Editor’s Note - I need your help!: This week marks over three months of doing the Sports Business Playbook, and I just want to say thank you to each of you for your support! This has been an incredibly fun journey so far, and I’m looking forward to what’s next.

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Other podcasts/newsletters have a lighthearted way to describe it (Pardon My Take’s “subscribe, unsubscribe, resubscribe”, My First Million’s “gentleman’s agreement”, Pat McAfee’s “for the brand,” etc.), so I’ll jump in on the fun.

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Good Thursday Morning. Here’s the rundown of this week’s Sports Business Playbook:

• 📰 This Week’s Topic: The US sports betting market is now five years old. Last week, we dug into the winners of the first market cycle and what made them successful in Part 1 of our two-week series on the industry. In Part 2 this week, we’re looking at three key questions that will determine the next five years.

• 🍸️ Impress Your Friends at Cocktail Party: Want to show off your sports knowledge in a public setting but don’t have time to read the deep dive? Hit the “Impress Your Friends at Cocktail Party” section at the bottom for a CliffsNotes of this week’s topic

• 🤯 “Whoa of the Week”: The NFL’s continued dominance in revenue

• 💪 Weekly Reminders that Sports are Awesome: A truly mind bending Women’s World Cup ad and the Seahawks’ love of the 90’s.

Hey team,

Welcome to Part 2 of our two-week series on the US sports betting industry. If you missed Part 1 last week, you can check it out here.

Picking up where we left off last time, there are now over 50 legal online sportsbooks across the US, but 90% of the overall market share is dominated by four firms, with two really leading the way:

• FanDuel: 46%

• DraftKings: 25%

  ****

• BetMGM: 12%

• Caesars: 6.7%

While business is booming right now, a new market cycle is emerging, and despite the current leaders’ dominance after five years, success for the next five and beyond is not guaranteed.

Consumer preferences are changing, well-capitalized market entrants await, and new, more reasonable customer acquisition models may be required to grab and retain market share.

With these challenges in mind, here are three key questions that will determine the next five years in the US sports betting market:

1. Does having a large existing database still matter for new market entrants?

2. Can a content-driven acquisition strategy truly work?

3. Is in-game, more casual betting the next major unlock?

Question 1: Does having a large existing database still matter for new market entrants?

While they’re involved in sports and betting, online sportsbook operators are ultimately tech companies, and they’re selling a consumer tech product.

One of the major challenges with any consumer tech product, let alone one in a commoditized industry like sports betting, is attracting a critical mass of users in a new market to gain network effects and drive meaningful returns.

In consumer tech, new market entrants often face the challenge of the “cold start problem,” which simply states that it’s harder to build an audience from scratch than build on top of something already in motion instead of starting at square one.

The four winners from the first market cycle overcame this cold start problem due to their large existing databases from a complementary line of business (casino, daily fantasy sports) that they could quickly tap into and try to cross-sell. It’s now also given them a sizable moat against any new market entrants

But, as we enter the second market cycle, another organization is making a bet they can use a large existing database to overcome the cold start problem and achieve scale.

That company? Fanatics.

As a quick primer, Fanatics grew out of a small retail operation in Jacksonville, Florida to become a $31 billion ecommerce behemoth that now dominates the sports merchandise landscape and has official partnerships with every major league and college in North America, plus several partners overseas.

The “Amazon of sports” (trademark: me) is hungry for more, though.

CEO Michael Rubin has said “he wants Fanatics to be a $100 billion company” and to become the dominant “global digital sports platform.” To achieve this, they are using their scale and deep pockets to rapidly expand into other verticals, including collectibles, events, and…you guessed it — sports betting.

The firm made a splash a few years ago when it hired former FanDuel CEO Matt King (how juicy!) to lead its betting operation, and it has been slowly building the platform since then. In January 2023, the beta app launched in four states.

Fanatics has always been considered as the biggest threat to the market leaders because of its pedigree and deep pockets, but one major question has been facing the giant: market access.

If you remember from Part 1, each state has its own rules on the number of licenses it awards to operators, and many of the states that are live with sports betting have already allocated all of their licenses. This effectively shuts Fanatics out of those states.

