Reap the rewards: how Fanatics’ ecosystem drives customer stickiness

Sports merchandiser Fanatics’ decision to branch out into online gambling paved the way for one of the most anticipated launches to date. Having rolled out Fanatics Sportsbook and snapped up PointsBet US to accelerate its plans, Fanatics Betting and Gaming CEO Matt King insists the group holds a winning hand with its in-house product, unique loyalty programme and sports “ecosystem”  

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Alexander Basara boasts an impressive collection of Green Bay Packers jerseys. Some encased in wall-hung glass frames at his home in Landenberg, Pennsylvania, the die-hard fan’s curated display includes shirts signed by the likes of wide receiver Romeo Doubs, linebacker Lukas Van Ness and quarterback Jordan Love. There’s also the jersey of Packers’ legend Donald Driver, adorned with the Super Bowl champion’s squiggle across the ‘8’ of his number 80.

Along with helmets and various photos of players in action on the field, the neatly arranged Packers paraphernalia – all carrying the Wisconsin team’s dark green, white and gold colours – forms a befitting backdrop for Basara’s daily YouTube content in which he delivers monologues on everything Packers-related for his channel’s 47,500 subscribers. 

So, when Fanatics Sportsbook and sister brand PointsBet ran a promo at the start of this NFL season offering new customers an official team jersey of their choice if they bet $50 or more, this ‘Cheesehead’, as Packers fans are known, wasn’t going to pass up an opportunity to boost his precious haul.  Basara opened an account with PointsBet, staked $50 on the Packers versus the Chicago Bears and, using the digital coupon, ordered a Love number 10 jersey from sports merchandiser Fanatics before recommending the offer to his few thousand followers on X, formerly known as Twitter. With NFL jerseys retailing around the $130 mark on Fanatics, the $150 in credit to spend on sports apparel in return for betting $50 (minimum odds of -500) – and potentially collecting winnings on the wager – proved a compelling inducement. Word of mouth helped amplify the offer.

“People loved it,” affirms Matt King, CEO of Fanatics Betting and Gaming (FBG) over Zoom from the company’s seventh-floor office in Lower Manhattan, New York. “If you’ve been to an American sporting event, you’ll see what fans will do for a free T-shirt – and that’s $8 – so imagine what they’ll do for a $150 jersey.”

Having the deep pockets of Florida-based Fanatics behind FBG to dish out free ‘merch’ in states where its betting products are live provides the new entrant with a significant leg-up in the US. Moreover, Fanatics’ incredibly strong brand and its vast database of 95 million customers worldwide are formidable assets. It explains why FBG claims to be able to acquire users at approximately 80% less than what it costs incumbent operators to snare new players. That’s a huge competitive advantage.

King, who is decked out in blue jeans and a casual dark green shirt with the cuffs peeled back to expose an Apple Watch Ultra on his left wrist, says: “If you look at the way a lot of businesses are run, there’s an incredible amount of money spent building their brand and acquiring customers. We have a brand that is very well known […] we have to make people aware that we have a gaming product, but we don’t have to make them aware of the brand overall. Our database means we can get in front of a lot of customers organically, and at a very low cost. We have seen with the early data coming out of the NFL that we can acquire customers at a structurally lower CPA than the rest of the industry. That will lead to a significantly different kind of ‘J-Curve’ of losses than others have experienced.”

Of course, the most important metric is lifetime value (LTV). It’s all well and good using a unique and cost-effective offer to acquire hordes of customers, yet if they soon churn, you’ll have to come up with ways to reactivate them or cast the net again for new players.

FBG firmly believes it has a proposition to keep players active and engaged, a key pillar being its FanCash rewards programme. Much in the same way a Fanatics customer earns credit on every purchase that can be redeemed for sports apparel, a Fanatics Sportsbook customer also receives FanCash on every bet to spend with the group’s businesses. The amount of FanCash is tiered depending on the type of wager. So, players earn up to 1% in FanCash for a straight bet, up to 3% for placing a parlay and as much as 5% if it’s a same game parlay.

