Navigating the race to profitability in the US

The legal online sports betting market in the US is being dominated by behemoths backed by big money and with no concern of achieving profitability in the near term. Billions of dollars have been spent on mergers and acquisitions, above-the-line marketing activity and frankly insane bonusing, with no sign of the money taps being turned off anytime soon. This makes it incredibly challenging for smaller operators looking to establish their position in the market; not only do they have to compete with these operators, but they also have to be profitable. But spending big doesn’t always mean spending smart, and there are plenty of opportunities for these companies to find their niche and deliver a superior player experience. Of course, there are just as many challenges to face but, with the right brand, a modern platform and savvy marketing, they can be overcome.

The challenge of achieving profitability

Brand recognition is key if operators are to engage players, drive them to their sportsbooks and retain them once they have signed up, deposited and wagered for the first time. But brand recognition is expensive to achieve – just look at the deals signed by the likes of DraftKings and FanDuel with the latter even adding the Associated Press to its roster of partners. This is made even more challenging by the incestuous nature of bettors and how they move from brand to brand simply because they have been offered a generous sign-up bonus. There are more fundamental market challenges that impact profitability, too. This includes the unusually high cost of doing business in regulated US states compared to European markets. For every $1 of GGR, there are licensing costs, local and federal taxes, as well as geolocation, payment and game fees and that’s before you factor in marketing, affiliate costs and so on. The greatest hurdle to profitability, however, is the legacy platforms that are being used by the vast majority of operators currently live in the market. While pre-go-live these platforms were considered a safe bet, three years in they are preventing operators from delivering the cutting-edge experience players are expecting. As the market continues to roll out at pace, and players become more demanding and savvier, this is going to further hamper an operator’s ability to be profitable. Technology is the foundation of profitability If smaller operators are to make an impact in the market, they need first to understand they are not competing with the unprofitable power players. Instead, they should look to carve out their own niche, deliver a market-leading player experience that is superior to the big boys and then grow their share of market steadily. They will also need to squeeze everything they can out of the supply chain, streamline costs and drive the highest lifetime value out of every player that signs up, deposits and wagers. To do this, they must use a modern platform and technology stack as this is the only way to achieve the agility, flexibility and real-time customer insight needed to find a competitive edge. Modern platforms allow operators to deliver a superior experience; they can facilitate the launch of new markets, real-time consumer interactions and operational efficiencies. They have been designed specifically for mobile play, ensuring the sportsbook is easy to navigate and explore with minimum swiping and scrolling. What’s more, they allow operators to launch into multiple states and then simply reconfigure the platform to meet the regulatory requirements in each. With legacy platforms, this usually requires a dedicated team to rebuild the platform for each state and then manage it on an ongoing basis – a very costly undertaking. This is why it takes so long to roll out new features; they have to be built for each state whereas with a modern platform, new features are rolled out seamlessly across all states in one hit. For land-based operators, state-of-the-art technologies also allow them to leverage key assets such as their player database and to drive these customers online for the first time. But most importantly, they provide operators with real-time insight of players across both online and land-based allowing them to be more efficient and effective with their marketing budgets. For example, operators using platforms that don’t provide this insight are really taking a “pay-and-spray” approach to bonusing – offering all players a $1,000 sign-up bonus does not work. Some players prefer free bets, while others favour brands that offer cashback. Modern platforms allow operators to reward players based on their behaviour and this drives incredible efficiencies. This can be achieved because operators are able to analyse data in real-time and tweak campaigns to ensure they are effective – those on legacy tech often work with data that is several days old.

The race to profitability is on

Spending big does not guarantee success. In fact, I would argue the opposite. By building a solid foundation using modern technologies, smaller operators can put themselves in the driving seat. Ultimately, bettors will bet at the sportsbooks that offer the best experience and this can be achieved while still being profitable from the very start. As the US market settles and matures, those that have invested in technology and started small but with big ambitions will be the brands that will get the most out of this new revenue opportunity and ultimately cross the line ahead of those with the deepest pockets. Damian Xuereb is president and CCO of Strive Gaming and is primarily responsible for the overall commercial and growth performance of the company, while also aligning sales objectives with a firm business strategy. He has more than 20 years’ commercial experience including four years at Kambi Group where he spearheaded a US customer drive that today now accounts for 30-40% of all sports betting wagers in the US through Kambi.