FanDuel, DraftKings and BetMGM are the top three online sports betting brands by gross gaming revenue. According to data from Eilers & Krejcik, they collectively controlled 77% of the market in the trailing 12 months (August 21 to July 22). So while it’s fair to suggest they’re among the industry’s winners so far, it’s premature to declare that the other two dozen or so companies are vying for a loser’s share of the domestic market.
“The impending consolidation and continued shift from aggressive acquisition to lifetime value and retention, combined with more states legalizing and implementing sports betting and online casinos, and [the next phase] it gets really interesting,” said Howard Mittman (Chairman, 888 US). “The real race hasn’t even started yet.”
It also depends on how the operator defines winning. While some need to finish in the top three to justify their marketing spend, others are likely to be content with running a profitable business on a smaller scale.
The JWS dam: Online sports betting and gaming are still nascent industries in the US — in Internet terms, past the end of 1.0 and approaching 2.0, according to Mittman — and consolidation is expected in the next chapter of sports betting. Some of the smaller operators are likely to be gobbled up by larger companies looking for scale, while others may voluntarily exit the market after concluding that the juice isn’t worth it.
This will change the market dynamics at the base of the pyramid. “It’s important to remember that consolidation doesn’t necessarily translate into corresponding stock gains,” said Chris Grove (co-founding partner of Acies Investments).
The continued industry-wide shift away from growth at all costs will have a similar effect. “Brands that have been focused on spending for market share will have to make a shift to spending for profitability” in this next phase, Mittman said.
As we’ve written, operators are increasingly adopting content-based approaches to reduce peak costs, improve engagement and create IP; Big states like California and Florida are likely to legalize online sports betting at some point as well. But the biggest change coming to 2.0, according to Mittman, is the rise of online casino products.
“Sports betting is the appetizer, the casino is the entrance. That’s where the money is,” Mittman said. “About 70 percent of gross gaming revenue for operators worldwide comes from casinos, not sports betting.”
Sports betting is now legal in 36 states, while online casinos are live in only six. Still, data from Eilers & Krecjik Gaming shows that sports betting revenue ($4.3 billion) only slightly surpassed online casino and poker revenue ($3.9 billion) in 2021.
One of the reasons why the online casino opportunity is so great is that operators are not bound by the sports calendar. While a sports fan might watch one game a day, a blackjack or poker player could, in theory, play hands all day long. There are also more opportunities for an operator to engage a casino player in the app. Online casinos have also generated higher profit margins for most European and American operators at scale to date.
To be clear, we are not suggesting that a changing of the guard is on the horizon. 1.0 stakes winners are likely to continue to eat up most of the market share in 2.0.
But in an industry as big as gaming, niche players can create significant businesses.
While FanDuel, DraftKings, and BetMGM will likely continue to command the majority of market share as sports betting moves into 2.0, there is still room for niche players to build meaningful businesses.
“[Smaller operators such as 888 are trying to] strengthen their offerings and build credibility, branding and presence until the online casino rolls out to more states,” Mittman said. “When that happens, it’s going to be game on.”
888 believes it can take market share from online casinos by offering a better product than its competitors without frantic launches, wild bonuses and multi-million dollar marketing campaigns to acquire players. But 888 is not competing to be the market leader. It is fighting for respectability, market share and the opportunity to be profitable, which exists because the business model is relatively light on marketing spend.
“We think we can do some things that nobody else is doing and give us a real, meaningful opportunity to compete in the space,” Mittman said. The operator plans to launch a number of original games, offers and experiences in the coming months. The company is also avoiding what it considers vanity states, such as New York, California and Illinois.
888’s goals include profitability and achieving a level of market share on par with operators such as PointsBet, Barstool and BetRivers. “FanDuel, DraftKings and MGM have 84 percent of the market share in Virginia,” Mittman said. “But the remaining 16% is still a lot. If we can be one of the three or four brands of the other 11 operating in the state, it’s a home run.” The company currently ranks sixth in this group.
The operator believes it has identified a brand and strategy approach it can follow in its “march to the middle”. 888 is aimed at the 40+ fan who bets casually or who has not traditionally been a punter. This audience has higher household incomes, he says Sports Illustrated and they are loyal users, meaning they don’t chase bonus offers.
“From an ARPU and lifetime value standpoint, we make a lot more money with customers over 40,” Mittman said. “We make a lot of money, 40-60. We make a lot of money from 60.”
Of course, 888 isn’t the only demo-oriented brand over 40 years old. The retail databases of BetMGM and Caesars, along with other brick-and-mortar casino operators, are likely heavily populated with older members.
