Are you considering bringing your Tier 2 sportsbook operations to the massive US sports wagering market but daunted by Tier 1 companies FanDuel and DraftKings with an established command of 73% of the US sportsbook market? Of course you are. That was their objective in the first place. They saw the opportunity early on and spent years investing in the markets before they were even open. Hundreds of millions of dollars were burned in an attritive battle for this market because the business is worth billions in the long term. It’s a huge prize, and BetMGM and Caesars remain in the fight with their brands, customer databases, and physical assets, generating massive losses but sustaining operations with their combined market capitalizations of over $26B.
BetMGM and Caesars sustain operations by leveraging their brands, databases, and other physical assets that FanDuel and DraftKings cannot easily replicate. However, the second-tier market is generating massive losses, making this strategy unsustainable in the long run. As the first new sports betting markets mature, companies like FanDuel and DraftKings will dial back their customer acquisition spending to reduce losses and preserve capital for the battle for market share as each new state opens. This cycle will repeat until all likely candidates for sports wagering in the US have regulated their states, leaving the survivors with the power of brand loyalty and database marketing to focus on reasonable marketing spend and customer retention.
The dark cloud over this hyper-promotional strategy is that the companies are training the masses to be sharp shoppers rather than brand loyal. They understand that they can place a wager anywhere, so why go to company A, which offers a thousand dollars to set up and fund an account today, when company B offers more? When the market settles, bettors will stay with the brand they feel most comfortable with. Still, the barrier to defection will remain low as long as product differentiation is low, and all the operators carry the same odds.
Does that mean there’s no place for you at the table? That depends on your expectations. If you have access to (a) a time machine or (b) the organizational will to spend three years and billion dollars to steal market share from FanDuel and Draft Kings, you can likely set a place for yourself at their table and spend the next seven years breaking even.
If you do not have a time machine or a limitless stomach for unprofitability, we have an idea we would like to share.
That idea is to fight where the enemy is not — we recommend a different scale of business than that of the market leaders who have built a seemingly unassailable castle with high stone walls made from the rubble of their retreating competition.
We recommend entering the market by building and operating micro brands that serve niche communities. The very nature of these long-tail sports betting markets makes it difficult for Tier 1 companies to compete. Their brands are established and speak to the masses.
You could have a highly profitable, highly desirable sports book operation by focusing on a 4% market strategy to bring your products and services to underserved markets. To niche customers with addressable interests for whom the Tier 1 companies cannot efficiently serve due to the scale of their mass market business. This long-tail marketing strategy will help you build a profitable business in the cracks of that massive stone wall, within which is the rich soil of profit.
New sportsbooks must fight where the enemy is not, focusing on the 4% strategy by leveraging underserved consumer markets. With the proper marketing budget and strategic approach, sportsbooks can be highly profitable, with only 4% market share.
Consider this three-step branding exercise, which strategically widens a customer acquisition funnel for your new business:
First, start with a universe of niche sports betting audiences. These could be driven by demographics (age, nationality, cultural identities), geography (Cities, socially homogenous regions, urban exclaves), or affiliation with existing non-sports betting brands such as colleges, universities, and niche media brands. Then, create a set of micro brands that speak to idealized audiences within those markets as precisely as possible. Think about their archetypical customers and build a brand platform that faithfully and completely speaks to them.
Next, design and build an operation that will support the needs of the core audience AND consumers who are aligned or affiliated with those archetypes. Think of the people within the social circle of your core served archetypes. Add products and services to the operation that meet the needs of those additional consumers. Never, however, dilute the brand to include the identity of those other customers. They will come because their personal brands are aligned with the identity of the customers you originally designed your brand to serve. Muddying the message reduces the draw for those affiliated audiences.
Finally, create marketing, advertising, and content branding that reaches out to everyone across channels that focus on the customers you built your business to serve. This broadest net includes virtually anyone, including random consumers who found their way to you. These accidental customers need a way to address their needs for placing a sports bet and should be supported by the foundational technology used by everyone else in the market.
We believe this 4% strategy will result in a business that generates significant profit, real customer value, and a truly loyal audience for any operator who wants to operate at this scale.
We hope more operators will look at this strategy and focus on niche customer markets and the many emerging technologies that can empower them. Businesses with niche market technologies and finely tuned brand platforms at their core can deliver the messaging, products, and services necessary to win customer loyalty and not just buy handle.