But, there is a loophole: acquiring a company who holds one of those licenses.

Earlier this month, Fanatics overcame a bidding war with DraftKings (the pettiness behind the competitive bid from DK is well worth the read) and completed its purchase of Australian betting operator PointsBet’s US business. This deal, expected to close in August, should give Fanatics operating rights to 14 states by the start of football season (sports betting shops’ Christmas).

Market access? Check.

So, the existential question: can Fanatics take a page out of the first cycle playbook and cross-sell its massive database of tens of millions of ecommerce users into the sportsbook?

My Take

While comparable, ecommerce is not necessarily apples-to-apples to what the market leaders did because DFS/betting is a much closer consumer behavior than ecommerce/betting.

My belief is that their sheer scale and war chest, combined with Michael Rubin’s force of will and the leadership team’s experience in the space, will allow them to overtake Caesars and MGM and potentially challenge DK, but I don’t see Fanatics catching FanDuel.

Question 2: Can a content-driven acquisition strategy truly work?

As noted in Part 1, much of the customer acquisition strategy in the first market cycle was carpet bombing consumers with ads and unsustainable betting promos. You can still GTFOH, Patton Oswalt!

During this same period, an alternative strategy began to emerge — create large partnerships with content creators and try to leverage their platforms for activations that brings in new users while bringing the customer acquisition cost (CAC) down.

This initially started with large media partnerships (i.e., FanDuel and the Ringer) and more of the same carpet bombing during ad reads, but it evolved into more interesting, possibly better deals.

In 2021, FanDuel acquired the Pat McAfee Show for $120 million, and DraftKings announced a distribution partnership with Dan LeBatard’s Meadowlark Media. Both deals were structured where the media personalities either worked for or used the sports betting operators as primary distribution channels, and betting from the sportsbook was integrated into their content.

The theory is that users who are engaging with their favorite content will naturally gravitate and stay with the sportsbook that the content creator is integrating into their show, thus moving away from the ephemeral promo code and into longer-term stickiness and loyalty.

Both operators leaned into this concept further recently, launching full-time networks (FanDuelTV and DraftKings Network) to try to attract and retain customers.

Will it work? Unclear.

The best data point for the viability of this approach is Penn National Gaming. The casino group made the biggest investment of all operators when it acquired a 36% stake of polarizing content giant Barstool Sports in 2020 and snapped up the remaining shares earlier this year to assume full control — spending $500 million in total.

Barstool is by far the biggest content player of any of these examples, and Penn has been hyper focused on integrating both betting into content and the major content personalities into the betting app.

But, the results have been mixed thus far.

Barstool Sportsbook is available in 16 states — the 5th largest sportsbook by reach — but its total market share (~2-3%) trails the leaders by a pretty wide margin, and it appears to have lost ground within the last year.

Legal Sports Report’s write-up earlier this year suggests that the adoption of Barstool Sportsbook beyond its core audience remains limited and retention is not great, and much of it can be attributed to the app’s mediocre user experience. The market leaders have a better product but their content will not be at the same scale as Barstool, so it’s probably going to marginally help but not reshape the industry.

One important final point. While it has not been a rousing success in customer acquisition for online sports betting yet, the Barstool brand has been impactful at brick and mortar sportsbooks, and the media company itself is estimated to be worth $1 billion now — a 2x on Penn’s investment in just a few months. Not bad.

My Take

It’s still early, but content is proving to be moderately beneficial and not the silver bullet for customer acquisition and retention that many had hoped for. In fact, it appears that great marketing still can’t outrun a subpar product.

All of that being said, having a media entity to help with customer acquisition that could potentially turn into a successful standalone business is an interesting hedge for these operators. FanDuel and DraftKings are probably thinking that they can try to grow their networks from just cost centers into into complementary revenue streams that actually provide accretive value to the business.

Question 3: Is more casual, micro-event betting the next major unlock?

Most Americans primarily associate sports betting with pregame wagers, where they put their bets in prior to the event and then watch the game to see if their desired outcomes come to fruition.

