Gaming Giants Continue Robust Promotional Spending Despite Growing Investor Scrutiny

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In the rapidly advancing world of online gaming and sports wagering, there has been an assumption that promotional spending would decrease as the industries continue to mature and investors demand a sharper eye on profitability. However, the reality reveals that the decrease in promotional costs is a matter of perspective.

Promotions are an essential strategy for operators to attract customers in both new and established areas. FanDuel, for instance, markets a risk-free bet of up to $1,000, indicative of the level at which promotional spending remains buoyant in the sphere of online gaming and sportsbook operations.

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Carlo Santarelli, an analyst at Deutsche Bank, stated in a recent note to clients that although promotional expenditure in relation to gross gaming revenue (GGR) saw a downturn in the first quarter, it was possibly an effect of only a small number of new states embracing the regulated online sports betting sector. Whenever a state enters the online wagering arena, operators typically ramp up customer attraction spending to establish their client base and seize early market share.

According to Santarelli’s observations, certain operators are genuinely reducing promotional strategies from a same-store perspective. Yet, the overall rate of promotions doesn’t seem to be slowing down when considering data from states with firmly established online wagering.

This implies that mobile sportsbook operators may be investing heavily into attracting and retaining clients in already established regions, such as New Jersey and Pennsylvania among others.

However, this raises a significant question: is such aggressive promotional spending the metaphorical elephant in the room for regulated sports betting? Operators need to ramp up spending to attract customers, but this often undermines their potential profitability.

Striking this balance is increasingly important in the face of fierce competition. In fact, Santarelli noted that in four out of five states which sanctioned internet casinos prior to 2021, promotional spending experienced a surge.

But all hope is not lost. Companies like Flutter Entertainment’s FanDuel have managed to turn a profit on an annualized basis despite the ongoing expenditure. Even competitor DraftKings posted an unexpected first-quarter earnings per share (EPS) profit under non-GAAP.

Backing this optimistic outlook, a recent report from Goldman Sachs highlighted 21 growth companies set to turn the corner in 2024, including both DraftKings and Rush Street Interactive.

However, as operators measure performance against expected hold, there’s been some criticism. Hold, which refers to the percentage of money operators pocket for each dollar wagered is seen as a subjective measure according to Santarelli. He argued that many first-quarter results were affected by “hold misses”.

Meanwhile, while undesirable outcomes in events like the Masters and the NCAA Tournament left sportsbook operators a bit strained last month, Santarelli assured that the weeks following those events did turn out favorably for gaming companies. Overall, the waters remain choppy, but clearly, there are opportunities for those willing to navigate the online gaming and sports wagering world.