When JMP Securities previewed the new NFL season just before opening weekend, many of the forecasts it included in its update were expected, but its observations about how smaller operators may fare in the coming year were of particular interest.
Notably, JMP said there is further room for player acquisition and adoption of sports betting and that New York, Louisiana and Kansas, jurisdictions that have regulated sports wagering so far in 2022, are adding another 9% (c25 million Americans) of the U.S. population to the ecosystem.
JMP explained that new state launches and low penetration rates would provide the space “for ample user growth”. “We believe active users have surpassed 10 million in the U.S., while future user growth will come from increasing penetration rates, states entering their first full football season (NY, LA, KS) and another 9% of the U.S. population set to launch sports betting in the next year.”
In total, around 48% of the U.S. will have access to an online sportsbook by the time of the next Super Bowl in February, ”while California remains a growth catalyst, which can grow the market by another $2.6bn to $2.9bn if passed during the November elections,” added JMP.
Marketing spend is expected to rationalize this year and JMP said levels of promotions will slow beyond the start of the season (i.e. this month), which is the most important time of the year for user acquisition “until NCAA Bowl Games and the NFL Playoffs”.
New states are coming on stream and faster adoption rates are anticipated as the industry’s profile has risen significantly in the past two years. As a result, JMP expects “promotions as a percentage of gross gaming revenue (to be) elevated in September, but will move through the season at levels under the prior year, with operators not chasing unprofitable customers”.
Beware the underdog?
Of most interest to this reporter, however, were its comments about smaller operators gaining further market share; or not, as the case may be.
The analysts commented that it is highly unlikely that the small to medium-sized brands will be making further inroads when it comes to acquiring market share. In fact, outside of FanDuel making further market share gains, “share has been stable across the industry over the last year,” they said.
Meanwhile, the only “main drivers of competition vs. last football season” will be big challenger groups with major land-based presences such as BallyBet, which is due to rollout its 2.0 betting app, and Caesars, which is expecting big things from its new Liberty sports betting book tech stack being launched nationally.
But with a product that is so commoditised, a user experience that has vastly improved across the board in recent years, “DraftKings, FanDuel, and BetMGM’s scale of their acquisition funnels, balance sheets, and, most importantly, tech stacks, help insulate market share from smaller competitors”, JMP pointed out.
As a result, JMP said it is “difficult to see the top players conceding share to smaller players in the near term” and predicted that “smaller sports betting focused operators (<1% share) will exit the business as we progress through the season given the capital requirements to compete.”
The only concession it makes to challenger brands is towards “new niche products evolving across the industry” such as Betr or Underdog Fantasy – but this is because they offer a truly differentiated product.
This is relevant to groups such as Kindred. During its Capital Market Day held in London, UK, last week, it announced that the U.S. would be its main focus in the near term.
The group’s Unibet brand is licensed in six states (including Ontario) and has market access agreements in place for three more, including California, should it regulate sports betting. Chief Commercial Officer for North America, Nils Andén, said it will aim to reach 10% market share by 2026.
The group’s Q2 figures showed that it generated $8.2m in GGR from the U.S. When asked how Kindred would compete there, Anden didn’t provide much by the way of hard details.
He said the group “would not over-invest”, knew how to optimize its marketing and acquisition campaigns, and would benefit from a calmer environment following the “advertising and incentive wars” that have made the past few years so difficult for operators to be profitable.
He added that Kindred would focus on “multi-product states” where OSB and icasino are both regulated, and those that were likely to open a path to icasino regulation in the near future. If this sounds like a familiar playbook, that’s because it is.
Kindred believes that it can generate enough playing volumes to be profitable in the U.S. and made the point that it has done so in the UK with around 3% market share. This is true, but it should also be pointed out that this has happened in large part thanks to its acquisitions of the UK-focused bookmaker Stan James in 2015 and the 32Red online casino in 2017.
In addition, sports betting in the U.S. and elsewhere is much less profitable and works to much tighter margins than online casino, while growth in icasino depends on it being regulated in more states, which is by no means certain. And with Fanatics set to launch by year-end, ESPN working on its own OSB plans and a potentially rejuvenated FOX Bet post-Flutter arbitration, there is a real possibility that the marketing wars might restart in the not too distant future.
This is not to be overly critical of Kindred, or any other challenger brand, but other big European groups such as bet365 and Tipico are not competing in the U.S. at the levels they might have expected.
And with September being the cruelest month when it comes to acquiring OSB customers, it will be fascinating to see how Kindred manages to make space for itself when the likes of FanDuel, DraftKings or BetMGM are flooding the airwaves and crowding out the space.