iGaming, Sports Betting Promotions Not Easing, Claims Analyst

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It was widely believed that as the iGaming and online sports wagering industries matured and as analysts and investors demanded tighter focuses on profitability, promotional spending would rationalize. One analyst said that while that’s happening, the extent to which promotional expenditures have declined is debatable.

FanDuel advertises a risk-free bet up to $1,000. An analyst says iGaming and sportsbook operators’ promotional spending remains elevated. (Image: FanDuel)

In a note to clients today, Deutsche Bank analyst Carlo Santarelli said that while it’s accurate that promotional spending as a percentage of gross gaming revenue (GGR) declined in the first quarter, that may have been more the result of a small number of new states joining the regulated online sports wagering fray. State-level debuts typically account for a significant chunk of customer attraction spending as operators look to bolster their client bases and grab market share in the early innings.

For some individual operators, the notion of reducing promotions from an organic/same-store perspective is also correct. However, when looking at data from states that are not freshly launched, we see no evidence of a slowing cadence of promotions overall,” wrote the analyst.

Translation: mobile sportsbook operators may well be spending big on client luring and retention in “vintage” states such as New Jersey and Pennsylvania, among others.

Sports Betting Promo Spending Can Hinder Profitability

Promotional spending is, arguably, the elephant in the regulated sports betting room, because operators need to spend to acquire and retain customers. But that often comes at the expense of attaining profitability.

In what could be a sign of intensifying competition in the iGaming realm, Santarelli pointed out that in four of the five states that approved internet casinos before 2021, promotional spending rose in those jurisdictions.

“While we don’t think the igaming promotional landscape, which we believe has also intensified, is much better than that of the OSB landscape in terms of promotions relative to GGR, and given that the GGR mix is heavily skewed toward OSB, we see a long path to achieving these targets,” added the analyst.

Even with the surprisingly elevated promo expenditures, some gaming companies are finding ways to become profitable. Flutter Entertainment’s (NYSE: FLUT) FanDuel was profitable on an annualized basis last year while rival DraftKings (NASDAQ: DKNG) delivered a surprise first-quarter earnings per share (EPS) profit on the basis of non-generally accepted accounting principles (non-GAAP).

In a recent report, Goldman Sachs highlighted 21 growth companies that were not profitable last year that could turn that corner in 2024. Two of the stocks on that list were DraftKings and Rush Street Interactive (NYSE: RSI).

Hold Use Criticized

In wagering, “hold” refers to the percentage of money operators retain for each dollar wagered. Increasingly, gaming companies are gauging internal performance against expected hold — a number they likely set themselves. While Santarelli acknowledged hold misses explain why some first-quarter results were weak in the sports betting space, he’s not keen on that methodology.

“We understand the rationale and the logic, though we don’t see the investment community warming up to a place where every miss is chalked up to hold that was below a theoretical number provided post the period,” observed the analyst.

He also pointed out that while sportsbook operators were pinched a bit last month due to unfavorable outcomes on the Masters and the NCAA Tournament, but added the weeks after those events have been kind to gaming companies.

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