See below for this month’s Waterhouse VC newsletter. The strategy specialises in global publicly listed and private businesses related to wagering and gaming.

Since inception in August 2019, Waterhouse VC has achieved a total return of 1,906% as at 31 August 2022, assuming the reinvestment of all distributions.

Heavy marketing to differentiate where product cannot

For the most part, there is minimal product differentiation between wagering operators, with minor differences in user experience. In our January 2022 newsletter, we discussed how wagering sites have maintained a consistent layout for decades, typically featuring promotions at the top, then providing high level navigation to the most popular sports, and then giving prominence to the ‘next to jump’ for the major racing codes. Consequently, with minimal product differentiation, marketing has always played a crucial role in attracting customers to operators.

Taking the Australian market as an example, there are around 100 bookmakers competing to win online market share. In Australia, Sportsbet has already gained around 50% online market share. Last year, Sportsbet generated US$820 million in revenue and spent US$143.5 million on marketing (17.5% of revenue).

*Flutter’s 2021 online market share in Australia and the UK & Ireland. Source: Flutter Entertainment Plc.*

In the US, marketing is particularly high compared to mature markets like Australia and the UK because in new wagering markets, operators compete to ‘land grab’ market share. For example, in 2021, FanDuel (Flutter’s US business) spent US$775 million (48% of its revenue) on marketing, whilst DraftKings spent US$929 million (72% of its revenue).

In comparison, companies operating in most industries spend around 11% of revenue on marketing, which is significantly lower than the wagering industry in both mature and new markets.

*Marketing spend as a percentage of company revenues across industries. Source: CMO Study 0031.*

Over the last 10 years, celebrities have been increasingly used in marketing campaigns. For example, last year, Ladbrokes released this television commercial with actor, Mark Wahlberg. This year, the company reimagined the iconic Rocky II running scene.

Influx of influencer marketing

In recent years, we have seen a huge shift in the consumer paradigm towards creator-guided commerce. The Covid-19 pandemic served to accelerate this trend - when physical retail stores shut down, consumers were restricted to their homes and the only way for a brand to reach an audience was through digital connection. Creators played a huge part in this narrative, ultimately providing brands with a new distribution point for sales. Creators bring net new customers to a business and provide a performance-based marketing channel that attracts highly engaged shoppers.

*Madison Payne promoted Pepsi to her audience of 215,000 people. Source: Instagram.*

Wagering companies are slowly adopting a new approach when it comes to their marketing strategy, with more and more businesses turning to influencers to spread the word. That’s not to say the value of traditional marketing has been lost; both have a role to play and both serve very different yet important functions. Traditional marketing is critical at a macro level to build brand awareness, reach mass audiences, and further brand alignment. On the other hand, Influencer marketing allows brands to connect more closely with their customers, creating a more subtle and meaningful way for businesses to drive sales.

Whilst wagering operators have had sportspeople and celebrities as brand ambassadors for many years, they have been relatively slow to add influencer marketing to their tool kit. One brand ambassador is basketball legend, Shaquille O'Neal, who has a partnership with WynnBET in the US and Pointsbet in Australia. In a combination of celebrity and influencer marketing, Shaq recently danced with ‘The Inspired Unemployed’, an influencer with 1.5 million Instagram followers. By partnering with The Inspired Unemployed, Pointsbet is able to target a niche audience of mostly young Australian men.

*Shaq dancing with The Inspired Unemployed. Source: Instagram.*

Influencers are seen as more credible and authentic than traditional marketing. They have highly personalised audiences and have a unique ability to describe product experiences and journeys in a way that is raw and human. Today’s audiences want to connect with like-minded people rather than celebrities. Consumers are more likely to make a purchase from someone who they feel they know, whose tastes and interests align with theirs.

Influencer marketing has propelled US-based, Betr, to 116,000 Instagram followers in just 5 weeks. The company leverages the huge audience of its influencer co-founder, Jake Paul, who has 20.6 million Instagram followers and 16.7 million Tik Tok followers.
As discussed in our October 2021 newsletter, Barstool Sportsbook leverages the fame of Barstool’s Founder, Dave Portnoy. Barstool has built its brand on the back of authentic personalities and unique content. Portnoy regularly gives his betting tips and posts his betslip, often with a link allowing the viewer to copy his bet automatically through their Barstool Sportsbook account.

One crucial question we ask when looking at both gaming and wagering products is “Will the product be exciting for the customer - Is there a thrill?” In gaming, that thrill might be large jackpots or small but frequent rewards. There has to be a feature(s) that is keeping the player engaged.

*Dave Portnoy tweeted his betslip to his 2.7 million followers and showed them how they can copy his bet through an easy link. Source: Twitter.*

In a demonstration of how quickly operators must adapt to regulatory changes, this year, the UK banned the inclusion of sportspeople, celebrities and influencers in wagering ads because of their appeal to youth. Despite this British regulatory change, on a global level, we believe that influencer marketing could contribute significantly to operators’ customer acquisition by allowing them to target large niche audiences.

Media

I recently spoke with iGaming Next about steering a gaming and wagering focused VC fund through economic uncertainty. Read the interview here.

I also spoke about the fund to Star Sports in a three part series, available here.

DISCLAIMER AND IMPORTANT NOTES

Please note the above information in relation to Wynn Resorts, Entain, Betr, Pointsbet Holdings, Flutter Entertainment, PENN Entertainment and DraftKings is based on publicly available information in relation to the company and should not be considered nor construed as financial product advice. Waterhouse VC has a position in Flutter Entertainment. The information provided in this document is general information only and does not constitute investment or other advice. Readers should consult and rely on professional investment advice specific to their individual circumstances.

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