A Supreme Court ruling in May 2018 unlocked the $155B global sports betting business in the US for the first time by giving individual states the authority to legalize. Since then, nearly half of all US states have legalized, with many others in active legislative talks to do the same in the coming months (cool interactive map here tracking status). The allure of enriching grossly depleted budget coffers with shiny new gambling tax revenue and new jobs is winning out; and for those gambling hold out states now finding themselves in an even deeper COVID-19 induced state of economic destruction, this very well may be the tipping point for the rest to follow suit.
But it’s not just the states that see the $BB upside. Media companies too are betting big that legal sports gambling will soon be widespread. Those bets are intensifying in scale and scope, and emergent strategies and their value creation are starting to take shape.
Bottom of Funnel = Predictive Revenue: DraftKings tracked a $20.2M spend, acquiring 54,467 new customers at a $371 CAC (yikes!). However, that user cohort will average $2,614 in lifetime value revenue, a 6.9x ROAS. Thus, marketing dollars are increasingly judged solely by the sign-ups they land and the money those bettors are expected to spend over the long term. This performance oriented trend is not the friend of legacy media impression and awareness offerings, but rather mid-to-low funnel oriented companies, content and personalities. See 3-yr Pat McAfee x FanDuel deal - rumored to be in the low 8 figures because his audience converts #ForTheBrand.
Full-Funnel Ecosystem Tie-Ups: Big media and key players across the value chain are moving beyond transactional advertising or basic affiliate relationships, opting instead for fully integrated multi-year, multi-channel deals that often include marketing commitments, product/data/content integrations, performance incentives and equity to deepen the strategic alignment. NBCU x PointBets, FoxBets x BetMGM x Stars Group, BetMGM x IAC, Barstool x PennNational are just a few recent examples.
First-Mover Arms Race: Media companies, sports leagues and betting operators are aggressively and strategically timing state-level partnerships (e.g., Denver Broncos x FanDuel, Boston Celtics x DraftKings) and big budget go-to-market blitz strategies to acquire those early adopter, high LTV customers the second a state’s legalization is official.
Free-To-Play as the Gateway: For media companies and new bettors, FTP is the way. Low barrier to entry games and white-label tools (gambling SAAS is a big business) can help drive on-site engagement, open up new big-budget advertiser relationships and new affiliate sources of revenue. For bettors, simple casual style games help drive mainstream access, appeal, familiarity and ultimately improve the odds of becoming a paid bettor. For betting operators, a strong FTP audience foothold in place in a state where betting gets deregulated is a huge competitive advantage.
Things to Watch…
IRL Casinos, the New Blockbuster: Sports betting is already about 70% of all gambling revenue and with the surge of technology and deregulation this will deepen it’s dominance and make mega Casinos more obsolete or at least drastically expand the way sports and sports betting is brought to life on casino floors. MGM Resorts, the largest US casino employer just laid off 18k employees (25% of 70k US workforce) in response to COVID-19. Meanwhile savvy investors see a buy low opportunity to invest in the online gambling opportunity, as Barry Diller’s IAC infuses ~$1B into MGM for 12% stake largely to fuel their nascent, but high growth iCasino business Bet MGM.
Barstool x Penn National as the Model: Penn National shares have doubled since their 31% investment in Barstool, even after posting a $200M Q2 loss with dying physical casinos in 19 states. Why? Barstool’s digital brand, audience, content and reach serving as the marketing and acquisition machine for down funnel Penn enabled casino activities. Here’s the strategy in Dave Portnoy’s own words, “Penn has the gaming engine...we have a marketing force that you can’t buy, you can’t pay for, that is eternal…thats the differentiator”. We'll be seeing this thesis put in motion soon. Barstool Sportsbook App (powered by Penn) is set to launch this month and Penn expects to eventually convert 5% of Barstool 66M fans to paying gamblers. Focused only on Pennsylvania at launch (with Michigan and New Jersey slated for Q1) we’ll have to wait a while for those projections to pan out. *Rumor Mill* DraftKings may be going after Turner’s Bleacher Report. But don't be surprised to hear some lessor known gambling co names from here and overseas start to make some moves.
ESPN to Sit This One Out, for Now: Despite Disney's 6% stake in DraftKings (equity inherited from the Fox acquisition), we’d predict the owner of the world's "happiest place on earth" as well as the “worldwide leader in sports” will not as pursue the fully integrated betting strategy as aggressively as their rivals NBC or Fox. There's no doubt there are mixed messages here. In 2015, ESPN nearly invested $250M in DraftKings in 2015. They've also aired dedicated betting shows and formed content deals with Caesars. However, Disney as a whole has been actively anti-gambling - funding $MM campaigns to thwart new casinos in Florida (likely more about thwarting competition for tourists $MM). But perhaps most definitively, we'll let Bob Iger sum up their current position himself, "We’ll provide programming that will, I guess, be designed to enlighten people who are betting on sports...But that’s as far as we would go.”
Twitch-like Interactivity to Drive Ratings and Engagement: While linear and cable ratings crumble, sports is still the undisputed king of ratings. “Live” earns a premium, and integrating live betting content, statistic and on-screen and companion app integration to the pre-game or mid-game experience is a massive win to retain core audiences and attract new ones, further insulating sports programming as the king of the TV ecosystem. Twitch’s live game interactivity tests with the NFL had over 100,000 mid-game predictions, leaderboards and more. This will be the inspiration to gamify and even monetize the viewing experience in a novel new way across all viewing platforms.
In summary…
While gambling has historically seen considerable pushback at the federal and state level, that’s all changing and the media ecosystem is hungry to get skin in the game and drive real revenue for themselves, not just run another FanDuel ad.
Legislative dominos will all fall, ethical hang-ups will be largely sidelined and sport betting will be embraced by more and more US states.
All this will accelerate massive investments, verticalized ecosystem partnerships and hyper-competitive marketing campaigns.
What's more is the technology and UX/UI advances we'll see make betting a seamless and fully integrated experience in all formats of sports media, and we'd predict these innovations will spur broader mainstream use cases and adoption of media interactivity.
