The Great VIP Conundrum

Only a small percentage of sports bettors are high-value customers, which could become a problem if regulators begin to question the current model.

DraftKings and FanDuel rule the US sports betting roost, but over several months earlier this year, Fanatics leaped into the conversation in New Jersey. Fanatics even displaced DraftKings as the number two operator for a single month.

Everyone wondered how Fanatics did it and why their surge was limited to New Jersey.

The answer was a VIP. A single bettor was able to upend the market and skyrocket Fanatic’s market share from low single digits to 23.5% in March and 31.6% in April.

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As Eilers & Krejcik Gaming (a newsletter sponsor) reported at the time, “But perhaps most remarkably, multiple channel checks said the swing was driven largely by a single customer, described to us as ‘the biggest losing player in the regulated market by a mile.’”

The unnamed VIP landed back at DraftKings in May, with Fanatics share dropping to just 2.3% while DraftKings jumped from 18% in April to 28% in May.

Again, one bettor caused that.

This raises a lot of questions. The question I’ll attempt to unravel in this column is: How reliant is the industry on VIPs?

A New Wrinkle

That question has taken on greater importance in the wake of DraftKings’ announcement that it intends to implement a surcharge on winning bets in high-tax states. I speculated that the policy, which will no longer be implemented, might put some VIPs up for grabs.

In a note on the DraftKings’ surcharge, JMP Securities noted that “VIPs, comprising a large concentration of revenue for operators, could end up being the deciding factor [in the success/failure of the surcharge] given how statical these bettors are around outcomes.”

But as I previously wrote, DraftKings could offset the surcharge with bonuses to retain its desirable VIP customers while letting undesirables (sharp bettors) search for greener pastures. Of course, regulators may not look favorably on that practice and could step in.

Although the surcharge is off the table, DraftKings will pass on the cost to customers in some way, shape, or form.

Built on the Backs of VIPs

I’ve been sitting on this very interesting point I saw in a note from Regulus Partners [bold mine] for weeks: