Social Sweepstakes Could Help Fill Gap in Wake of Sports Betting Gold Rush

Social Sweepstakes Could Help Fill Gap in Wake of Sports Betting Gold Rush

The U.S. sports betting market continues to grow as more Americans wager more money on live events. The AGA reported YTD commercial sports betting revenue reached $8.36bn through August (+30.4% YoY).

However, the related advertising dollars are not flowing as easily as they once did with FanDuel and DraftKings entrenched as the regulated market leaders in all 30 legal mobile betting jurisdictions and the pace of states adding new OSB or online casino legislation having slowed to a crawl.

Logic would suggest that reality will begin to impact sports rights owners and holders over time–if the trend doesn’t change.

One “shouldn't assume that just because available ad dollars have dropped off this year, spending will stay at this level or drop off further in the future," Chris Grove (co-founding partner, Acies Investments) said. "There are numerous reasons why marketing spend could turn back upward.”

But there is a new class of gaming companies –social sweepstakes casinos (think: VGW Play, Stake.us) and sportsbooks (think: Fliff)– capable of helping sports properties and their media partners replace lost revenues in the interim. These entities are growing faster, operating in more states, and can be more profitable than regulated counterparts (though, none are nearly as profitable as FanDuel or DraftKings). 

For context, Virtual Gaming Worlds reported in September that it increased annual net profits by 30% YoY to $335mm on record revenues of $4.15bn. 

Sweepstakes are games of chance where no purchase is necessary to win. In a social sweepstakes sportsbook or casino players can also buy virtual coins that can be wagered and redeemed for real cash prizes.

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It’s hard to imagine the nascent U.S. sports betting market has been ‘won’ when almost half of the states are still without OSB legislation on the books (and far fewer have online casino). 

But because of the way the laws are written (think: on a state-by-state basis), the costs associated with licensing, some prohibitive state tax rates (see: New York), and a costly customer acquisition environment, America has become amongst the least competitive legalized sports betting markets in the world.

And as a result, the leading operators are now feeling confident enough to dial their spending back.

While FanDuel and DraftKings are each still committing upwards of $1bn annually to advertising their brands and products, that figure is declining ~20% YoY. The two companies have even started to dial back affiliate partners, entities that only get paid if/when the operator receives an actual customer!

It simply doesn’t make sense for the regulated OSB market leaders to continue spending at the same levels that they have been in recent years (a unique period post PASPA’s repeal). They can each increase profitability by spending less.

And if a competitive threat, or the opportunity to take more market share, emerges, they can and will ramp up again. The same could be expected when new states come online, which is only happening roughly once/year at this point.

How much the two companies pare back in the meantime remains to be seen. But the floor could be as low as several hundred million dollars apiece.

FanDuel and DraftKings aren’t the only licensed operators reducing, or expected to trim, their marketing budgets (it should be noted that both companies also operate multiple unregulated businesses). BetMGM is no longer marketing itself with the NFL at the same level as the market leaders, or Caesars, either.

While reduced ad spending amongst sports betting operators would seemingly hurt rights owners and holders that have become dependent on it, social sweepstakes casinos and sportsbooks could, in theory, replace some of the lost revenue. Partnerships with DFS and lottery couriers could be part of the solution too.

“Real marketing dollars are available across all three of those gaming adjacent products,” Grove said.

They’re just not nearly as plentiful, even collectively (think: ~$3.5bn in GGR), as OSB and online casino are individually.

That doesn’t mean teams/leagues and their media partners should begin to panic.

“There will still be hundreds of millions to billions in annual online sports betting and casino marketing spend,” Grove said. Sports properties “just can no longer expect those dollars to fall from the sky, and [think] all they’re going to need is a net to catch it.”

Those that want to keep advertising revenues flat must get creative. They’ll also need to offer more value to their operating partners than brand association and the ‘official partner’ title.

"They really need to use their data and assets to deliver the things that [these companies] care about now,” Grove said. “That’s not just delivering new customers but reactivating old customers and driving increased activity from existing customers.”

The issue for tier one properties eager to align with social sweepstakes operators is that there will likely be resistance from the gaming establishment. FanDuel and DraftKings, who pay the NFL tens of millions annually, aren’t going to want the league or its teams accepting money from other gaming companies.

And one must assume social sweepstakes operators learned a thing or two from FanDuel and DraftKings’ past mistakes, anyway (think: summer of 2015). Egregious, in your face, advertising is a surefire way to place an emerging industry in Attorney General crosshairs.

So, don’t expect to see social sweepstakes companies spending heavily across the big four leagues where they are likely to draw the most attention and political ire. Instead, look for these entities to make their presence felt within select tier two and emerging sports leagues (think: ones without an authorized gaming operator model).

Companies like VGW and Fliff appear to be well positioned for the long-haul. But aligning with them doesn’t come without risk (see: crypto). Licensure in any of the big, currently unregulated, states would presumably hurt their business, even if they have largely different customers playing for different reasons.

Of course, top social sweepstakes operators, some of which now have large customer bases, could always try to flip the switch and go down the licensing route.

It’s fair to wonder why sports betting’s current market leaders haven’t entered the social sweepstakes business themselves given its high margins and customer LTVs. The challenge is in combining a regulated business with a largely unregulated one while simultaneously lobbying against the latter. 

The OSB market leaders seem to have made an error in insisting out of the gate that social sweepstakes products infringe on their licensed businesses.

Sports properties, particularly those outside the big four, would be wise to avoid a similar mistake and actively pursue partnerships with social sweepstakes leaders (and those in other gaming-adjacencies) before a gap in their budget emerges. While it won’t be easy to offset lost regulated sports betting revenues, teams, leagues and media companies willing to take a more active and engaged approach to partnerships will find it feasible.

"There are more categories out there than [just] OSB and online casino, and there are more operators than just DraftKings and FanDuel," Grove said. "So, there's still plenty of marketing money out there. Stakeholders just have to work harder and take more than their fair share of the pie to maintain or increase the dollars they're currently capturing.”

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