Edition 28: The Commoditization of Sports Betting Products
Where is commoditization happening and why does it matter?
Happy New Year! We hope you enjoyed the holiday and we are excited to be back in what should be the biggest betting year to date. This week’s edition of The Handle will be dissection the commoditization of sports betting products
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Before we dive into this week’s newsletter, we want to give a shoutout to Jesse Learmoth’s Betting Startups Podcast for having us on the pod – check it out!
What is Commoditization?
Before we dive into whether this is happening in the sports betting space, we wanted to make sure we were all on the same page on the definition of commoditization. Basically, it means the difference between products across competitors evaporates and the user has no significant reason to prefer one over another. Because the products become so similar, the only thing left for companies to compete on is price. Generally, in earlier stages of an industry there is less commoditization as first movers discover what does and what does not work for users. However, as the industry evolves, best practices become clear and proliferate. As these best practices are adopted by operators, the products converge to match consumer preferences. In the sports betting world, this looks like all books having almost the same offerings, with similar user interfaces, and the same any other relevant key deposit criteria for a sportsbook.
Why does Commoditization matter?
DraftKings CEO Jason Robins has emphasized that he does not believe commoditization will occur in the sports betting industry. Larger companies who have strong existing user bases do not want commoditization to occur. These companies have built strong infrastructure in the existing states where they have licenses and worked hard to make their products reflect the preferences of the casual bettor. They don’t want to see later movers come along and be able to quickly adapt to what consumers want. Right now, companies are winning customers due to strong advertising and promotional incentives.
Eventually, the gravy train will run out.
There will no longer be a rapid influx of promotions to incentivize new bettors to deposit, there will no longer be as much money spent on customer acquisition. As a result, operators hope to win customers the old fashioned way: having the best product and offering it at the best price. If the product becomes mostly commoditized, then any operator in the market will have a relatively equal shot at winning customers, assuming promotional spend and visibility are equal (which will never be true, but will eventually become closer to true).
However, it’s important for investors in larger operators that the sports offerings do not become commoditized. When the product is not commoditized, it means that larger existing power players have a moat around of product. They can drive traffic by simply having a superior product offering. Investors like this, as it means that market share can continue to grow even as promotional spend decreases as bettors flock to the best product offering.
Has Commoditization Happened?
The short answer is mostly yes, especially with the nature of the sports betting market. Inherently, the basic product offered is a straight commodity. There is the same slate of games with the same standard set of offerings that bettors are accustomed to. Generally, the lines converge for reasons covered ad nauseum in sports gambling content. So for every major market game, there is going to be the same set of basic offerings (spread, total, moneyline), meaning there is some commoditization. But that does not mean commoditization has happened on a broad scale, so let’s take a deeper dive.
We'll focus on the competent books here that have the lion's share of the market share. We’ll be ignoring some entrants like Tipico Sportsbook or theScore that simply exist in a few states and are not ready to compete on a national level. They exist, but are not the majority of operators in the market and are thus less deserving of focus.
Where has Commoditization happened?
In short, commoditization has happened with product offerings and UI/UX development. Generally, most competent books have similar user experiences with similar schemas. Competent operators vary colors and the exact way that the offerings are presented, but for the most part, they are relatively similar in their ease of navigation. There are strong offerings on both mobile and desktop platforms, with well developed apps and sleek website designs. The deposit and withdrawal experience is relatively standard (and guided by state regulations), and the onboarding process also varies by state.
There is a relatively similar phenomenon occurring with product offerings. For the average casual bettor, the product offering is commoditized. Third party risk management tools produce offerings that are used across different books. Sure, some Same-Game-Parlay tools are a bit better than others, but the difference between best in breed and the industry median is not enough for the average consumer to feel a significant difference. The bread and butter offerings, the one that make the casual bettor with the highest long term value to the sportsbook stick around, are certainly commoditized.
Where have we not seen commoditization?
There are a few places where we have yet to see commoditization, but generally these are far less important and are responsible for far less of the handle than the bread and butter offerings.
First, on random microbetting offerings, some books have more robust offerings than others. It’s hard to tell at this point if that is a market signal that people don’t care about those offerings as much as certain operators pretend they do, or if one book is ahead of the others. At The Handle, we lean toward the former based on market research we have conducted for a previous piece. If consumers do not care about microbetting, it does not provide a place of differentiation for operators to prevent the commoditization of their main product line.
Second, there is some differentiation on the adjacent products market that is offered by sportsbooks. Some books have famous personalities signed on to provide media content (looking at you, FanDuel and Pat McAfee), others are working to incorporate NFT marketplaces into their platform. Each of these represents unique forays into the world of attempting to acquire new customers and increase the moat these respective operators have. Counterintuitively, this signals that product differentiation in the direct sports betting space is happening. Operators are willing to invest in risky endeavors in order to maintain their edge, rather than simply focusing on differentiation in the direct product space. Obviously, these are well funded companies that can walk and chew gum at the same time, but the increased focus on adjacent offerings as a source of differentiation means that these operators recognize commoditization is occurring. Do these adjacent products really add to an operator’s moat? Again, we lean no for a myriad of reasons, mainly that the appeal of the industry right now for the average consumer is being able to place a legal wager on their preferred sporting event.
So where does that leave us?
For the most part, traditional sports betting offerings are commoditized, and new innovations like the Same-Game-Parlay quickly follow the same path. What started as a first move by FanDuel is now offered by smaller players like SugarHouse. The products are relatively similar in quality despite what one company may boast to investors.
In short, it seems like any new innovation by one book is quickly swallowed up by the market and implemented industry wide, indicating that in the future, the sports betting side will continue to become more commoditized. When FanDuel rolled out SGP’s, you can bet that every other operator’s board meetings consisted of investors and advisors asking why they haven’t done the same yet. Generally, this is good news for bettors! It means that line shopping can continue with bettors not having to sacrifice the user experience at one book or another. It means that books are offering robust markets that are similar across books.
On the other hand, one place we really could see a book take a stand is with reduced prices. If the products are the same, consumers will flock to the lowest price. We’ve yet to see a real reduced juice book yet in the U.S. regulated market, but if the product is the same, dropping the price is one way to bring customers in. At the end of the day, we operate with the bettors’ best interest in mind and hope the maturity of product development skews less predatory and toward higher standards across the industry.
Miscellaneous Content Consumption
Press
Arizona generated $777M of Handle in the first two months of their regulated sports betting ecosystem. Chris Altruda has more with Sports Handle here.
Starting Saturday, mobile sports betting went live in New York. The Post has more here. Caesars, DraftKings, FanDuel, and BetRivers went live.
The Athletic sold to the New York Times for a reported $550M. Kevin Tran from Variety has more here on why it’s a good fit.
Tweets of the week
Pods of the week
Catch Nigel Eccles on The Joe Pomp Show, discussing all things creator economy, sports betting, web3, crypto, and more:
If you have any questions or comments, we love to chat and our info is below!
