Wednesday, November 8, 2017

Gambling Growth & Racing: The Importance of Eyeballs, Regulatory Value & Positioning

Legal Sports Report shared some comments from the Draft Kings CEO recently. The DFS company's head said that down the road Draft Kings could become an online sportsbook, if laws are changed in states to allow sports betting.

Sports betting, as most know, has been growing. In Nevada alone, $557 million in bets were taken in September, which was a new record. States like Pennsylvania are setting the table to take bets, should the federal laws change. ESPN, and other mainstream websites, now happily report point spreads, like it's old hat.

Draft Kings (and DFS in general) has been taking some major hits of late, with some feeling their value is overblown. That isn't new in the tech world, and there's some truth to it, but Draft Kings has an edge most others do not.

They are already approved, through regulation, in many states.

They are positioned to generate big ROI from a sports betting offering from day one, because they have active users and plenty of eyeballs. Their database of 8 million users, 4.5 million of which are active, is an ocean of potential revenue. These people are already prequalified to play (and wager on) sports. They are already captured.

If you need to know why investors purchase shares, or are bullish on tech companies who have "eyeballs" but no real revenue, that's the reason why. Tomorrow's revenue is not today's.

For, say, Draft Kings, let's say 4.5 million users bet one $20 bet on each NFL week (including the playoffs) and lose 5%. That's over $100M in revenue on just the NFL season.

Racing, on the other hand, is in an entirely different position. Their regulatory edge lies in bricks and mortar, which has allowed them to gain slot revenue. As a business long along the curve, they've had serious trouble increasing eyeballs, and in fact, it can be said that they don't even know who their customer is (trainers, grooms, owners, bettors?).

And, on days where there is an audience, say when 15 million watch a Derby, or 50,000 people are jammed into Oaklawn, these folks aren't Draft Kings customers, they're one-off eyeballs. Racing can't - never has really - converted them.

When we talk about eyeballs on the blog - and racing's lack of them from an end-user perspective - this is what we're alluding. And when we complain that when someone enterprising in this sport - for example a Betfair, or Derby Wars or data companies - who are positioning themselves to grow eyeballs are shut down in a myopic way, we do so because in the long run it hurts the business.

Draft Kings is regulatorily positioned to take advantage of legislative changes with sports betting. For them, they bait the hook, and drop their line in a pond and immediately get bite after bite after bite.

In contrast, racing drops their line and finds out the pond has been fished out.

That's what happens when your focus has been on squeezing the customer - increasing takeout, making it harder and harder to be a customer through closing the tent and not embracing pro-growth policies - rather than attracting more and more of them.

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