Leading operators posted positive results this quarter, but the topic of platform and tech control is as salient as ever, while brands like Bet365 and Fanatics wait and watch.
As the U.S. online sports betting industry approaches the moment when its biggest operators are about to turn profitable, it seems like a juggernaut is building momentum that will see operators grow revenues, increase hold and produce margins that will see profits going straight through to their bottom lines.
But while investor sentiment towards the sector has picked up and operators are sounding a lot more confident about their outlooks, it’s also worth remembering that there is a long way to go before the situation settles. Another point worth noting is that while most of the major brands are making confident noises about being profitable in 2024, in the current third quarter that is by no means certain, reflecting the different factors that impact their figures.
This is down to the new NFL season kicking off on 10 September. With two months of relative quiet on the sporting front, the third quarter goes into overdrive from that date, and operators’ balance sheets are highly dependent on results going their way.
Third quarter’s late impact
As DraftKings’ CEO Jason Robin commented last week when discussing the group’s outlook for current trading, matchday results can impact operators’ revenues by “between negative 10% and probably positive 20%, it can get that wide in any given week”.
And “because so much (NFL) volume comes in the last three weeks of the quarter, a few good or bad weeks can definitely swing” the group’s quarterly results, making the period “the least favorite for our business planning group”, he added.
Illustrating the importance of favorable sport results, CFO Jason Park said positive game outcomes contributed improvements of $30m to revenue and $20m to adjusted EBITDA for DraftKings during the quarter.
Robins however also focused on product, and, arguably, this was more revealing of the areas in which the company has progressed.
He noted that with the way the industry has evolved, “so much betting is now happening on player props” and these form such a large part of parlays wagers, which also generate higher hold rates, that it’s vital for an operator like DraftKings to be able to draw on the best parlay product possible. “That’s really made a big difference”, he said.
Constant control discussions
The last point comes back to the topic of platform and tech control (you guessed it, one of this reporter’s favorite themes) and how operators develop and use their tech stacks.
Beneath all the talk of revenues and profitability, the topic is a constant theme of discussion and, depending on the setting, can also be a good segue to deflect potential blame or attention when the numbers are not pointing in the right direction. It’s also striking how often it is brought up, directly or indirectly, by analysts and industry observers.
When it comes to tech and platform ownership, few operators embody the contradictions at the heart of the debate the way BetMGM does. Despite the digital joint venture between MGM Resorts and UK operator Entain hitting EBITDA profitability in the second quarter, whether at corporate or operational level, the themes of control and ownership are a constant focus.
This was illustrated by a somewhat comical moment when MGM Resorts CEO Bill Hornbuckle opened the group’s earnings call last week by praising the company’s healthy and “fortified balance sheet” that, if MGM chose to, could be used to make “optimistic investment and acquisitions”.
Unsurprisingly, one analyst picked up on this straight away and asked if there may be “a size constraint”, aka Entain with its current market value of £8.8bn, to any potential acquisition. Hornbuckle shot back sternly that MGM was “focused on working alongside our partners with a collective goal to maximize the growth and profitability of MGM and LeoVegas”.
“I think we’re making good progress on both of those fronts and that’s really all we’re going to say,” he added.
The MGM boss was then quizzed about BetMGM’s falling market share in both online sports betting and casino. The group’s market share in OSB has dropped from 13% to 8% due to a poorly-performing product, while improvements from Fanduel and DraftKings have seen them catch up on BetMGM in the digital casino space.
He replied: “Candidly, our product is not where we want it to be.” He added that the move to a single wallet and Entain’s acquisition of the U.S.-focused sports data and forecasting specialist Angstrom will enable it to “get back in that game in a meaningful way”.
Meanwhile during its half-yearly comments, Entain CEO Jette Nygard-Andersen said Angstrom will boost U.S. margins and enable it to join up “pricing capabilities in-house and that’s going to be a key differentiator”.
All at it
The sports betting solutions provider Kambi also used similar arguments, albeit in its own way, as CEO Kristian Nylen said Penn Entertainment’s Barstool Sportsbook (until recently Kambi’s largest U.S. client) had lost market share because it “did not keep pace” with the platform improvements Kambi rolled out. While that is Nylen’s opinion, it’s worth pointing out that Penn’s Canadian betting brand theScoreBet is operating in-house and is one of the leaders in its home territory of Ontario.
In any case, Penn has now terminated the Barstool brand and entered into a 10-year partnership with ESPN that will see it operate ESPN Bet. On the call with analysts, CEO Jay Snowden acknowledged that historically sportsbook-media partnerships had not been successful, but now that it has completed its migration to its in-house platform it will have total control over the tech stack, UX and product rollout. Combining this with the scale that ESPN will provide — “you need to appeal to the masses,” Snowden said — will make the venture successful.
However, he was blunt about the Barstool product. Commenting on cutting down customer acquisition spend, Snowden said: “We’ve always been clear that because of our media relationships we can run best-in-class customer acquisition costs. We haven’t spent into it because we didn’t have a competitive product. Now we do.”
Framing the argument from its own experience, Caesars Entertainment said that its relaunched iCasino and sportsbook apps and a recent move to the Liberty sportsbook platform in Nevada had enabled it to post its first digital EBITDA profits.
CEO Tom Reeg said the group’s Caesars Palace casino app was “light years beyond” its previous offering; the old technology was “the equivalent of a Commodore 64 computer” and the updated products would enable the group to hit the $500m digital profit target it had set itself for 2025.
As the prospect of profitability looms for the leading names in U.S. online gambling, a final note of caution came from the analysts at Roth MKM. Commenting on DraftKings’ results, they said the group had benefited from “lucky sports outcomes” and “a lull in competition” which was about to end, “while major players like Bet365/Fanatics are quietly gaining scale”.
This was written about DraftKings, but it also applies to BetMGM, Caesars and Barstool. As the NFL restart nears, the industry is about to enter another stage of its evolution.