty big” spenders in the market over the next four months. “It is too important of a time to acquire customers,” he said. MGM, Wynn and Caesars all invested heavily in the state coming out of the gate.
While New York is the biggest live fish this football season “by a wide margin,” Keane anticipates an aggressive promotional environment unfolding in some more mature markets too. “It’s still such a gold rush to acquire these customers,” he said. “The smart [operators] are going to continue to invest” in offers and promos that drive first time deposits.
Kelly is not convinced. “The legacy land-based operators are likely to pull back on advertising, and DraftKings and FanDuel are currently acting more rational.”
He did note that the current CPC environment, which is lower than it has been due to the current macro and latest crypto winter, could be a catalyst for some of the more aggressive online sportsbook operators to ramp up their acquisition spend. If either DraftKings or FanDuel did so, Kelly believes the other would likely follow.