Sports Betting Media in Overdrive

May 12, 2021 by  Chris Erwin

Today marks our second installment of the RockWater Roundup.

 

What’s In This Episode

In the past week Catena Media acquired Lineups.com for $40 million, and Better Collective acquired Action Network for $240 million. The deal frenzy includes 20+ other transactions, and kicked off in 2020 when Penn National Gaming acquired Barstool Sports. We explain why the legalization of gambling in the US is driving a massive customer landgrab opportunity for sportsbooks, and why sports media assets are the key to efficient user acquisition and improved in-app sportsbook experiences.

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Episode Transcript

The conversation was lightly edited for clarity.

 

Chris Erwin:

So, Andrew, I was trying to think of a good sports analogy here, but I couldn’t really get at one, so I’m just going to say, when it rains, it pours. Let’s explain to listener why we got there. So, we’re thinking about all the recent M&A and consolidation in sports betting media, between sportsbooks, sports media companies, and also amongst sports betting media companies themselves.

 

Chris Erwin:

So, a few deal points, just I think overnight, we noticed that Catena Media acquired Lineups.com for around $40 million. And Lineups.com provides analytics, betting predictions, and tools for a sports betting audience. We also saw that Better Collective, bought Action Sports Network for around $240 million. That was just announced yesterday. Over the past couple months, DraftKings has announced a major media push. So, they’ve licensed content within the Meadowlark Media portfolio for around 50 million. They acquired Vegas Stats and Information Network for around a 100 million. And they actually hired the former chief media officer from Verizon.

 

Chris Erwin:

A few more points, in April the NFL officially picked Caesars Entertainment, DraftKings, and FanDuels as its official Sportsbook partners. And then, in March, we saw XL Media, a European based media company, acquire Sports Betting Dime. And then, the Blue Wire Podcast Network enter into a strategic partnership with WynnBET, which has resulted in a 3.5 Million dollar direct investment. Plus the creation of studio space at the Wynn Resort actually in Vegas.

 

Chris Erwin:

So a ton of activity, right?

 

Andrew Cohen:

And much, much more. I mean, really just the tip of the iceberg. NBCU partnered with PointsBet, Turner Sports partnered with DraftKings and FanDuels, ESPN partner with DraftKings, Penn National Gaming acquired Barstool. All that was in 2020. Really, any sports media brand that has a dedicated audience, by now probably has a Sportsbook operating partner.

 

Chris Erwin:

We wrote about this in our 2021 predictions back in February, where we expected that the increased acquisition of media companies to power Sportsbook user acquisition, and to improve UA economics, that was going to not only escalate, but I think media was going to be looked at a way to further differentiate the Sportsbook in app experience, which would drive retention and deeper engagement and higher long-term values.

 

Andrew Cohen:

Yes. Good plug, checking out the blog, wearerockwater.com.

 

Chris Erwin:

Always got to plug the content. Before maybe going down at specifics, I think we think about why is this happening? And I think we see an overarching theme and the convergence of just all things, media and commerce. Some other partnerships in the space or consolidation you think of Hasbro, the toy manufacturer, buying eOne. MeatEater, the outdoor sporting brand buying First Lite, the complex hot sauce line. And even Food52, a food media company, think just over the past week, acquire Dansk, a Danish based food cookware or cooking durables line. Anything else I’m missing there Andrew? Does that sound right?

 

Andrew Cohen:

I’m sure We’re a ton, but yeah, it’s content. It’s kind of the new universal truth in the entire consumer ecosystem that basically content, personality, brands, that have a direct fan relationship, are being leveraged to drive direct transactions. And we’re seeing more and more of it, now that legal sports betting is being rolled out state by state across the US, and there’s kind of this land grab rush for customer acquisition. It shouldn’t be any surprise to us that we’re seeing this convergence of content and commerce happening and in this vertical, as well.

 

Chris Erwin:

It’s helpful to talk about just how big the sports betting market is in the US. So, with the legalization of gambling, just back in 2018, we see some estimates that sports betting will be four billion by 2022, in just the US. And that is expected to grow to over 40 billion by 2033. And then, I think for a global stat, I think that we see that online gambling alone is supposed to be around 20 billion by 2025.

 

Chris Erwin:

And so, we look at sportsbooks, which can be considered a pretty kind of commodified offering, is that there’s a major land grab scenario now. So, a lot of these sportsbooks are spending a lot on user acquisition to invest in the opportunity that’s coming right around the corner.

 

Andrew Cohen:

The streaming wars for example, where, there’s a similar land grab opportunity, a foot with the rise of cord cutting and OTT consumption, the top six streamers last year spent a combined five billion on marketing alone. Not to mention the crazy amounts of their spending on content acquisition, just on marketing five billion. And it’s a similar dynamic as this new market is unfolding, there’s this early stage land grab and we’re definitely seeing that in sports betting.

 

Andrew Cohen:

Just last year, we saw a 80% increase on ad spend by sportsbooks between 2020 and 2019. And now with all of these partnerships that we’re seeing, this fight for user acquisition through top of funnel activation across content and community personalities, it’s really only growing, getting more aggressive, and more well capitalized.

 

Chris Erwin:

A key point on this streaming wars. Yes, five billion on probably direct marketing spend, but that doesn’t include the 10s of billions that maybe might even be reaching into the 100s that’s actually spent on content, which we consider a part of definitely user acquisition costs for the Disney+, the Netflix, the Peacocks of the world. So, the numbers here are huge and the sportsbooks are following a similar path.

