Last year, U.S. gaming giant DraftKings, reported that its average customer acquisition cost was $371. When you consider the sheer volume of players they onboard, you can understand why operators are actively trying to bring that number down.
The cost of acquisition will naturally decrease as the market continues to mature, more ways to play become available and customer loyalties become better established. But for now, as the U.S. landgrab continues, operators will also continue to take the hit. Even operators such as FanDuel (FD), who generated over $800 million last year, spent over $400 million on marketing alone!
Acquisition and customer onboarding both rely on fan engagement over and above any other aspect. Without the customer’s attention in the first place, it would be impossible to convert them to any new platform or product. One product that has historically garnered the attention of sports fans especially, en masse, is Daily Fantasy Sports (DFS). Before the onset of online sports betting regulation in the United States, DFS was the foremost platform for online sports fan engagement.
Currently legal in 43 states, this vertical generated $2.91 billion in revenue back in 2018, and has continued to grow ever since (source: Fantasy Sports Trade Association). Now, with online sports betting products in the mix, there are increased opportunities to further accentuate fan engagement and grow the related revenues.
Recently, commenting on DFS’s connection with sportsbook market growth, Matthew Kalish, DraftKings President of North American Operations, said, “It’s definitely an advantage. When new markets open up, the first wave of customers into our sports betting product are typically our daily fantasy users from that state.”
DraftKings is able to advertise its daily fantasy offerings nationally, which helps it acquire new users in states where it is operating a sportsbook. Kalish also said, “There’s a tremendous amount of shared interest between fantasy players and sports bettors—there’s a high affinity to participate in both.” Hearing that from the leader of one of the largest operators in the U.S. is a clear indication of the value DFS brings to sportsbook operators.
Further evidence of this trend can be seen in recent industry partnership deals. FD announced a milestone partnership with casino giant, Mohegan Gaming & Entertainment (MGE). FD will be providing online sports betting as well as iGaming and daily fantasy sports at MGE’s flagship property. Recent deals such as these are a clear indication of the direction in which sportsbook brands are moving.
Despite being very distinct products with separate regulation, the user base for all three verticals, traditional fantasy, DFS, and sports betting, share many commonalities. A recent study, commissioned by the Fantasy Sports & Gaming Association, found that “79% of fantasy sports players who are not current sports wagerers say they will likely participate in sports betting once legalized in their state.” With statistics like this, the case for DFS being cross-sold into sportsbook becomes undeniable.
This suggests that those operators who have an active free to play DFS component will have a distinct advantage in sportsbook player acquisition and will be able to convert these players with considerably less effort or incremental spend.
Vanessa Simpson, Investor Relations and Corporate Communications Manager at Flutter, was asked about DFS’s ability to ease the acquisition process. She said “FanDuel’s 9.5 million DFS players provide the operator with a huge competitive advantage in acquisition cost. Since 2018, when states could legally allow online sports betting, 41% of FanDuel’s sportsbook customers came from its DFS player roster”.
Also adding: “We are, therefore, able to acquire customers efficiently and at-scale through cross-selling sports betting and iGaming products to these DFS customers. This also allows us to acquire customers in U.S. states that have yet to legislate for sports betting and iGaming.
While it is not the only factor accounting for the early success of the market leaders in the U.S., it is clear from a recent string of deals and buyouts that the DFS vertical is seen by most a key ingredient in forming strong real money and gaming brands.
From a review of the market trends and conditions in North America, it is clear that for any budding sportsbook operator, it is critical to undertake M&A activity or to launch a DFS vertical so that you have a meaningful database of players ready to target. Even in states where online sports betting is regulated already, it is the perfect engagement tool. A big reason why massive operators like Fox Bet have invested significant resources into developing their Super 6 DFS product, illustrating how DFS can be used to reach parts of the population sports betting cannot, through mainstream media platforms and partnerships with major brands like Ford. It was also a big driver behind Bally’s acquisition of the third largest DFS operator in the U.S., Monkey Knife Fight, for $90 Million earlier this year.
While the main emphasis will be on cheaper acquisition and marketing costs, DFS has additional benefits. Free-to-play betting is the perfect educational tool for sports fans to familiarize themselves with fixed-odds wagering and enables operators to build up customer databases even in some of the big jurisdictions that so far have not regulated sports betting, such as California, Texas or Florida.
When considering what success looks like in the U.S. and how it can be achieved most effectively, it seems DFS has the most potential and should always be a strong consideration for any operator hoping to live their own American dream!
By Chris Kape, Owner – JAMCO Capital
Chris Kape, an iGaming industry veteran of two decades, is the owner of JAMCO Capital, a family office venture capital firm, and is the founder and ex-CEO of Don Best Sports, which was sold to Scientific Games in 2018.