According to both the American Gaming Association and Stone, operators only receive 5% to 7% of all wagers made on legal sportsbooks as profit, and that's before paying regulatory fees and taxes, which in some jurisdictions can amount to up to 50% of profit. Online sports betting isn't now a profitable venture after overhead, marketing costs, employee salaries, and other related costs are taken into account. According to Vixio, these costs alone can account for more than 50% of total income.

In fact, DraftKings recently recorded Q3 revenue of $133 million, which represents a 98% growth over the same period in 2017. However, as a result of spending on agreements with the Chicago Cubs, MLB, ESPN, the New York Giants, and Michael Jordan, among others, the company's sales and marketing expense jumped to $203 million in the same quarter. This expenditure helped DraftKings increase its user base, as measured by the number of monthly unique payers, by 64% in Q3, but it also served as a warning that profitability might still be years away.

It certainly feel like growth and market share are being pursued at all costs right now, according to Stone. "People don't care if they lose money; DraftKings is losing a tonne of money yet is valued at an eye-watering amount.

The focus is still on becoming one of those "winners" for the time being. There will probably only be five to six betting firms who amass more than 10% market share, assuming Stone is correct and the U.S. sports betting market ends up resembling that of the considerably further-ahead U.K. one. There will be a lot of losers because there are currently significantly more than six companies in the industry.

The competition has inspired some rather inventive marketing strategies.

For instance, FanDuel is introducing some novel ideas like refundable "Same Game Parlays" and crowdfunded sports wagers. If you are unaware, both of those offers work to almost eliminate risk while leaving the rate of return (or the odds) unaffected.

Raffensperger stated, "We are spending to launch in additional states and that is a result of getting many people to sample our products. Fundamentally, we do want to be kind to our consumers and create a pleasurable environment for sports betting. We think that generosity leads to long-term retention and loyalty because we have seen it in our figures thus far and in market share reports.

Present danger?

According to Stone, it can sometimes result in average client lifetime values of up to $2,000, so it definitely pays off. While that figure has the potential to be problematic for both the industry and its patrons, it is appealing to gambling operators for obvious reasons (and is the main cause of the current promotional environment).

The National Conference on Problem Gambling's executive director, Keith Whyte, advised examining what has occurred in Europe. Online sports gambling exploded a few years ago in nations like the U.K., Spain, France, etc. It was legalised across the majority of the continent much before it was in the U.S. Sports bookmakers started a fierce battle for market dominance after realising there was a multibillion dollar market.

Ads started to appear everywhere soon. On the uniforms of soccer teams, continuously throughout television broadcasts, within sporting venues, on streaming services, on social media, etc. Sports betting businesses were prepared to invest hundreds of millions of dollars in order to eventually profit off the substantial losses that long-term bettors will incur. Spend money on marketing up front to gain market share and then profit from it. No problem, isn't it?

Actually, not quite. As problem gambling behaviours became more and more prevalent, the public, media, and government quickly reacted negatively to the betting boom. Fields claims that the sporadic character of these promotions is what fuels compulsive behaviour.

They want you to win your first wager because it will give you confidence that you are an expert, according to Fields. The intermittent reinforcement schedule, which is the most powerful reinforcement of behaviour, then begins. It is simple to give up if you consistently lose and never succeed. It will be simpler to give up if you constantly win before suddenly starting to lose. However, research indicates that it will be most challenging to stop that pattern of behaviour if you win occasionally.

Indeed, throughout Europe, limitations on their ability to advertise were soon imposed, and operators were compelled to contribute funds to campaigns aimed at preventing gambling addiction.

He contends that state governments and businesses should pursue a longer-term strategy of creating more sustainable clients. To put it another way, they should scale down on the frequency and intensity of their advertising campaigns, spend more on measures to avoid gambling addiction (treating it similarly to alcohol), set limitations on the size of bets and the number of transactions, and monitor client retention. Operators' decisions regarding whether to follow this counsel or proceed recklessly remain to be seen.

Whyte added that while it might not be popular with some operators who are only thinking about the short term, those who are thinking about the long term understand that because acquisition expenses are so high, they will benefit more from keeping a customer. Therefore, it is in their economic best advantage, not just their ethical best interest, to spend a little time attempting to make these clients a little bit more sustainable.

You're not alone if you recently can't watch a football game or go through Twitter without seeing an overt advertisement for online sports betting.