 

Chris Erwin:

So, I think it’d be helpful to actually talk about a specific case study. So, when gambling was legalized in Michigan, within the first 10 days of the sportsbooks were allowed to launch in that market, some interesting stats arose. And this was tweeted out by Dave Portnoy of Barstool. Barstool, I think observed a total handle. That like the total volume of transaction around sports bets of around 28 million. There take, their gross gaming rev, was around 3.3 million. And then, they spent around 49% of that on bonuses to acquire customers.

 

Chris Erwin:

But now, you compare that to the rest of field. The other sportsbooks, their handle was significantly higher, probably around 3 to 4X at around 88 million. Their gross gaming revenue was around 3X again at 10 million. But they were spending 169% of bonuses to acquire customers as a percentage of their gross gaming revenue. So, that’s Barstool at 49%, rest of field at 169%. And when you look at the long-term economics there, I think you want to be Penn Gaming, having bought Barstool in 2020. And so, I think this is not surprising to see now the frenzy around this space of all the new acquisitions that we’re observing.

 

Andrew Cohen:

Kind of, the proof is in the pudding when it comes to that acquisition last year at its low, the Penn National Gaming market cap was at two billion right now it’s around 20 billion. So, it’s really been paying off for them. And, we’re seeing incumbents who were spending around $500 to acquire a single consumer. Whereas Barstool, because they’ve kind of already had this built in audience and this media marketing machine, are able to keep their costs down way low. Even a company like Clayline, which is highly focused on social media, digital influencers, and creators as a means of customer acquisition. Their customer acquisition costs are only about $25.

 

Andrew Cohen:

So, we could definitely see the economics are favoring operators, who kind of have a direct fan relationship, versus the ones who have to kind of pay for broad reach and exposure with huge ad deals, sponsorships, and stuff like that.

 

Chris Erwin:

Essentially, paying to just rent an audience, versus owning the audience yourself, which can be…

 

Andrew Cohen:

Exactly.

 

Chris Erwin:

That’s a very expensive rent cost. So, I think the big question is then, how does this evolve? Where does this go? And something that you alluded to was evaluation, right? So, you talked about Penn Gaming’s market kept growing 10X from 2 to 20 billion. I think we’ve also seen that the revenue multiple for the action network acquisition,, just announced yesterday was around 16X and compare that to Penn Gaming of Barstool rose around 5X. So you’re definitely seeing revenue multiple expansion when you just consider how much bigger the sports gambling opportunity is.

 

Chris Erwin:

Second thing that I think we think about is from user acquisition, going into the UX experience, and driving a lifetime value of customers. So I know you’ve thought about this. Why don’t you share your thoughts.

 

Andrew Cohen:

Essentially, the golden equation, golden ratio that everyone in this space is keeping their eyes on, is there a CAC to LTV ratio. So it’s Customer Acquisition Cost to Lifetime Value. And as we’ve seen so far, a lot of the media activation so far has really been focused on the customer acquisition, just bringing new customers into the door. But I think over time, as we’re seeing kind of this endless race to the bottom on customer acquisition cost, as they’re kind of continuing to balloon in this early stage, we’re going to see a shifting emphasis on increasing lifetime value and bolstering retention and stickiness and loyalty.

 

Andrew Cohen:

It’s like you said, it is a really commodified marketplace where at the end of the day, almost legally bound, a lot of these sportsbooks are essentially offering the same product. So we believe that content, personality, brand, community, should not just be used as a funnel to bring fans in the door, but how can it be integrated into the app experience itself to keep them there. To differentiate the platform experience, the product experience, and to cultivate kind of an audience fan stickiness that keeps them coming back. Almost like what we’re seeing with content platforms, with social media platforms, that are constantly thinking about how do we expand time on platform.

 

Andrew Cohen:

I think we’re going to start seeing sportsbooks having a similar approach to how they integrate content, creative personalities, and community. So for example, if you look at theScore, their Sportsbook fully incorporates the brand’s content, its creators, its fan community into that user experience. And as a result, the average user interacts with the app 100 to 130 times a month.

 

Andrew Cohen:

This is really different from what we’re seeing from more traditional sports folks where customer acquisition is almost just a revolving door, get them in, place the bet, leave. Similarly, with Penn National and their Barstool branded Sportsbook, The Barstool Sportsbook, 39% of Penn National customers have placed wagers on bets promoted by Barstool personalities within the app.

 

Andrew Cohen:

So I definitely think that there’s a ton of potential to begin integrating content into the app experience itself, instead of just using it as a funnel to bring customers in. But using it to really keep them in there, keep them engaged.

 

Chris Erwin:

All right. So while we’re down to our final moments Andrew, I think, one other notion is where else do we head from here? I think we’re going to see a lot more acquisition of sports media companies buy sportsbooks. And I think that, again, a lot of these sports betting media companies will consolidate to kind of consolidate costs. And then, also grow over audience reach and make themselves as a combined entities, a more attractive target for potential acquisitions.

 

Chris Erwin:

And I think that speaks to what Apollo has just bought Yahoo and AOL from Verizon. I’ve heard that there’s definitely a play there, where with Yahoo finance combining into a sportsbook that is owned by Apollo and a bit of a roll up strategy, to then sell to a larger acquire in the next call it 18 to 24 months, like a Wynn, like a MGM, or a Caesars. That could be a very interesting financial play. So expect a lot more activity.

 

Chris Erwin:

All right, Andrew, in our final seconds, any final notes for our listeners?

 

Andrew Cohen:

No. I think that’s all for me until next time.

 

Chris Erwin:

All right. Later.

 

Andrew Cohen:

Peace.

 —

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