Sports Betting Sites Could Face Super Bowl Sunday 'Scaries' Amid Profitability Push

A major customer-acquisition event, the Super Bowl, is approaching for sportsbook operators. But after, a period of austerity may be looming.

Last Updated: Feb 6, 2023 3:42 PM ET Read Time: 4 min
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Like their customers, online sports betting sites may be heading for a case of the “Sunday scaries” this weekend.

But the usual anxiety that can build up as Monday and another week of work draw closer — the aforementioned “scaries” — could be exacerbated by the fact that this Sunday is Super Bowl Sunday, a huge day for sportsbooks. 

Furthermore, this year’s Super Bowl will arrive as bookmakers are promising profitability after years of red ink. Analysts at Jefferies Group LLC, a financial-services firm, wrote in a report released Monday that they “expect an inflection point in 2023” for online sports betting operators.  

“Despite the rally thus far this year, valuations for digital wagering companies remain depressed as the market is highly focused on near-term profitability and cash burn,” the Jefferies analysts said. “Nevertheless, most operators have suggested 2023 should be the year when they turn [earnings before interest, taxes, depreciation, and amortization] positive, which should provide catalysts for the stocks.” 

In short, then, this Super Bowl, which will be the first played in a state with legal sports betting, could mark a watershed moment for the online gambling industry.

When Monday rolls around, the super-popular football season will be over for bettors and bookies, but the push for profitability among operators will still be there, which could be enough to send Sunday scaries shooting through executives as the confetti falls in Arizona

And how operators try to turn their earnings positive could be felt by gamblers, who may find themselves with fewer free bets and other promotions directed their way. That is because one of the levers companies can pull is on the expense side, cutting spending and jobs. 

That lever is already in use. DraftKings is reportedly shrinking its workforce by about 3.5% as the Boston-based bookmaker strives to reach adjusted profitability in the fourth quarter of 2023. 

Targets acquired

Promotional spending by sportsbooks has already begun to come back down to earth as well. The Jefferies analysts said “marketing intensity has been meaningfully reduced” since last year’s Super Bowl. 

Mike Raffensperger, the chief commercial officer for FanDuel, said during a capital markets day in November that 80% of the operator’s promotional spending now happens in a “targeted” fashion. So even while promotions remain a major cost for FanDuel, which has the biggest share of the U.S. sports betting market, the company is finding ways to curb those expenses. 

“We spend as a percentage of revenue less than any other operator in the marketplace by a wide margin,” Raffensperger said.

Meanwhile, BetMGM told investors last month that it anticipates less money this year from its owners, Entain PLC and MGM Resorts International. The two companies said they expected to pump around $450 million into their joint venture in 2022, but this year, the expectation is for $150 million to be spent on BetMGM. 

If that's the case, Entain and MGM will have spent approximately $1.25 billion on BetMGM in less than five years. And, as the operator is forecasting positive earnings in the second half of 2023, that financial support could soon be gone, leaving the bookmaker to get by on its own efforts.

“Assuming no major changes to our environment and target markets, we expect financial support for BetMGM to come to an end, as we move into profitability in the U.S.,” Entain CEO Jette Nygaard-Andersen said during a trading update last week.

Big game, big spending

But there are a few occasions when spending big on promotions may always be warranted. One is the opening of a new market, such as Ohio recently or California or Texas in the future. Another is an event that provides an opportunity to acquire customers, such as the Super Bowl, which will attract plenty of action from recreational and professional bettors. 

Billions will likely be wagered on this year's Big Game. Making a good impression on Sunday could be key to winning and keeping the business of bettors. 

And operators only have so many opportunities to make a splash with consumers, with a recent Ipsos poll finding 73% of sports bettors it surveyed wager once a month or less. Moreover, the Jefferies report said 41% of respondents to its survey "indicated they only bet on major sporting events, making the Super Bowl critical to attract new users." 

So another round of spending on the Big Game seems to be in order. Afterward, though, could be a period of austerity for operators, especially since there is no more NFL football until the fall, depriving customers of their favorite betting markets. 

“What you always see coming out of the Super Bowl is everybody pulls back on spending,” FanDuel CEO Amy Howe said during their investor day

In the (watch)dog house

Recent media reporting about the sports-betting industry has also given a jolt to lawmakers and regulators, resulting in fines for operators and new rules being proposed for the sector overall. It's in this stricter environment that companies will have to carve out profits for themselves, which could heighten their anxiety on Super Bowl Sunday. 

Still, the financial and regulatory constraints on companies could provide their own opportunities. 

Howe noted that their competitors cut their spending more dramatically than usual following last year’s Super Bowl, prompting FanDuel to spend to scoop up even more of the market.

After all, March Madness is just around the corner, and the cost of acquiring customers could wind up lower than the value those players ultimately provide. 

“And when we see that formula work, we are going to lean in, just as we did this year,” Howe said in November. 

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