King says: “What consumers are telling us is they value that FanCash more than they value just a bonus bet because it has more utility. So, they can use their FanCash for a bonus bet or use it dollar for dollar to buy merch. Consumers are looking to get rewarded for their loyalty. No one is doing this well right now, so we think we have a unique opportunity.”   

Fit for a King 

It was a similar “unique opportunity” that persuaded King to swap FanDuel for FBG more than two years ago. Indeed, it was quite a coup at the time, in June 2021, with the snagging of FanDuel’s CEO certainly raising eyebrows. Here was a guy walking away from the market leader to join a sports merchandise business – albeit a goliath of that space – plotting its foray into sports betting. And an uber-competitive sports betting market at that.

“In my heart, I’m an entrepreneur,” the 44-year-old boss divulges. “The big reason I left [global investment firm] KKR to join FanDuel [as CFO] in 2014 was this idea that I wanted to go build stuff – and I had an incredible time. When I joined FanDuel, we had around $20m in revenue and 50 or 60 people, so it was a really small business.”

King left FanDuel (the first time) after a two-year spell, landing the role of president of regional operations and corporate development at insurance broker Cottingham & Butler, yet he was tempted back to FanDuel in November 2017 to take up the reins as CEO. This was six months before Flutter Entertainment (then Paddy Power Betfair) acquired a controlling stake in FanDuel, at the time a powerhouse DFS brand in prime position to capitalise on a US sports betting gold rush should the US Supreme Court repeal PASPA.

By the time King took the “hard decision” to leave FanDuel in 2021, the business was generating nearly $2bn in annual revenue. “The building phase of FanDuel, while not over, had run most of its course,” he explains. “For me, it was about what I wanted to do for the next five years. I wanted to go back to being an entrepreneur.”

King, who has a degree in mechanical engineering from North Carolina State University, was enthused about the chance to build a business from the ground up that could become a cog in a one-stop shop for sports fans. “There wasn’t really a sports brand in the gaming business; every brand that had entered US sports betting was very much viewed as a gaming brand. Even FanDuel and DraftKings are viewed by consumers as gaming brands.”

He adds: “So, it was really interesting that Fanatics was a sports brand and that we could build an ecosystem. Sports fans do many things; they watch sports, they buy merch, they trade collectibles, they gamble, but there really isn’t any platform where they can do all of that in one place. That’s very dissimilar to a lot of other consumer categories […] Fanatics was in the unique position to build an ecosystem that can be the leading digital sports platform for fans. My view was that gaming is a huge part of that, so I got excited.”

As well as the CEO, FBG has also assembled a solid roster of C-suite talent. It’s a leadership lineup packed with industry know-how, complemented by experience and perspectives gained outside of online gaming. “If you look at a lot of great startups, most of them represent people who come from
diverse backgrounds because there is a lot of pattern recognition where problems have been solved in different industries,” says King.

For instance, COO Hank Couture was previously vice-president of food delivery platform DoorDash, CFO Andrea Ellis arrived from electric scooter and bike share firm Lime, while chief growth officer Ted Moss served as MD of Sky Bet between 2014 and 2019, and chief business officer Ari Borod was previously COO at the Action Network. On the tech side, chief technology officer Ian Botts was senior vice-president of software development at FanDuel prior to joining FBG in March 2022, and chief product officer Scot McClintic played an instrumental role in the development of PENN Entertainment’s Barstool Sportsbook. Overall, FBG employs 600 people, the majority of whom are involved with tech and product development. 

As for FBG’s product, Fanatics Sportsbook is a mobile-only offering (the team decided against developing a desktop version for now) built in-house, using the source code of supplier Amelco that underwent six months of beta-testing from March 2023 ahead of a staggered rollout. The fact that Fanatics Sportsbook has achieved an App Store rating of 4.7 out of five from more than 9,000 reviews demonstrates that the time the company spent developing and iterating its tech is now paying dividends.

