Truist Securities managing director Barry Jonas believes FanDuel and DraftKings could “tweak pricing” to help offset cost increases in the US market.
Truist Securities managing director Barry Jonas (pictured) believes FanDuel and DraftKings could “tweak pricing” to help offset cost increases in the US market.
Due to their larger scale and “superior products” compared to their competitors, Jonas sees room for FanDuel and DraftKings to adjust their pricing, he suggested.
This, he added, could also help other sportsbooks to capture market share in the long run.
Jonas analysed data from HoldCrunch, a sports betting analytics company founded by former FanDuel VP Tom Johnson, which predicts movements in handle, GGR, and NGR share.
“Price is an important point of competition along with product, brand, promos and other factors, though functions as a double-edged sword.
“Too low will likely attract customers though not monetise effectively, and too high will drive customers to other platforms while monetising over-aggressively,” Jonas stated.
The landscape
FanDuel has consistently emerged as the most player-friendly platform in terms of pricing, according to HoldCrunch’s data.
The company has maintained the most competitive pricing, with the smallest vig (fee), reinforcing its market-leading position.
DraftKings, although it has recently offered less competitive odds, remains a close contender.
Jonas added that BetMGM and Fanatics have recently become more competitive on price, while Caesars has become less competitive in recent quarters.
The analyst believes one reason for this change is that Caesars needs to accelerate profitability as it moves towards its $5bn EBITDA target by 2025.
However, he also added that Caesars’ acquisition of pricing provider ZeroFlucs is a “timely reminder” that pricing capabilities are being taken more seriously.
Further, Jonas said ESPN Bet has entered the market very competitively, “trailing only market leader FanDuel.”
Source: HoldCrunch, Truist Securities Research. The closer to zero at the top of the chart (on the vertical axis), the better the odds offered to customers.
Why it matters
In May, the Illinois Senate voted to implement a progressive sports betting tax, with a top rate of 40%.
This new rate contrasts sharply with the current 15% rate and the increased rate of 35% which had previously been proposed.
Jonas highlighted that understanding how sportsbooks compete on price is crucial, especially in light of the progressive tax rate set to be introduced in Illinois.
The sliding scale of the tax is expected to lead to varying outcomes for operators, with analysts expecting FanDuel and DraftKings to be the most affected by this change.
“We believe the two larger players might offer less favourable odds/prices (higher vig) to customers than competitors to offset higher taxes,” he said.
This could allow rival sportsbooks to gain market share by offering better odds, although addressing product gaps will also be crucial to “truly challenge the leaders,” Jonas added.
Sportsbooks now face the challenge of balancing hold rates and pricing strategies
“The highest performing books aren’t always necessarily the ones that offer customers the best prices, given they’ll likely become less profitable in doing so.
“A high performer stays within a certain distance of the leaders and returns profits at the same time,” he concluded.