As the iGaming and online sports wagering sectors evolve and stakeholders prioritize profitability, expectations have been that promotional spending would stabilize. However, one analyst suggests that while adjustments are occurring, the extent of the decline in promotional expenses remains uncertain.
In a recent communication to clients, Deutsche Bank analyst Carlo Santarelli noted a decrease in promotional spending relative to gross gaming revenue (GGR) during the first quarter. However, he attributes this decline primarily to the entry of new states into the regulated online sports betting market. Initial state launches typically necessitate substantial promotional efforts to attract customers and capture market share.
While individual operators may indeed be scaling back promotions within existing markets, Santarelli highlights ongoing aggressive spending by mobile sportsbook operators in established states like New Jersey and Pennsylvania.
Promotional expenditure poses a significant challenge to profitability in the regulated sports betting sector. Operators must balance the need to acquire and retain customers with the imperative of achieving financial sustainability.
Santarelli’s analysis indicates that promotional spending has increased in four out of five states that legalized internet casinos before 2021. This suggests heightened competition within the iGaming space, further complicating profitability targets.
Despite the persistently elevated promotional expenses, certain gaming companies have managed to achieve profitability. Examples include Flutter Entertainment’s FanDuel and DraftKings, which reported positive earnings metrics in recent periods.
However, Santarelli cautions against relying solely on the concept of “hold” – the portion of wagers retained by operators – as a performance metric. While hold discrepancies may explain some weak quarterly results, he suggests that over-reliance on this measure could distort market perceptions.
Although sportsbook operators faced challenges following events like the Masters and NCAA Tournament, subsequent weeks have seen improved performance, indicating resilience within the industry.
As iGaming and sports betting continue to evolve, monitoring promotional dynamics alongside profitability metrics remains crucial for operators and investors alike.