The FBG developers concentrated hard on nailing the UI, whether it’s making the core user journeys of signing up and depositing as smooth as possible, or a search bar that includes search history, an autocomplete function and the ability to input an alias for names with tricky spellings (eg nickname ‘Shotime’ for the Los Angeles Dodgers’ Shohei Ohtani). 

“We hired data scientists who had no gaming experience, but they understood search,” King explains. “I think that has allowed us to have the best search function in the marketplace as it really resonates with our customers.”

Fanatics Sportsbook also has a ‘Discover’ feed that presents suggested bets on a customer’s favourite team, players and events. In fact, the sheer scale of the data the group holds on those who shop online with Fanatics provides the ability to perform even more targeted personalisation with suggested markets and bets. Put simply, a customer who regularly purchases Chicago Bulls merchandise from Fanatics is far more likely to engage with Fanatics Sportsbook if content and bet offers are focused on the Bulls.

On personalisation, the CEO comments: “It’s something that every other consumer technology app has. No one [operator] anywhere in the world has really done it well – we’re not there yet but we have built a strong foundation, and in 2024 you will see us establish a leadership position.”

More broadly, the objective with product development has been to eradicate pain points in customer journeys found elsewhere and to avoid overwhelming casual or new bettors with a congested interface. “Instead of dropping people into an Excel spreadsheet, we drop them into a much more navigable experience that can be curated for the user.”

King adds: “Fundamentally, our strategy was two-fold: we wanted to build a great product, not just by sports betting standards but, frankly, by the standards of any consumer technology category. That requires approaching it much more as a Silicon Valley consumer tech company than a gaming company relying on the ways it has been done in the rest of the world. The second thing we have been focused on is activating the Fanatics ecosystem, so the common thread you’ll see in the team that we’ve built is people who are great product and technologists – a lot of those we have hired have come from Google, Facebook or Netflix.”

In a bid to accelerate its online ambitions, Fanatics announced last May that it was to purchase the US assets of Australia-based operator PointsBet for $150m. However, there was a plot twist when DraftKings seemingly tried to gazump the deal with a $195m non-binding offer for PointsBet US at the 11th hour. In the end, though, DraftKings missed the deadline to submit a finalised bid.

With Fanatics keen to bag its quarry, the merchandiser sweetened the deal by upping its initial offer by 50% to $225m, which was accepted by PointsBet. At first glance, it might seem acquiring PointsBet US was mainly driven by a desire to gain access to more than 15 states, however FBG already had a route to market in most of those jurisdictions. Instead, FBG avoided having to shell out tens of millions of dollars in upfront licence fees and market-access expenses by simply buying a licensed and operational business.

Despite having less than 2% market share based on GGR, PointsBet US’ product, built entirely in-house, has long been up there with the best in the US. In fact, the operator has, since early 2022, consistently finished third in Eilers & Krejcik Gaming’s ‘secret shopper’ quarterly sportsbook app testing reports. That’s no mean feat. What’s more, FBG gets its hands on Banach Technology, a Dublin-based in-play odds specialist PointsBet acquired for $43m in April 2021, as part of the acquisition. “Risk and trading are a huge part of providing a competitive product,” King says when touching on the importance of Banach.

For now, PointsBet has been rebadged to ‘PointsBet, a Fanatics Experience’ in certain states, although the plan is to eventually abandon the dual-brand strategy and migrate PointsBet users over to Fanatics Sportsbook. “In 2024 everything will come under the Fanatics brand – we want to do that in a rational, logical way,” the boss clarifies.

Whether DraftKings was serious about acquiring PointsBet, or just meddling to inflate the size of the deal, it’s fair to say the eventual $225m price tag was a relative bargain, particularly compared to the frothy market of 2021 when company valuations were detached from reality. Either way, Fanatics certainly has deep enough pockets to compete in the M&A stakes. 

