The following article is published with permission, as abridged from the full story, The Sports Betting Industry in 2020: A Tale of Substitute Products & Negative Switching Costs.
Smacktalk Culture & Gamification
An estimated 60mm+ people play fantasy sports in the United States. Frequent participants in season-long contests have consistently listed the social benefits and joy of competition as being senior priorities to winning cash prizes. Eiler & Krejcik, a boutique research firm with expertise in U.S. gaming, has assessed that 70% of DFS players fail to generate a positive ROI over their lifetime of play.
The favoring of social benefits over economic ones supports the notion that “smacktalk culture” composes a robust portion of the cultural dynamics surrounding sports and drives a significant level of purchasing decisions within the ecosystem.
This can also be seen intertwined with the broader gamification trend that permeates modern U.S. culture in a way not present during the formative days of other established markets. When the Gambling Act of 2005 was passed in the United Kingdom, Facebook was still called “The Facebook”, loot boxes were just starting to appear in video games, and Candy Crush wouldn’t come out for another seven years.
The relative popularity of the term “gamification” in the U.K., over time, appears to confirm this notion, with one major caveat. The usage of the buzzword exploded when it was included in Gartner’s Hype Cycle in 2011. It is, of course, possible that the ideas were being readily researched in times prior, just under alternative search terms.
Numbers represent search interest relative to the highest point on the chart for the given region and time. A value of 100 is the peak popularity for the term. A value of 50 means that the term is half as popular. A score of 0 means there was not enough data for this term.
Currently, the world is enraptured with gamification, few places more so than the United States. Yet, in the nascent days of its sports betting industry, few of the product offerings reflect the seismic shift in relevant consumer behavioral patterns while most function relatively similarly to the first generation of mainstream online sports betting UIs.
Fortunately for operators, early adopters in the U.S. market had grown accustomed to clunky user flows during the pre-PASPA days where only black- and gray-market options were available.
As fan engagement and sports media has grown increasingly gamified, it also has taken on an unprecedented social component. An estimated 40 million Americans participate in March Madness bracket pools annually, often in the workplace. Super Bowl box pools have become mainstays at many annual gatherings, for fans and non-fans alike. Additionally, with the rise of social media, talking about betting on sports in a public forum has become all but completely normalized.
This all takes place at a time when investment companies like Robinhood have succeeded in gamifying the retail investing experience and allowed for it to enter the mainstream discussion, often directly adjacent to the topic of sports betting. This fusion of pursuing risk-adjusted returns and enjoying the competition, camaraderie, and social relevance along the way is crystallized in the colossal success seen by Barstool Sports’ Dave Portnoy aka Davey Day Trader, whose lucrative deal with Penn National Gaming serves as validation of the value placed on this form of engagement.
Robinhood recently reported enormous clusters of $1200 and $2400 deposits (the exact amounts in which stimulus checks were received by many U.S. taxpayers during the COVID-19 crisis) at a time when sports were at a standstill, leading many CNBC anchors and industry analysts to suggest that retail order flow was being driven by a lack of sports betting opportunities.
Ask any longtime sports bettor or fantasy sports player in the U.S., particularly a Millennial or Gen-Z’er, about their preferences and they will not be likely to mention things like pricing, ROI, and risk-adjusted return. Rather, they’ll tell you that bragging rights and social relevance are chief among the benefits they derive from the activity. They will talk about placing bets with, alongside, or against friends, often facilitated by group text messages and Twitter threads. They will talk about pay-per-head websites (though not by that name), often run by a friend of a friend of a guy they know. They will talk about placing bets on sporting events that are applicable to their social lives. They will even talk about betting on an event just to have a rooting interest, a sensation many gamblers enjoy and refer to as “the sweat.”
Customers who wager primarily in social settings are also often lured by the siren of the multi-leg bet or parlay, known as a type of “accumulator” bet in Europe. Sportsbooks love parlays as they tend to be ~2x as profitable as single-game wagers. Customers love parlays because they, much like lotteries, offer the advantages of rational calculation and inexpensive fantasy combined with those of instant gratification.
Generally, longshot parlay bettors will exhibit less price sensitivity, as there is only a minor perceived difference in, for example, receiving 150:1 odds as opposed to 165:1 odds.
Given the theme of the importance of social relevance, however, it may be possible for branding efforts and marketing initiatives to convince customers that there is actually social capital to be derived from obtaining best pricing. Absent such efforts, it is unclear what level of price sensitivity various user bases will exhibit.
Todd Fuhrman, a prominent FOX Sports betting analyst, recently posted the following poll on Twitter:
What's the biggest factor when choosing a regulated legal book?
— Todd Fuhrman (@ToddFuhrman) August 17, 2020
Conspicuously missing from the list of options is any mention of which regulated legal book the user’s friends prefer. The omission of this option is not an oversight on Todd’s part, but rather a reflection of a fundamental characteristic of the current state of the market. The social element of sports betting has simply not been captured by digital offerings…yet.
Currently, users gain only a minimal amount of incremental benefit from selecting a sportsbook that their friends or co-workers use. Concurrent presence on the platform is virtually never acknowledged and there are very few social functionalities embedded into the mainstream online sports betting experience.
Also not listed above, again because of a lack of current relevance, is which sportsbook has partnered with celebrities and influencers that resonate with the prospective user. Barstool Sports has made no secret of its intention to leverage in-house personalities to acquire and retain users more efficiently. Stoolies can look forward to tailing “Dave Portnoy’s parlay of the day” or fading “KFC’s pick of the month” with a single click.
