An analyst states that promotions for iGaming and sports betting are not decreasing.
The idea that promotional spending in the iGaming and online sports betting industries would decrease as they mature and become more focused on profitability is widely accepted. However, the extent of this decline is a subject of debate, according to Deutsche Bank analyst Carlo Santarelli.
In a note to clients, Santarelli acknowledges that promotional spending as a percentage of gross gaming revenue (GGR) did decrease in the first quarter, but suspects this could be due to new states entering the regulated online sports wagering market. When starting out, operators tend to spend heavily on attracting customers and competing for market share.
However, this doesn't seem to be the case with all operators, as some are still spending heavily on promotions in "vintage" states like New Jersey and Pennsylvania. The analyst writes that in states that are not newly launched, there is no evidence of a slowing down in the number of promotions.
Promotional spending can hinder profitability in the regulated sports betting industry. Operators need to spend money to acquire and retain customers, but this often comes at a cost. Four of the five states that approved internet casinos before 2021 saw an increase in promotional spending. While Santarelli doesn't believe the iGaming promotional landscape is much better than the online sports betting one, the GGR mix is heavily skewed towards online sports betting, making it difficult for some companies to achieve their profitability targets.
Despite these promotional expenditures, some gaming companies have managed to become profitable. FanDuel, a mobile sportsbook operator, was profitable on an annualized basis in 2021, while DraftKings delivered a surprise first-quarter earnings per share (EPS) profit on a non-generally accepted accounting principles (non-GAAP) basis.
According to a recent report by Goldman Sachs, there are 21 growth companies that did not make a profit in 2021 but could do so in 2024. Two of those stocks are DraftKings and Rush Street Interactive.
Regarding the term "hold" in wagering, it refers to the percentage of money operators retain for each dollar wagered. Santarelli notes that some companies are comparing internal performance against their expected hold - a number they set themselves. While he understands the logic behind this, he doesn't believe the investment community is comfortable with operators calling every missed target a hold miss.
Additionally, despite unfavorable outcomes for operators last month due to the Masters and the NCAA Tournament, the weeks following these events have been kind to gaming companies.
In conclusion, the promotion spending in the iGaming and online sports betting industries is a topic of debate. Operators need to spend money to attract and retain customers, but this can hinder profitability. Some companies are managing to become profitable despite the competition, and the refunds and promos are looking more favorable in the post-Masters and NCAA Tournament weeks.
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Source: www.casino.org
