The Intriguing Dynamics of Promotional Spending in the iGaming Industry

Key Takeaways:

• Promotional spending in the iGaming and online sports wagering industries is decreasing as a percentage of gross gaming revenue (GGR), but the extent of this decline is debatable.
• The decline in promotional spending could be attributed to fewer new states legalizing online sports wagering rather than a strategic shift towards profitability.
• Despite high promotional expenditures, some companies, like FanDuel and DraftKings, are finding pathways to profitability.

The iGaming and online sports betting sectors are at a fascinating crossroads. Analysts and insiders have anticipated a shift towards greater financial prudence as these industries mature. Yet, the narrative surrounding promotional spending, a critical tool for customer acquisition and retention, isn't as straightforward as some might hope.

The Promotional Puzzle

Promotional spending, the not-so-secret sauce of customer acquisition in the online betting world, is under the microscope. Deutsche Bank's Carlo Santarelli sheds light on an interesting trend: promotional expenditures, in relation to GGR, are indeed on a downward trajectory. However, this trend might not signify a broad-based industry shift towards frugality but rather a temporary lull due to a slowdown in the number of new states legalizing online betting.

This spending is not just about splurging for the sake of visibility. In established markets like New Jersey and Pennsylvania, operators are possibly still betting big on promotions to snatch or retain market share. It's a delicate balance between spending for growth and striving for profitability.

Profits Amid Promos

In an industry often criticized for its heavy reliance on promotional spending, tales of profitability shine through. Flutter Entertainment's FanDuel and DraftKings have managed to carve paths to profitability, with the latter surprising the market with a first-quarter earnings profit on a non-GAAP basis. This is a beacon of hope for other operators swimming in the red.

The Hold Factor

The concept of "hold" - the percentage of money operators keep from each dollar wagered - is becoming an increasingly scrutinized metric. While some first-quarter disappointments were attributed to misses on expected hold, the acceptance of this rationale among investors remains to be seen. It's a reminder that, in gambling as in finance, not all bets pay off as expected.

Looking Ahead

As the industry navigates through these dynamics, the coming months will be telling. Will promotional spending continue its downward trend, or will a new wave of state legalizations see operators opening their wallets wide again? And importantly, can more operators follow in the footsteps of FanDuel and DraftKings towards profitability without sacrificing growth?

The iGaming and online sports betting sectors are at a fascinating juncture. With each bet placed, not just by gamblers but by the companies themselves on their growth strategies, the stakes are high. The balance between promotional expenditure and profitability remains a key theme, as does the industry's ability to adapt to an ever-evolving regulatory and competitive landscape.