For all the talk of U.S. potential and opportunities, the online sports betting market has long been highly structured and difficult for challenger brands to compete with the market leaders.
Despite the efforts of new, powerful and well-resourced online sports betting brands to make a space for themselves at the top table, the market share charts show how difficult it is, and likely will be for the foreseeable future, to challenge and compete with the top brands in the U.S.
Deutsche Bank’s recent survey of 30 key institutional investors confirmed what many observers have been deducing from looking at the data and reading reports on the sector. The DB analysts’ ‘OSB Bull-Bear Debate’ on the key issues likely to shape the stocks of digital sports betting companies in 2024 showed that investors believe market share leaders are unlikely to change over time and were not confident that new challengers like ESPN Bet or Fanatics Betting & Gaming could gain or maintain incremental share.
However, they did see Bet365 as the biggest potential disruptor thanks to its size and balance sheet. Why Bet365? Could it be its relatively quiet efficiency (the fact that it’s private helps of course), or the fact that after tough starts and heavy losses in geos like Australia and Italy in the mid-2010s, it stuck at the job and is now humming along nicely in those markets?
It could also be its expertise in running major books and savvy marketing in a highly competitive market like the UK, or the fact that it has so far progressed somewhat under the radar in the U.S. In any case, its track record is likely to have influenced the investors.
In fairness to ESPN Bet, JMP’s latest app download charts show that it is just behind BetMGM with 12% of betting app downloads (see chart below).
But look more closely at the next chart and it shows what happens when it reduces advertising and, importantly, promo bonuses (from $200 to $100). From a major bump in downloads (70% share) following its (Week 11) launch in mid-November to the current 12%, its share of players downloading its betting app has been going one way only.
Leading losses
Those working in newspapers or retail will know what a loss leader is. You take an early hit on losses to generate a client base or win customers over from rivals who will eventually be happy to pay full price for the newspapers, foods or clothes that you produce.
However, there are limits to the losses any company can take and Penn Entertainment’s ESPN Bet odds boost on two NFL games this weekend, but especially on the Ravens vs. Texans match, was picked up by JMP and other industry watchers.
The analysts said the odds boost promo was jumped on by “arbs to take advantage of the favorable odds, most notably through Sporttrade”. “Penn appeared to have large liabilities on those games (supposedly eight figures), but regardless this event could eventually lead to customer acquisition for Penn,” added JMP.
“We believe the inflow of winning bettors was led by organic deposits, often the hardest part of customer acquisition, while core players will eventually reinvest money back into wagers, giving it back over time and adding players to the database.”
To say JMP is looking on the bright side of ESPN Bet’s decision to let the promo run could be a generous way of describing the group’s actions. For a much more critical take on the episode, this write up in the InsiderUSA blog is recommended reading, while ESPN’s betting columnist David Payne Purdum also covered the news.
Cash and margins
Access to cash is not the highly sensitive issue it was some two years ago, but another worry for listed firms was the revelation that Flutter Entertainment’s upcoming U.S. listing is viewed “as a risk to incumbent operators”, with many investors believed to be “rotating into Flutter and shorting existing domestic operators in advance of the listing”.
And with margins still seen as key growth engines for long term investors, the fact that FanDuel recorded higher margins of 13.5% vs. expected hold levels of 12% during the fourth quarter thanks to the strong margins its parlay products generate, one is left to wonder how competitors can catch up with Flutter Entertainment’s U.S. brand or its nearest rival DraftKings.
Mad about the brand
As for Fanatics Betting & Gaming, it’s hard to see what it is doing right. Its latest app downloads are at a paltry 2% and despite a big launch and promotional push in 2023, it seems to be barely registering.
Could it have made the mistake that so many publishers, broadcasters and media groups have made in thinking that major audience reach (70-million strong database etc.) would easily and quickly translate into sports bettors that would loyally bet every weekend? Or that its brand was so resonant with sports fans that it would lead them into willingly signing up to its app? Impossible to tell, of course, but the results so far must be a major disappointment for the group.
ESPN Bet may buck the trend and succeed where so many of its contemporaries have failed and eventually become a major online sports betting brand in the U.S. helped by a significant media presence. But diving into the data shows how difficult and expensive the process is. For the sake of variety and a competitive ecosystem, many observers are hoping ESPN Bet and Fanatics are successful, but they have their work cut out.
