The spending by online sportsbooks on eye-catching advertising campaigns and big sign-up bonuses may have already hit its high-water mark.
Recent comments by industry executives suggest some operators are cutting back on the cash they are burning to acquire customers, especially now that the Super Bowl and legal launches of online sports betting in key states are in the rearview mirror.
So, while formerly big spenders may come out of retirement to drop major bucks on Ohio and other important markets still to open, the intensity of the past few months may not be surpassed. That is perhaps unless California, Florida, and Texas were all to legalize and launch an open-license form of online sports betting at the same time.
Nevada-based Caesars Entertainment Inc. had been one of the biggest spenders. The Caesars Sportsbook-owner embarked last year on a significant ad campaign and offered a smorgasbord of sign-up offers that they anticipated would cost them about $1 billion in earnings before interest, taxes, depreciation, and amortization (EBITDA).
Caesars was trying to establish itself as a significant player in online sports betting and internet-based casino gambling. That mission has been accomplished, and sooner than expected, its chief executive officer said Tuesday.
“You are going to see us dramatically curtail our traditional media spend, effective immediately,” Tom Reeg told analysts and investors during Caesars’ fourth-quarter earnings call.
A burning desire no longer
Caesars and Reeg aren’t alone. The interactive arm of WynnBET-owner Wynn Resorts Ltd. executed a “meaningful curtailment in marketing spend” in November and December, CEO Craig Billings said on February 15.
Wynn had vowed to cut back on that spending last year, as the company viewed the fierce competition in online sports betting and iGaming as unsustainable. Instead, Wynn said it would focus on longer-term profitability.
“To that end, we began shifting our user acquisition mix in early November, focusing only on proven performance marketing channels where we know we can achieve positive [return on investment] on spend, particularly in casino,” Billings said during an earnings call. “By doing this we meaningfully reduced our overall burn rate. And as our remaining brand advertising commitments tailed off with the Super Bowl, I expect EBITDA burn levels to reduce even more drastically.”
The spending cuts could be good for the shareholders of sportsbook operators that are keen to see those companies turn profits. It may also be welcomed by regulators concerned about the boom in advertising for gambling companies on both television and over the internet.
For bettors, though, the taps being turned off could translate into fewer free bets and promotional offers.
“You're going to see us moving toward profitability and making moves both in traditional media and ultimately through the offers to the customers, because we have reached where we want to reach in terms of customer acquisition,” Reeg said during Caesars’ conference call.
You just saw the #CaesarsSportsbook #SuperBowl debut and now you can watch all the outtakes with Caesar (@ohsnapjbsmoove), Cleo (@halleberry), and the Manning family!
— Caesars Sportsbook (@CaesarsSports) February 14, 2022
Watch more: https://t.co/zMHuFqEJln pic.twitter.com/RD4nJi1qPO
The focus on profit comes after Caesars reported a net loss of $1 billion for 2021, including a $580-million deficit recorded by its digital unit. But the cash that Caesars has burned on acquiring customers has been money well spent, at least to them.
The company went from an "afterthought" to a firm that now has a sports-betting market share of approximately 21%, Reeg said. And in New York, where Caesars was awarded one of just nine total sportsbook operator licenses, the company has signed up around 500,000 customers already. The new sportsbook customers acquired, depending on where they live, can be nudged towards businesses with higher profit margins, such as iGaming and brick-and-mortar casinos.
It also appears that plenty of the new customers signed up by Caesars left money on the table when they registered with the operator. In New York, Caesars had offered a first deposit match of up to $3,000, but the average deposit was about $450, Reeg said.
“So, our results in New York were not driven by a lot of $3,000 deposits responding to our offer,” the CEO added. “It was hundreds of thousands of smaller customers that came to our site.”
Some of the pressure to reduce spending is indeed coming from the shareholders of sportsbook operators.
Boston-based DraftKings Inc. reported last week a 47% year-over-year increase in revenue for the three months ended December 31, to $473 million. It also bumped up its revenue guidance for 2022 from a range of $1.7 billion to $1.9 billion to $1.85 billion to $2 billion.
What’s more, the company said it expects to be “Contribution Profit positive” this year across all states where it is currently live, a metric that DraftKings defined as gross profit minus external marketing costs.
However, DraftKings’ stock price fell more than 20% on Friday following the release of its year-end results, which included a net loss of $1.5 billion for 2021. The company introduced adjusted EBITDA guidance for 2022 as well, predicting a loss of around $825 million and $925 million.
"The reaction to today's earnings, in our view, is not surprising," Deutsche Bank analyst Carlo Santarelli wrote in a February 18 report on DraftKings. "We believe the beat and raise revenue guidance strategy is one that worked in the early stages (2020), but, when coupled with widening adjusted EBITDA losses, and more realistic / discerning investor approaches, it is simply not suitable in the current environment."
Stability now?
DraftKings did say that if legalization trends remain consistent, they expect to generate positive adjusted EBITDA in the fourth quarter of 2023. And Santarelli did note that they expect certain costs to start to plateau in the near future, including spending on sales and marketing.
Yet BetMGM CEO Adam Greenblatt said during an update of the operator’s outlook that he expected investors to become more demanding, which, in turn, would push publicly-traded bookmakers to become more prudent with their approach to promotional spending.
“I think maybe we've got one more NFL cycle of exuberance ahead of us,” Greenblatt said on January 19. “But capital is rational, money is rational.”
Still, the expected launch of online sports betting in states such as Ohio and Maryland this year will require some spending from operators to make themselves known to customers. Ontario, Canada's most populous province, intends to open a new iGaming market on April 4 too, although "gray" market sportsbooks already have a good grip on customers there that could tamp down marketing expenses.
Greenblatt’s assessment was backed up by the chief executive of one of the owners of BetMGM, U.K.-based Entain Plc. Entain CEO Jette Nygaard-Andersen said on January 20 that they expect (and had already seen) that the level of spending among their competitors would stabilize and come down.
But if big markets open up, the big spending could resume.
“So we will see how that plays out going forward,” Nygaard-Andersen said, according to a transcript. “But we should expect … that every time you have a big state coming online, as, for example, in New York, you will see somewhat of a spending blitz.”
