Tier 2 Operators And Second Movers

Being a first mover in the US sports betting space has been an advantage, but it’s not the be-all end-all, especially for operators okay with not being a market leader.

Getting involved in the US sports betting market is expensive.

Assuming you already possess a high-quality product and have the requisite suppliers lined up, each state has set a price to enter, with licensing fees and tax burdens ranging from moderate to overwhelming.

The highest-priced licenses are $25 million in New York, $20 million in Illinois, $10 million in Pennsylvania, $5 million in Massachusetts, and who knows what California and Texas will eventually charge. At the end of the day, an operator will run up a nine-figure bill to access a good portion of the US market.

As expensive as it is to get a seat at the US sports betting table, it’s far more costly to actually order a meal. Spending $100 million (or even $20 million) on licensing fees is nothing to sneeze at, but marketing is the real barrier for most operators. Competing in the US sports betting market is not for the faint of heart.

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When Ohio launched its mobile betting industry in January 2023, 16 operators gave away nearly $320 million in promotional money for the month. FanDuel alone accounted for $168 million, with DraftKings handing out another $87 million. Through the first 11 months of 2023, FanDuel’s promotional spend in Ohio was around $250 million. That’s one state.

That has created three classes of sports betting operators in the US:

• FanDuel and DraftKings;

• Brands with national aspirations; and

• Companies taking a measured approach.

The difference is as stark as poker’s super-high-roller scene and the more typical poker pro grinding out $2/$5 cash games and mid-major tournaments.

Even though the market is dominated by two companies, DraftKings and FanDuel, the brands with national aspirations have a high ceiling. They are currently in the second tier, not by choice but by performance.

 The third group is more interesting, as they have essentially resigned themselves to the second tier. They’re not trying to outperform DraftKings and FanDuel; they’ll run out of runway before they ever make a dent. Instead, they are taking a market-by-market approach and fighting for the leftovers… with varying results.

There are three key components to acceptance of second-tier operator status:

• They are selective about the markets they enter.

• They are careful with their marketing budget.

• They don’t fret about being a first mover.

The Smart and Selective Approach

In 2019, then Head of Commercial Development at 888, Yaniv Sherman, called its US strategy “smart and selective.” It’s a term I really like.

According to Sherman, 888 was targeting markets with substantial upside and avoiding markets with high barriers of entry and dampeners.

Access is critical, but as Sherman put it, wildly spending isn’t the right approach for every operator.

“The current state of mind in the US is it’s all about scale, a race to market share. We’re trying to keep our powder dry. This is a marathon, and we want to make sure we impact the States we operate in rather than just sticking a flag in the ground.”

“We’ve seen a lot of deals out there that are sort of giving almost instant access across many markets, but we feel some of these deals are very expensive. And most importantly, not all of the states that legalize are commercially viable in the near term or even mid-term. We’re trying to find the ideal combination of size and a more commercially viable structure.”

That was four-plus years ago, and quite a few operators still express this sentiment.

Thus far, the approach hasn’t panned out for 888, which is seemingly tethered to a dead brand after partnering with Sports Illustrated to bring the SI Sportsbook into existence. But that doesn’t make Sherman’s comments incorrect.

Another company that took a more cautious, scalpel-like approach to the US market is Bet365. Now that the company has a presence in several self-selected states, it’s ramping up its spending ($73 million in promotional play in Ohio over the first 11 months of 2023). That has increased its market share, but only to around 7.5%.

Is Being First Overrated?