In reality, the in-game wagering market (betting live on an outcome during an event) is where more of the action happens. This model is incredibly popular in the more mature European sports betting market (upwards of 75% of overall handle), and it is picking up in steam in the United States.

A common example would be taking an updated money line or spread bet in the 2nd quarter of an NFL game, of which the odds will have been adjusted by the sportsbook in near real time based upon what’s transpired during the game so far.

It gets even more granular, though. Sportsbooks are now offering bettors the ability to guess what the outcome of the very next play will be (i.e., will the next pitch in a baseball game be a strike, ball, hit, home run, etc.).

This “microbetting” is popular with sportsbooks because it creates continuous engagement throughout the game, which leads to more potential handle and stickiness with the product. So why isn’t it more common?

The challenges with this approach have usually not been due a lack of interest but due to technology constraints.

The processing power required to absorb the real-time data of events occurring, comb through copious amounts of historical data, and create feasible odds that entice customers but mitigate risk fast enough before the next event takes place has made it incredibly hard to pull off.

That’s changing.

The technological advancements from both the sportsbook operators and the data providers (i.e., Sportradar and Genius Sports) have condensed this latency, and sportsbooks are now rolling this offering out as quickly as possible. For example, DraftKings offered microbets on over 100,000 events during the 85 games that took place during last year’s college football opening weekend.

And it’s not expected to slow down. Andrew Bimson, Sportradar President and COO of North America, suggested at a trade conference earlier this year that the microbetting segment could reach $20 billion by 2027.

This growth has also caught the eye of a number of startups that are looking to capitalize on creating a more social betting experience with microbetting as the main feature.

SimpleBet is one of the OGs of the space (founded in 2018), focused on providing B2B, back-end microbetting solutions for the operators. One of their co-founders, Joey Levy, recently left to run Betr, a B2C microbetting company targeting casual sports fans that is co-owned by influencer and sorta-good (?) boxer Jake Paul. The company is operating in two states (with plans for two more soon), recently raised $35m in a Series A extension, and is currently valued at $300m.

Their thesis is that microbetting aligns with the changing consumer preferences, particularly among younger generations. While these users want to be a part of the action and shared experience in their communities, they also want:

• Less time commitment

• The flexibility to do things on their terms

• The instant gratification that comes from choosing to participate in a microbet.

All of this tracks, and the bigger operators are also thinking about how to incorporate this more social, microbetting experience into their apps. More handle for the sportsbook. Better experience for the users. So what’s the catch?

The biggest downside to microbetting is the risk for increasing addiction given the frequency and repetitiveness of the betting.

Keith Whyte, executive director of the National Council on Problem Gambling, notes that “heavy frequency is associated with gambling problems. You can get a hit of dopamine every few seconds; it’s more akin to playing a slot machine than betting on sports. People can get in this trance-like state where they just try to stay in action, and bet over and over again just to feel that same kind of high.”

This is a real issue, and sportsbooks will need to be mindful of how they are deploying these features as the technology continues to improve.

My Take

It’s hard to see a world where microbetting does not become a big part of the sports betting industry’s future, but it feels more like a feature than a product.

Organizations like Betr can potentially carve out a nice niche in the industry, but I don’t expect it to have a major outcome on the overall market share numbers.

To me, the bigger question will be if one of the traditional operators can successfully incorporate a more casual, social experience into their platform and attract a new audience. People love to talk with their friends about sports betting and share their wins and bad beats, but there’s not really a place to do that in a genuine fashion right now. Much of it has to do with where these market leaders cut their teeth.

Many of them are old guard casinos and/or have replicated the traditional sportsbook model used elsewhere in the world. They will have to revamp themselves with social, content focused experience to attract these new users while also keeping their high value customer base happy with the traditional model.

Or, more likely, one of them pulls a gangster move and tries to acquire a cool casual gaming company like Betr to integrate that social experience and already created audience (remember the cold start problem?) into their platform.

I also think they will need to beef up their responsible gaming practices to combat the potential over usage and subsequent PR challenges that will come from increased gambling addictions.