Après ski

To discover how Fanatics came to dominate the licensed sports apparel business and be so entwined with pro sports in the US, we need to head back to the mid-80s when Michael Rubin, just 12 at the time, set up a ski-tuning business in his parents’ basement in Lafayette Hill, Pennsylvania. Using $2,500 in gifts received from his bar mitzvah, Rubin went on to open a proper ski shop, and by the time college beckoned, this teen owned and ran a chain of five ski outlets. Rubin later dropped out of Villanova University after acquiring $200,000 of overstock ski equipment for the knock-down price of $17,000 and reselling it for $75,000. The young entrepreneur parlayed the cash and the proceeds from the sale of his ski shops to set up KPR Sports (named after his parents’ initials), an overstock athletic equipment reseller.

Rubin’s big break came in 1998 when he launched e-commerce company Global Sports, which later became GSI Commerce. The business was sold to eBay in 2011 for $2.4bn, but he was able to buy back several brands under the GSI Commerce umbrella that the online auction giant didn’t want. Besides online retailers ShopRunner and Rue La La, the repurchase included Fanatics. Just over a decade later, in December 2022, Fanatics closed a $700m funding round, the fresh capital swelling the company’s valuation to $31bn. That’s roughly equivalent to Flutter’s market cap.

Fanatics has expanded beyond sports merchandise, too. Trading cards and collectibles firm Topps was acquired in 2022 in a deal worth $500m, while sports card, memorabilia and collectibles business PWCC was gobbled up last year for an undisclosed sum. Fanatics was also the majority owner of non-fungible token (NFT) startup Candy Digital, until it offloaded its 60% stake in January 2023 as the ‘Crypto Winter’ expeditiously chilled the digital asset craze.

So, just how hands-on with FBG is Rubin, a 51-year-old multi-billionaire who paid $70m for a Los Angeles mansion in 2022, travels most places by private jet or the company’s two helicopters, and rubs shoulders with celebrities and sports stars?

“Michael is heavily involved, particularly from a strategy perspective,” King responds. “He provides a lot of great perspective and he’s a phenomenal entrepreneur, so he’s an incredible resource for me just in terms of how you balance all the conflicting priorities that it takes to build a startup.”

And with having a parent company like Fanatics behind the scenes, FBG can afford to play the long game. “We’re only just getting started but we are excited about where we are going,” the CEO explains. “I think about the world through a 10-year lens. I don’t base our success on the market share today, or even next year. I measure our success on the core goals of building a product that people love and building an ecosystem that adds value to the sports fan experience.”

Furthermore, FBG being part of a privately owned group means management doesn’t have to obsess over the share price or quarterly earnings reports and pleasing Wall Street. While that freedom is welcome, King insists the biggest difference between Fanatics and a public giant like Flutter is the entrepreneurial spirit running throughout the group.

“Michael is the architect of the business as the owner, founder and controlling shareholder,” he says after taking a quick swig of a purple-coloured juice drink. “That entrepreneurial DNA goes throughout the whole business. We have three very disparate businesses between gaming, collectibles and commerce, but because Michael has a very clear vision of how these things are put together, we can move at pace without a lot of bureaucracy towards that vision of a digital sports platform. A lot of bigger, non-entrepreneurial-led companies would get caught up in politics.”

