The last few months have started to reveal casualties in the battle for U.S. igaming market share. Last week, Wynn Interactive boss Vincent Zahn told the Nevada Gaming Control Board that it was moving to an affiliate marketing model due to the “irrational” cost of customer acquisition.
And Zahn is far from the only CEO starting to feel the heat as he fights to claim a slice of what The Wall Street Journal recently predicted was going to be a $19.3bn sports betting market by 2025.
The revised figures came from J.P. Morgan analyst Joseph Greff, who said the projections needed updating as more states became regulated and the pace of sports betting and mobile gaming increased. He said he also expects to see more consolidation as the competition for market share heats up, but it seems that there will also be players that decide to pull out of the race.
In January, Wynn Resorts was rumoured to be selling its digital arm, which operates the WynnBet online app. According to the New York Post, the operator originally pitched the business for sale at $3bn in 2021, but in January revised its value to a cool $500m.
The Post quotes former Wynn CEO Matt Maddox as describing the market as unsustainable on a November earning call. “Competitors are spending too much to get customers. And the economics are just not something that we’re going to participate in”, he said at the time.
A similar sentiment was uttered at the end of last month, when Churchill Downs announced it would be pulling out of the online market, phasing digital out over the course of six months. CEO William Carstanjen said the online sports betting and casino spaces were becoming increasingly competitive as more operators gained licenses in the various states. “Many are pursuing maximum market share in every state with limited regard for short-term or potentially even long-term profitability”, he added.
For those who have not managed to build a strong enough brand awareness in the online market or did not seek to acquire players through strategic mergers, it is reaching make or break time.
Caesars, which completed its $4bn acquisition of William Hill in April 2021, has also reached its limit with marketing spend this year. Speaking during the operator’s Q4 earning call on February 23, Caesars Entertainment CEO Tom Reeg said the firm was planning to pivot away from expensive commercials and move to an affiliate marketing model.
Reeg said the business had achieved what it had set out to do in terms of brand awareness and was now in a position to consolidate that work and “dramatically curtail” traditional media spend. As with many other firms, he is still set to feel the pinch over the March Madness season, during which marketing spend peaks, and where Reeg admits he is committed to some traditional advertising.
However, it’s clear that the cost of acquiring customers is beginning to become unsustainable even for the most ambitious online market entrants. DraftKings CEO Jason Robins recently committed to a “disciplined” approach to customer acquisition in New York, for example.
The DFS giant has already forecast increasing losses for 2022 as its sales and marketing spend comes under increasing pressure as competition grows. DraftKings increased its sales and marketing spend from $495m in 2020 to $981.5m in 2021. Speaking to the Financial Times about the firm’s growing marketing bill, Regulus Partners analyst Paul Leyland observed that: “Outspending individual competitors does not seem to be moving the overall dial, making it a worse than nil-sum game”.
It is no wonder then operators such as Wynn Resorts and Churchill Downs have reconsidered their positions and chosen to focus on their legacy strengths, rather than continue throwing money at digital while a return on investment still seems so far out of reach.
