In fiction, a third-person narrator can usually be trusted to provide objective thoughts on the characters. That’s because they’re simply observing the action, not part of the story.
At the moment, Malta-based online poker software developer EvenBet Gaming has a similar role when it comes to the US.
It’s watching the growth of US online casinos and poker rooms from afar but isn’t directly involved quite yet.
Julia Panina, EvenBet’s head of demand generation, recently shared her thoughts with Bonus.com on US online gambling operators’ marketing spend.
EvenBet As A Third-Party Narrator
In the US, industry analysts continue to say that leading operators are spending too much on marketing, advertising, promotion and customer acquisition. They say those costs are far too high a percentage of their revenue. For instance, in Q4 2021, Boston-headquartered DraftKings generated $473 million in revenue. Over the same period, it spent $278 million – or almost 60% of that revenue – on sales and marketing.
Panina, with her third-party narrator’s perspective from EvenBet’s office in Yerevan, Armenia, said those industry critics are right. She feels that the current spending levels obscure the true picture.
She told Bonus:
It’s not about the super popularity of online sports betting in the US. (Especially in New York.) It’s about the super marketing investments the industry giants presently do. Only when the advertising costs will drop to a somewhat acceptable level (around 30-40% of total costs?) will we get a clear picture of the iGaming industry in the US.
As for EvenBet, Panina’s company provides an online poker platform to partners in 38 countries, across five continents. These markets stretch from as far north as Russia to as far south as Argentina. In total, there are 15 million players at poker rooms using EvenBet technology.
The company even has a presence in North America, albeit in Canada and Mexico and not the US.
Here’s what Panina thinks about the US online casino market. The questions from Bonus.com are in bold, with her answers presented verbatim.
DraftKings is a big sales and marketing spender in the US. Do you think it spends too much?
Your figures are very illustrative. However, there are different approaches to marketing spend. According to your data, the percentage of marketing spend in DraftKings comprises 58% of GGR, much higher than the commonly advised figure for industries in general – just 8% of GGR. Indeed, iGaming is an exception from the common rule; especially in the emerging USA market, and the marketing costs percentage is expected to be higher. Let’s analyze the figures published by Penn National Gaming, another US market player. The company states its marketing spend reached only 17% in 2021 (twice as much as the general figure), as their competitor average topped 63% of GGR.
As you see, we face two counterpart strategies. One of them is about getting market share by paying any price, ‘killing’ most competitors, and leaving just a handful of market players. All the US leaders support this strategy – DraftKings, FanDuel, BetMGM. The difference in the percentage of marketing costs between them is comparatively low (not to mention that MGM is a strong brand already).
Another approach is a profit-first strategy based on building revenue proportionally to the marketing money spent. This strategy is supported by the rest [of] companies comprising 20% of the US iGaming market. The second group spends less, but is still far from the commonly suggested level (8%).
Do you think US online casino operators will change marketing strategies?
In my opinion, the budgets of both groups should go down soon, due to the disconnection between the figures we presently witness. The average revenue per monthly unique payer is $67 (according to DraftKings). In contrast, the average cost per acquisition in the US varies from $500 to $600. It takes too long to get the money spent back. What can be a new level? My guess would be a level of 30% to 35% of GGR for the first group and 10% to 12% for the second group.
In your experience, is DraftKings’ kind of marketing expenditure sustainable?
The last news about DraftKings stock share prices speaks for itself. They dropped from a record high of $72 per share in March 2021 to just $10 in May 2022. I think this rollercoaster is mainly caused by the aggressive marketing spend.
Was that the level of expenditure in the European and Latin American markets?
The Latin American market is still an emerging market regarding iGaming. Because of the low average income of the population, we cannot expect revenues like in the US, which means marketing budgets will also be lower.
As for the European market, there was definitely a difference once it was at the beginning of its journey. The marketing budgets didn’t keep on a high level for long. There were too many players at a time. There wasn’t a strategic plan to win the market with three or four leaders.
For almost a year, the US market was not accessible to foreign operators, which gave the domestic companies a great advantage. The US companies had enough time to get their substantial market share.
Now that Michigan’s in the multi-state online poker agreement, will EvenBet come to the US?
Even though we’re in the process of negotiations with some US operators, it looks like it’s a little bit early. For poker, sharing liquidity is an issue No. 1. The investments in this sphere will grow immensely once there is a sense of a trend of states opening to iGaming legalization and joining the multi-state agreement. Michigan is just an early bird in that huge sports betting wave overflowing the country.
What kind of operator will EvenBet pick as a partner? Does its sensible marketing spend weigh into that decision?
We are looking to medium-sized companies – trying to go for rather a niche, tailor-made product, instead of conquering the market. With rational marketing spend, such operators will be able to invest more in customization, standing out in the market. Also, getting prepared for the demanding US poker player, we have recently released a redesigned mobile app. The upgraded app provides a more engaging onboarding and gaming experience and offers clear visibility of its most important functionalities right after login.
What else should Bonus.com readers know about sensible marketing spend?
There is definitely no single rule for effective marketing spend. It’s all about doing experiments and taking risks, especially when it comes to compelling markets with high potential revenues. The New York market is a clear illustration. The licensed companies are spending enormous amounts to win the game. However, not to fall into the deep hole, they need to have some effective analytical tools to react instantaneously to the slightest changes in the gameplay. I think right now, they are building somewhat new analytical systems in their businesses.
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