As investor pressure grows, operators are gradually shifting towards content-driven acquisition models.  

Patience is a virtue, the saying goes, but there is no question that even saints would be tried by the factors impacting U.S. online sports betting operators’ profitability at the moment. Of course I am referring to the long and winding path that operators are taking to reach profitability.

Many of them have said their strategies will bear fruit in the next 12-18 months and they will be EBITDA-positive at some point in 2023. In fact, if there was one leitmotif that could be picked from the Q4/full year earnings season that is currently winding down, “path to profitability” would probably be it.

The reason profitability timings have become so important is because they exert even more pressure on operators to make good on the great OSB forecasts that have been made in the past three years. But compounding this is the fact that in the past six months operators’ share prices have taken a beating.

Look at any operator’s shares, even those that are executing their U.S. strategies successfully, such as FanDuel’s parent company Flutter Entertainment, and you will see a stock that has dropped nearly 30% in the past 12 months. 

No more upside
So when major losses were being recorded but share prices and valuations were still going through the roof, investors were happy to take the uplift. Now that losses are still racking up but share prices are tanking, the screw is being turned and the heat is being felt from all sides.

In fact, it could even be argued that we are approaching something of a crunch point. Following the first post-PASPA repeal moves in 2018, to which can be added that pandemic-related rush of regulatory expansion in 2020, the industry might be at the beginning of the end of the first phase of the great U.S. online sports betting experiment.

From a quick glance at the overall view of the economics and the factors affecting the sector, it is clear the top four places in the OSB charts have solidified and are pretty much set around FanDuel, DraftKings, BetMGM and Caesars.

After that, positions five to 10 are there to be fought over by the likes of Barstool Sports, PointsBet, BetRivers, potentially WynnBet if it gets acquired; and another two or three other aspiring brands.

The OSB standings are pretty similar across both the major and smaller states, with a few local differences such as BetRivers’ top four showing in Pennsylvania thanks largely to its online casino offering and targeting of states that have regulated both OSB and icasino.

Beyond those, however, it is difficult to see how all the smaller books, for example all those in Colorado or Arizona, can expect to make significant returns.

The flipside of that argument of course is that smaller operators don’t need as much handle and gross revenues to be able to generate profits and can optimize their smaller cost base to come up with more innovative and cost-efficient recruitment strategies.

See MaximBet’s ‘lifestyle’-esque branding and hosting of Super Bowl parties, or Barstool’s merchandising drives and in-person events.       

Rising differentiation 
The combination of vast marketing expense, high customer acquisition costs and the state-by-state nature of the market means there is little room for variety currently.

This is a function of the market share ‘land grab’ that is so often mentioned when markets are in their early days and operators prioritize acquisition through promotions and bonus-led campaigns. The result is uniformity of marketing and minimal room for differentiation. 

Nonetheless, differentiation is happening, with brands such as Pointsbet focusing on product and others like Barstool Sports using internal content and its ‘Barstool personalities’ (such as Dave Portnoy and Big Cat) or, of course, the media reach of theScore in Canada to drive players to their sites.

On the product side, Pointsbet said it had successfully tested its ‘Always On’ (~90%+ uptime) in-game betting platform, and CEO Sam Swanell commented that on average those players’ bet sizes were three times bigger and twice as frequent as pre-game wagers.

He added that the group saw a 40% reduction in betting suspensions and a 44% rise in live handle. More tests of the system are set for the coming months before a full rollout for the start of next year’s NFL season.

For Barstool and its parent group Penn National Gaming’s CEO Jay Snowden, marketing spend levels are “as irrational as you could imagine” and that is why the group is focusing on its own content production teams to recruit and retain players.

Gradual shift
This is one of the reasons why we are starting to see more depictions of different customer acquisition strategies.

Moving away from big promotions and costly advertising campaigns, operators are starting to focus their attention on content-led acquisition drives. The reason is clear: sports content is a great traffic driver, and sports betting content can fulfill the same function for both sportsbooks and publishers.  

The leading operators have done this with high profile agreements such as FanDuel signing sports commentator and analyst Pat MacAfee or agreeing to a content deal with sports media outlet Outkick, DraftKings acquiring VSiN, or Penn National spending $2bn on theScore Media and Gaming. 

On the affiliate side of the industry, Better Collective paid $240m to acquire Action Network in May 2021. And when it comes to local media, Spotlight Sports Group recently signed a deal with U.S. publisher Advance Local to supply some of its online portals with betting-focused content to drive traffic to sportsbooks.

Still, all those deals are all fairly high profile, and even if they are cheaper than buying advertising space, they still represent considerable investments.

In addition, structural issues also play a part. For example, the bigger operators have huge ‘to do’ lists and it is difficult to get their focus on implementing a full-on content strategy. Meanwhile, smaller brands might be more willing to develop their content output, but often don’t have the budgets to invest in long-term strategies of that type.

As the U.S. industry matures, however, we can start to see a shift in how players are recruited. Operators and affiliates will sign more revenue share deals and content will play an increasingly important role in customer acquisition, as it has done in Europe for many years now.