MVP race: Sportsbooks vying for early adopters
Raising his voice to be heard over the din of a crowded bar at a Las Vegas casino late last year, Fox Bet CEO Robin Chhabra ticked off the many ways in which sportsbooks work to acquire customers in the highly competitive, burgeoning U.S. market.
There are free-to-play contests, such as the ones his brand promotes during Fox Sports programming. More common are other well-established tactics: deposit matches for new accounts; affiliate marketing that pays other sites for referrals; sponsorship activation; and, of course, blitzing the airwaves in states as they come online.
Just as algorithms have changed the way sportsbooks set and adjust odds, predictive modeling has changed the way they approach customer acquisition. Dollars spent on marketing today are judged against the signups they land, and the money those bettors are expected to deliver over the long term.
“We have a lifetime value model, and those are getting better every day,” said Chhabra, whose company built the U.K. sportsbook Sky Bet into a popular site on the back of free-to-play games promoted during English Premier League programming. “In the U.K., after three or four bets we know if someone is [high value] or not. That level of accuracy isn’t here yet today. But we have that infrastructure and those models will get better. And we’ll be very scientific. If we can’t get the return we want from a channel, we won’t spend money on the other end.”
Like many digital businesses, sportsbooks balance their marketing spend against lifetime value. An expensive promotion — such as the now common offer to match deposits with a refundable risk-free bet of $50 to $500 — can make business sense if it attracts a customer who will bet large amounts with frequency. A cheap one, such as a free-to-play contest, can be a waste if the players it attracts don’t graduate to betting real money. Sportsbooks use algorithms to predict which is which.
In an investor presentation released last month as a precursor to going public, DraftKings said that in the second half of 2018 it acquired 54,467 customers in New Jersey at a marketing cost of $20.2 million, an average of $371 per customer. DraftKings said it expects those customers to have an average lifetime value of $2,614, or 6.9 times as much as it cost to get them to sign up. In the first half of 2019, it said it spent $6.4 million to acquire 40,389 customers it projects to be worth $1,957 each, or nearly five times what it cost to bring them in.
DraftKings said it expected to recoup 90% of its marketing spend in the state by the end of 2019.
“This is when you’re going to acquire some of your best customers, so everybody is going to want to be more aggressive,” said Jason Robins, CEO of DraftKings. “You’re able to justify higher cost per acquisition because those are the customers that have higher lifetime values. This is what we saw in fantasy. As we went deeper into the market, the LTVs started coming down so we had to take our CPAs (cost per acquisition) down. That will be a natural evolution.”
During a capital markets day last March, FanDuel parent company Flutter Entertainment predicted a payback rate of 12 months for its unspecified U.S. marketing spend. It attributed that pace largely to cross-sell from its DFS and TVG horse betting channels.
To some who have operated sportsbooks outside the United States, that reported rate of payback has come as a surprise. Chhabra said that while the industry standard for payback in more mature markets ranges from 12 to 18 months, he expects early competition in the U.S. would drive higher marketing expenses, pushing that timetable out to two to three years for many operators.
“What tends to happen is that the early adopters choose FanDuel, so you don’t want to inhibit yourself by having too low a CPM target,” Chhabra said. “The DFS companies had the right demographic and they were basically mobile native. So they had brand relevance, but they also had a database that was absolutely rock solid. And they’re good operators. You’ll have to move aggressively if you expect to compete against them right now.”
Clearly, FanDuel and DraftKings have benefited massively from their brand recognition and existing DFS customer bases, emerging as market share leaders in four of the five new sports betting states that have licensed more than one online operator, including New Jersey, where they combined to account for 83% of online revenue (see chart).
While there certainly are distinctions between sports betting and DFS, the early success of FanDuel and DraftKings makes it clear that there also are parallels. FanDuel CEO Matt King pointed to several lessons from DFS that could be applicable to U.S. sports betting. Though the two DFS companies provided almost identical products, King said users generally remained loyal to the one they tried first. The companies also put too much money into marketing, King said, and not enough into product innovation.
“That’s one I’ve really internalized,” King said. “That lesson really makes you make sure you’re always scaling and delivering consumer-facing features that drive differentiation.”
Though sportsbook sites are similar in the basic betting services they offer, they can create variance through promotions, such as odds boosts that offer higher payouts on certain games. FanDuel is known for boosting odds on the local teams in each state. Fox Bet boosts odds on the picks of its on-air talent.
“We boost the odds on the home team because there’s a vein of interest there,” King said. “In a market like New Jersey or Pennsylvania, where you have the same customers every day, you better make bloody sure it’s interesting for them to do it every day or a couple of times a week.”