“What to do about the two elephants in the room?”
That was what Truist Securities analyst Barry Jonas wondered about the U.S. sports-betting pachyderms, FanDuel and DraftKings. On the eve of their online launch in Massachusetts, he spoke with HK Gambling Capital Senior Analyst Ed Birkin over lunch and came away with several considerations.
Most notable was the observation that predominance over a mature online-sports-betting market was nothing new to the English-speaking world. Two operators enjoy 66 percent of market share in Australia and 58 percent in the United Kingdom. It doesn’t have to be that way. France, for example, has a 47 percent market concentration, while Italy is comparatively wide open at 26 percent.
The U.K.-based Birkin told Jonas, “Market share can evolve over time, either slowly or as the result of a specific event,” whether through organic growth, as was the case of SkyBet in Australia, or through mergers and acquisitions, as Entain did in the British Isles.
While Birkin believes that further M&A activity could shake up market dynamics in the U.S., he cited two other potentially landscape-altering developments. One would be “a change in market dynamics as operator focus shifts from top line to bottom line, with a decline in promotions and potentially lower product investment.” The other is “increasing customer sophistication, meaning product becomes more important than brand,” possibly redounding to the benefit of smaller operators.
Birkin likes Caesars Sportsbook best for making inroads into the virtual FanDuel/DraftKings oligopoly, followed by Barstool Sports, bet365 (“best international player”), and FoxBet, whose legal difficulties appear to be in the rearview mirror. Jonas prefaced Birkin’s remarks by stating that he continued to favor Boyd Gaming, Caesars, and Penn Entertainment/Barstool, given that all were at or near profitability, “with minimal credit in their valuation.”
However, the big operators might want to concern themselves with “a second wave” of promotional wars, as Barstool has stated its intent to ramp up promo spending and Fanatics will be “offering considerable amounts of promo dollars” to acquire customers. This could intensify the pressure, Birkin thought, on second- and third-tier providers to reciprocate. But he “believes the current market leaders will re-attain customers in the [long term] simply by having and importantly maintaining a superior product.”
As a sign of the relative immaturity of the U.S. market, free bets have averaged 39 percent of gross gaming revenue, according to Jonas. By contrast, they hover between 10 and 15 percent in Europe. The American numbers mean “actual customer losses in the past year are -39% lower than the reported gross market win. H2 does point out that there has been a reduction in same-store promotional activity in the past year. … The wider question may be what happens to handle volumes as promos dip down further and further.”