Play the waiting game     

Following PASPA’s repeal in 2018, resulting in states gradually legalising sports betting, first-mover advantage was seen by many as the be-all and end-all. Secure licences, release an MVP (minimum viable product) and pump inordinate sums into marketing in a bid to acquire customers. Oh, and park the path to profitability for now. Being parsimonious with the promos wouldn’t cut it either; does anyone remember Caesars Sportsbook’s jaw-dropping $3,000 deposit match bonus for new signups in New York? Plus, certain companies effectively set fire to cash with ill-judged or mistimed media deals and/or M&A activity; one example of the latter being PENN forking out more than $550m for sports media brand Barstool Sports only to sell the business in 2023 back to its founder for $1 and pull the plug on the struggling Barstool Sportsbook. We’ve also seen the likes of Fox Bet, PlayUp and MaximBet exit the market entirely, while WynnBet has withdrawn from eight states and Kindred Group is to cash in its chips with Unibet and walk away from the US by the end of Q2 2024.

There is a valid argument that the smart option was to sit out and capitalise on second-mover advantage with a more measured approach. For example, bet365 bided its time before expanding its footprint and market share stateside, while ESPN has only just rolled the dice with ESPN Bet after PENN’s blockbuster $1.5bn deal with the Disney-owned sports network. Then there’s FBG and its Fanatics Sportsbook arriving five years after the initial landgrab.

“We have really tried to get out of the mindset everyone had, which was a first-mover strategy,” King remarks. “So, put a product out there and rely heavily on marketing for growth. By the way, that’s totally the right strategy in the early phase of the market, but it’s not the right strategy for a market that’s not in its infancy anymore.”

Early signs have been encouraging, too. FBG said Fanatics Sportsbook was the third most downloaded betting app in the US at the start of the NFL season in September and internal research showed that around 10% of customers had never placed an online bet before elsewhere. Therefore, FBG could help to grow sports betting by bringing in new bettors rather than cannibalising the existing market.

Also, its sports-centric ecosystem and market-leading CPA rates are partly the reason why FBG anticipates reaching profitability in the shortest timeframe of any regulated US operator. For context, it took until 2023 for FanDuel to forecast a full year of being in the black. At the end of January, Fanatics Sportsbook will be live in 11 states, with Michigan and its home state of New York slated for early February. Fanatics Casino is due to roll out imminently in Pennsylvania and West Virginia, too. One of those 11 active sports betting states is Connecticut after FBG replaced Rush Street Interactive as Connecticut Lottery Corporation’s exclusive mobile and retail sports betting partner. Fanatics Sportsbook’s app launched there before Christmas, facing off against just two other legal betting options: FanDuel and DraftKings. So, is Connecticut the acid test as to whether Fanatics Sportsbook can go toe to toe with the US market leaders?

“We are competing with them in every state, so I think every state is an acid test,” King laughs as he downplays the significance of this tri-operator arena. “Our job isn’t necessarily to steal share from FanDuel or DraftKings; our job is to put the best product and customer proposition out there in the market and customers choose who they want to bet with.”

Bearing in mind that FBG has a 10-year approach to its online gambling strategy, King emphasises that the US landscape can quite easily undergo a seismic shift over time. “There is a perception with the US market that whoever is the leader at the beginning is going to be the long-term leader. I would argue that perception is just wrong […] it’s very rare that you find a digital category where the leader 10 years ago is still the leader today.” A prime example is the way Nokia and BlackBerry dominated the mobile handset space until Apple ate their lunch with the release of the revolutionary iPhone in 2007. Similarly, does anyone still use Skype? Or visit Yahoo for news or search?

“When you look over the longer arc of time, you are going to see market share shift. A more vibrant, competitive market where incumbents are disrupted through innovation,” King suggests. Summing up why FBG can, over the next 10 years, compete at the top of the US online gambling industry, he stresses the Fanatics group is “ruthlessly consumer-focused” and boasts “probably the biggest database of what we refer to as ‘super-fans’ out there”. 

Then, of course, there is that powerful brand and a unique, single sign-in ecosystem of sports merch, collectibles and betting and gaming working in unison, all supported by the FanCash rewards system and head-turning offers like free team jerseys. Emphasising the task ahead, FBG’s CEO states confidently: “My focus is to activate the brand, activate the database and build the best product. Market share will take care of itself.” 

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