Educated Bets

Every couple of months, I grab coffee and talk shop with a friend who works at FanDuel. During one of our meetups a few weeks ago, I’d shared the three questions we talked about today and asked him for his feedback:

His response: “Yep, these are what we’re all thinking about. Let me know if you have the answers to any of these questions because I’ll quit now and we can go make a billion dollars together.”

Point being — while these theses have been established and generally accepted by the industry, they’re exactly that: theses.

Sportsbook operators know they need to continue to innovate to both gain/retain market share but also find a path to sustainable business practices. To do that, they’re making well-placed bets like these, but there is always risk and uncertainty when charting a new path.

Overall, I have three bets for the second market cycle:

1. Barring a game changing product development from a competitor or an equally monumental collapse on their part, I don’t see anyone catching FanDuel in this second market cycle. I think they’re too entrenched in that number one spot and can best anyone with their scale alone.

2. The duopoly of FanDuel and DraftKings remains, but Fanatics makes in-roads. I think Fanatics overtakes Caesars and BetMGM and begins to gain on DraftKings. I’m also not convinced Barstool doesn’t pull it together and leverage the content machine to overtake Caesars for the fourth spot, particularly as the major players pull back on their ad spend.

3. Fanatics acquires Betr or another social gaming competitor to try to scale their casual betting, create a key product differentiator, and gain market share.

Impress Your Friends at a Cocktail Party

Want to show off your sports knowledge in a public setting but don’t have time to read the deep dive? This section is the CliffsNotes of this week’s topic

• Opener: Three key questions in the second market cycle: does having a large existing database matter for new market entrants, is content for customer acquisition viable, and is social, in-game microbetting the next big thing?

• Shot: Does having a large existing database matter for new market entrants? This is really about if Fanatics can successfully use its ecommerce database to scale up its sports betting operation quickly. I think it will work but not to the extent the DFS to sports betting players (FanDuel and DraftKings) were able to.

• Shot: Content for customer acquisition? It’s not a silver bullet, as evidenced by Penn National’s relatively flat performance since acquiring Barstool. I think it is still a good play for FanDuel (FanDuel TV) and DraftKings (DraftKings Network) because we as sports fans continue to want more content and it has the potential to turn into a viable new line of business.

• Shot: Is social, in-gaming microbetting the next big thing? Yes, but more as a feature than as a game changing product. Jake Paul’s social betting company, Betr, may be able to carve out a nice niche but I don’t foresee it having a material impact on market share. It will be an interesting challenge to see the old-school market leaders try to adapt more to this, though.

• Chaser: My three “bets” for the next market cycle:

  • Barring a game changing product development from a competitor or an equally monumental collapse on their part, I don’t see anyone catching FanDuel in this second market cycle. I think they’re too entrenched in that number one spot and can best anyone with their scale alone.

  • The duopoly of FanDuel and DraftKings remains, but Fanatics makes in-roads and becomes the 3rd biggest player. I also think Barstool may figure it out and move into 4th.

  • Fanatics acquires Betr or another social betting competitor to try to scale their casual betting, create a key product differentiator, and gain market share.

“Whoa” of the Week

Insane, mind-blowing things constantly happen in the sports business world. Here was my favorite of the past week.

1. The NFL money machine continues to be something to behold. Note that this is before next year’s $110 billion media deal begins.

Weekly Reminder that Sports are Awesome

This newsletter is, of course, mostly centered on the business side of sports and the things that happen off the field. That being said, it’s important to remember why we fell in love with sports in the first place, though.

This section is meant to highlight the amazing things that happened in sports this week that serve as that reminder.

1. This French Women’s World Cup ad absolutely kicks ass. The WWC starts this weekend, so be sure to tune in!

2. Sports teams’ content departments are some of the most creative groups out there. Case in point: the Seahawks crushed their throwback 90’s uniform reveal. Video below, and check out their website!

Thanks for reading! Let me know what feedback you have.

Also, if you enjoyed this breakdown, please consider sharing it with your friends and network by clicking the social media icons at the top of the newsletter.

Until next time, sports fans!

-Alex