Bettors on other platforms may soon see their favorite celebrities’ picks integrated with the user flow in a similar fashion. PointsBet was one of the first to seize on this concept in conjunction with their partnership with polarizing sports media figure Darren Rovell. Perhaps DraftKings will soon offer “Kevin Hart’s lock of the day” or a chance to “fade Drake’s playoff picks.”
It should be noted that there are, of course, consumers who have the resources, expertise, and tools to turn sports betting into a career, but they make up such an infinitesimally small portion of the population (not to mention that they are seen as loss centers for bookmakers), that their needs are likely to be de-prioritized by operators and tech vendors.
It is clear that innovative sports betting products have the opportunity to capture a share of the post-COVID reallocation of discretionary spending. However, there is also the opportunity to capitalize a portion of the “other” sports betting activity that is currently relegated to informal mechanisms and offline networks.
An estimated $4.6 billion was wagered on March Madness brackets last year, making up over half of the $8.5 billion in total wagers on the event. Of the 26 million people estimated to have bet on the most recent Super Bowl, 16 million bet with a bookie, in a pool or squares/boxes contest, or casually with family or friends.
When the quasi-infamous “Ron and Mike” NFL survivor pool was busted by the FBI, it boasted 20,000 users competing for $2 million in prizes. As ESPN’s David Purdum discusses further, office pools are an immensely popular form of both fan engagement and more generalized social engagement in the US.
Personalization & Recommendations
Netflix famously saves $1 billon annually because of the proficiency of its AI-powered recommendation engine that serves users the content they are most likely to enjoy based on past behaviors. As Machine Learning, a subset of Artificial Intelligence, continues to revolutionize every industry on earth, recommendation engines are playing increasingly critical roles in enterprise technology offerings.
Any two users of Netflix, Hulu, Facebook, Instagram, TikTok, YouTube, Reddit, Twitter, eBay, Spotify, or Snapchat will be served entirely different experiences compared to one another, each based on their respective behavioral patterns. It is only a matter of time before online sports betting takes on a similar disposition, alongside the incorporation of the new features and functionalities discussed in this article.
Presenting users with a “bet of the day” or “parlay of the day”, where that recommendation is based on a rigorous analysis of first-party and third-party data, has the potential to fundamentally alter current user flows as well as the adjacent tools and platforms that support them
To these ends, sports betting operators can increase revenue on both an absolute and per-user basis by shifting consumption from informal, offline channels to streamlined, digital channels. If users are offered (or are convinced they are being offered) a more optimized, engaging, and intuitive product, operators can increase revenue without requiring their customers to increase spending.
Sports is a unique realm in which fans can enjoy simultaneous camaraderie and competition with friends, family, and strangers alike. Sports fans and markets are currently on the precipice of a titanic shift in the nature of fan engagement and the role that teams and athletes play in people’s lives.
This confluence of trends will manifest as a fusion of sports betting, content, analytics, social channels, investment opportunities, and experiences into a single, cohesive fan ecosystem that also seamlessly integrates Esports, video gaming, online casino play, and hobby gamification.
We can see that the transition has already begun:
- Capital One’s “The Match” featuring Tom Brady, Peyton Manning, Tiger Woods, and Phil Mickelson was a blockbuster hit for all parties involved and is indicative of the shift toward more intimate and accessible forms of content;
- Spencer Dinwiddie, self-proclaimed “tech guy with a jumper”, has teamed up with venture capitalists and blockchain specialists to tokenize his own contract and allow fans to partake in his future growth;
- Dapper Labs, the company behind cult sensation CryptoKitties, has partnered with the NBA on a program called NBA TopShot, a blockchain-powered digital platform where fans can collect and trade tokenized moments in league history;
- Athletes in the U.S. are taking on an unprecedented role in speaking out for social issues that matter to them;
- Fortnite’s creators, Epic Games, have made no secret of their multifaceted strategy to build toward the “Metaverse”, a massively decentralized, digital shared space populated by avatars with which users interact in virtual or augmented reality;
- Private funds like Arctos Sports Partners and Dyal Capital Partners are offering wealthy investors access to baskets of passive minority ownerships stakes in professional sports teams;
- Athlete-led venture capital groups and owner-led SPACs are gaining an increasing amount of momentum and popularity;
- Virtual reality goggles, haptic technology, augmented reality tools, AI coaches, and wearable biometric trackers have all made their way into the mainstream sports ecosystem
Personalization, interactivity, and gamification are beginning to pervade every corner of the sports world. COVID-19 has dramatically accelerated enhancements to the at-home fan experience and paved the way for real-time engagement opportunities that were not possible in the past.
Sports betting will play one of the most critical roles in shaping the trajectory of fan engagement.
The unceremonious release of potentially groundbreaking functionality by the market’s two largest players should be an indication to all relevant stakeholders that the opportunity for product innovation is massive, but that the window of opportunity may soon start closing.
Defining the sports betting market in terms of current gross gaming revenue (GGR) projections may be eventually seen analogous to defining the fantasy sports market as the aggregated revenues derived from season-long fantasy contest entries, as projected in the early 2000s. What remains to be seen is which innovations, product offerings, and user experiences will constitute the currently-missing portion of the market that would hold analogous to the success of daily fantasy sports in the scope of the broader fantasy sports industry.
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