Igaming Focus: Scale and brand identity signal success in the U.S. market By Jake Pollard, CDC Gaming Reports December 21, 2020 at 11:00 am Scale is vital in the U.S. igaming market, but having a strong brand identity that is easily recognizable could be just as valuable and, arguably, is even rarer. Scale is often mentioned as one of the key features that online betting and gaming operators must possess if they are to be successful. In the case of the U.S. market, this is even more appropriate. The sheer size and potential for the U.S. igaming industry, even as it operates in individual state-sized chunks, remains above anything else in the world. The ability to leverage that reach across regulated states will surely be one of the key factors in determining market leaders in the coming years. Flutter Entertainment chief executive Peter Jackson alluded to that point when discussing the company’s acquisition of an extra 37.2% of FanDuel for $4.1bn, taking its ownership of the leading U.S. online sportsbook to 95%. Jackson said FanDuel was “the highest quality online asset and the deal has been done at a major discount (and) delivers best value for our shareholders”. But, just as important, the agreement provided Flutter with added “flexibility, scale and reduces complexity in our corporate US structure”. The Flutter boss added that, with marketing spend driving operator losses currently, it was important the group retain budgetary discipline. TAM potential But while acquiring market share and the cost that comes with it is part of any early-stage market, Jackson pointed to the total addressable market of the U.S. as an indication of its potential. In other words, major brands like Flutter, DraftKings, and BetMGM are keeping their eyes on the long-term potential of the market. In particular, as U.S. gross gaming revenues reached $2.5bn in 2018, they are set to grow to $7bn in 2020 and $9bn in 2021, with $5.6bn of that total generated by sports betting volumes. As a point of comparison, combined gross gaming revenues for the UK, Ireland, and Australia in 2019 were $9.5bn. Jackson also pointed out that in 2021 sports betting would be available to 33% of the U.S. population (approximately 108 million people) and that for every 5% of the population that is added, an extra $850m in TAM was added to the sports betting industry. Clearly when scale is added at such volumes, the growth potential is clear (as long as execution follows, of course). Marketing and sponsorship are key in achieving scale, and all leading brands have been massively busy signing media and betting partnerships with sports teams and networks. But while those gather the most attention, the key to driving profits will be the traditional qualities of balancing budgets and promotional spend and having strong activation and retention policies that maximize player lifetime values. A quick look at FanDuel and DraftKings’ third quarter updates shows how much this spend affects operators’ bottom lines. Competitive marketing DraftKings’ revenues rose 42% on an annual basis to $133m during the third quarter, but marketing and promotional expenses of $203m led to group losses of $197m, up from $160m on the previous quarter. FanDuel meanwhile said it would hit more than $1bn in U.S. gross gaming revenues in 2020, “a first for an online operator”, Peter Jackson said, and net revenues of more than $850m thanks to better-than-expected new customer volumes. But, like its nearest rival, Flutter’s marketing investments meant it will incur EBITDA losses of between $211m-$238m in 2020, compared with previous guidance of $185m-$211m. Stating the obvious, those figures show how competitive the U.S. market is at the moment. In addition, the likes of BetMGM and Caesars-William Hill will have their own plans. But if two major operators, one of them having raised $1bn on the markets in the last couple of months, are recording such losses, it’s not difficult to imagine what smaller brands are experiencing as they fight to establish themselves. Having said that, the prize is surely worth the effort. Even a small percentage of $7bn-$9bn market is not to be sniffed at. Which brings us onto Penn National Gaming’s Barstool Sportsbook, headed up by ‘Stool Presidente’ Dave Portnoy. The company burst into the top four in its first month of activity in Pennsylvania in October, recording handle of $63.8m and 12% market share. Barstool-PNG Again, the reasons for such a strong showing seem clear. Portnoy’s high media profile and at times outrageous stunts and comments act as the perfect primer for the group’s target audience of young men who are keen sports fans and like a bet. Portnoy’s media presence (or savvy) makes for easy and plentiful content. Notionally it’s about betting, but really it covers anything that is (even if only vaguely) sports- or celebrity-related or just plain goofy. It also gives Barstool something many other brands would love to have: a widely recognizable face and strong and distinct brand identity. As if to prove his cross-over credentials, Portnoy appeared on Fox News last week to discuss his $1m relief effort for restaurants hit by pandemic closures. In some ways Barstool Sportsbook is reminiscent of the UK and Irish brand Paddy Power (part of the Flutter group) of 10-12 years ago, which at times could be hugely funny, but would also attract major controversy, and attendant publicity, with dubious jokes and marketing stunts. Still, such exposure is hugely valuable—just think of the ad spend it represents. And while having one person embody a company is not always ideal, the combination of Barstool’s social media presence and parent company Penn National Gaming’s national footprint make it a serious contender. As the market takes shape in the coming years, it will be fascinating to watch it evolve.