Offers like "Place your first bet up to $500 risk free" and "Bet $20, win $125 if Aaron Rodgers throws for one passing yard" have become commonplace as sportsbooks continue to dangle the promise of essentially free money in hopes of attracting a customer base that will bet and—more often than not—lose money over the long term.

These offers have multiplied as betting firms, many of whom are eager to take advantage of ever-loosening state gambling laws, find that a populace weary of the pandemic makes the ideal target market. According to Eric Fields, a psychotherapist who specialises in addiction therapy, "there has clearly been a substantial increase in mental-health disorders and addiction throughout the pandemic." "People who have already struggled with addiction or mental health issues have been particularly vulnerable at this time, and even those who haven't may now be at risk of doing so. People who spend so much time at home seem to be more prone to making temporary fixes and seeking out quick satisfaction.

The U.S. legal sports betting business as a whole generated just over $900 million in revenue in 2019, and that's despite less than half of states having legalised the activity. It is predicted to earn between $7 billion and $8 billion in annual revenue by 2025. Sportsbooks typically spend several hundred dollars on customer acquisition costs in the hopes of gaining lifetime values of over a thousand dollars per paying user, according to Chris Grove of the research firm Eilers & Krejcik Gaming.

According to the American Gaming Association, 25 states plus Washington, D.C. have legalised sports betting to date, with Louisiana, Maryland, and South Dakota entering the club this election cycle after ballot proposals were approved. While a select group of leading competitors, including DraftKings, FanDuel, and more seasoned casino gambling operators William Hill and BetMGM, now retain a considerable lead, others—New Jersey currently has upwards of 15 providers vying—have continued to jam the already crowded field. As a result, operators are ignoring profit margins and funding these free-bet and odds-boosting initiatives in what may turn out to be a fruitless attempt to corner the multibillion-dollar mobile gambling market.

It's virtually a race to the bottom when it comes to free bets and promotional intensity, according to Daniel Stone, head of data at gaming industry intelligence company Vixio GamblingCompliance. Even if DraftKings wants to cut back and become a little more conservative, they follow what their rivals are doing, in a way. With the NFL season just getting underway, it will be difficult for FanDuel and DraftKings to turn off the taps and exercise greater caution if Barstool enters Pennsylvania and attacks it with free bets and other generous offers.

Because they are currently the two biggest players in the market and have been for some time, Stone explicitly cites DraftKings and FanDuel. DraftKings and FanDuel were well-known because to their Daily Fantasy Sports services even before the U.S. Supreme Court struck down a federal law outlawing sports betting in May 2018. When mobile sports betting became legal in some jurisdictions, DraftKings and FanDuel already had access to a user base that other rivals lacked.

"This lead has actually been built up by DraftKings and FanDuel on the basis of this enormous, ready-made DFS user base that is just sitting there ready to be cross-sold," Stone said. "They've been able to monetize those people and build enormous sports betting businesses at a far lower customer acquisition cost than an MGM or a Caesars who are starting more from scratch and trying to cross-sell older slot players in their databases in Indiana or Illinois who might not be the best fit for sports betting."

Although they both began with a sizable active user base, neither DraftKings nor FanDuel have always been successful. While the pandemic's interruption of the sports season undoubtedly didn't help matters, DraftKings reported operational losses in both 2018 and 2019. The business also failed to make a profit again during the first half of 2020. Despite a 45% increase in sales year over year in 2019, FanDuel lost money in the previous fiscal year. As additional states legalise the activity, revenue will continue to rise, but bookmakers still have to pay to both ward off new competitors with massive marketing and promotional efforts and invest in product upgrades and personnel expansion in a sector that currently operates on slim margins.

According to FanDuel's CMO, Mike Raffensperger, "right now, we're heavily in growth mode." "We are making investments to expand into new states, and getting plenty of people to sample our products is a requirement for it. In the end, this means that throughout these early stages, we are spending more money than we are bringing in.

''There is a torrent of competition from more recent newcomers while the major firms like FanDuel, DraftKings, BetMGM, William Hill, and BetRivers compete for market share. Just two of the most recent businesses to try to get in on the activity are Penn National Gaming-owned PointsBet and Barstool Sports. As they expand into new states, they bring with them their own frenzy of promotions. Stone is particularly interested in the bar stool. According to Stone, "their audience is kind of suited to cross-sell to sports betting." "I'm aware that some of them will be under 21, but these are young, sports-crazed guys who already gamble on sports. Their success in other sectors is proof that they are committed to the Barstool brand. They believe they are in control of this.''