Same-game changer
The lowdown on SGPs, analyst takes +More
Good morning. In this latest issue of Due Diligence, we take a look at the apparent ‘killer app’ in US sports betting, same-game parlays.
Derived from the bet-builder products that emerged on the European online scene around six or seven years ago, SGPs have been a key driver in the growth seen in the market to date.
But as has become clear, when it comes to this product the market is far from a level playing field and, while every operator talks a good game on SGPs, the evidence suggests the market leaders have scooped up large GGR market shares due to superiority in terms of SGP outcomes.
It's all about the game and how you play it.
Same game, different rules
In US sports betting, who wins with same-game parlays decides who wins the race.
Clear as crystal: The latest data from Illinois gives a perfect illustration of the importance of parlays in general to the shape of the overall market. In January, FanDuel continued its market domination, grabbing just under 50% of the total AGR of $89m, while DraftKings accounted for 27%, with BetRivers (9%), PointsBet (5%), BetMGM (4%), Barstool (3%) and Caesars (1%) trailing behind.
Further, and crucially for this edition of Due Diligence, Illinois also gives an insight into the mix of sports being bet on, including parlays. Here, we can see the importance of parlays within the market shares of the top two, in particular.
🧐 FanDuel and DraftKings are the parlay winners
Total control: Between them, FanDuel and DraftKings control 70% of the total market by AGR and an even more impressive 79% of parlay AGR. By handle, DraftKings and FanDuel control 68% of the market but 75% of the parlay handle.
🪞 The handle breakdown mirrors the AGR picture
Playing catch up: What is abundantly clear is that the rest of the market is failing to catch up with the leaders. The near 32% of handle share among the rest of the market only translates into AGR share of barely about 20%.
In parlay terms, handle share of 25% among the also-rans converts into AGR share of, again, barely over 20%.
Illinois doesn’t break down parlays any further, so the amount that is covered by SGPs can only be guessed at.
But it is clear the impact they are having producing higher hold – at least from what we can see with FanDuel.
FanDuel’s advantage: During FanDuel’s investor day back in November, the company spoke about its record of innovation in parlays, introducing same-game parlays in 2019 before adding a new SGP user interface in 2020, SGP-plus in 2021 (with one-tap SGPs) and live SGP cash out bet tracking in 2022.
The company said that four out of five of its customers had placed a same-game parlay last year.
FanDuel also claimed it generated 43% more margin per dollar of handle than any of its competitors, helping it to margins of 9.7% in 2022 vs. 6.85% for the rest of the market.
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The in-house party
Stack, crackle and pop: The rationale for full in-house ownership of the tech stack is clear. During Penn’s Q4 call, CEO Jay Snowden said theScore Bet’s in-house migration in Ontario gave it enhanced control of the product roadmap, “especially with the retail masses that are betting mostly on parlays”.
DraftKings CEO Jason Robins said the company had been the first operator to launch a live SGP for the NBA in Q422 and that hold rate increases were happening across the board, while in some newer states DraftKings was seeing “faster adoption” of parlays and SGPs.
PointsBet, which owns Banach Technology, also spoke at the time of its full-year earnings presentation about being first to market with in-play SGPs.
The company noted that in-play betting and parlays grew as a percentage of handle due to features such as Same Game Parlay and Live Same Game Parlay as well as Lightning Bets and Cash Out.
Quick history: The rise of SGPs can be attributed (at least in part) to the Bet Builder/request-a-bet trend started by Sky Bet in the UK in the middle of the last decade. That initial wave saw the birth of SGP provider SportCast, which was acquired by OpenBet in May 2021 for an undisclosed sum.
Luke Saunders, senior commercial director at SportCast, says the rise of request-a-bet really was the “inspiration” for SportCast.
Who’s on third?
House rules: As is obvious from the data and what FanDuel said at its investor day, scale is vital for SGP development. “The sports-betting ecosystem is complex,” says Saunders. “Frankly, I don't think there is an operator in the world who doesn’t need a third party to some extent. That’s the starting point.”
“SGPs are not a one-off product development, they need constant monitoring and iteration, which really means an operator needs significant scale to be able to do everything in-house.”
Saunders says the key feature of SGPs is they attract the much-sought-after recreational players.
Simon Noy, SVP of trading at Kambi, argues that no operator today is “fully in-house”.
“The real question is to what extent should an operator outsource the components of its sportsbook,” he adds.
Tangled web: Illustrating the intertwined relationships between operators and suppliers, in 2021 DraftKings announced an SGP agreement with Genius Sports and SportCast.
The strong US focus on sports stats has also enabled prop bets-focused providers such as Swish Analytics and Sports IQ to move into the SGP space.
“Operators may continue to run their core stack in-house and, in parallel, will outsource more and more services,” adds Noy. “As we have recently seen with bet365 outsourcing aspects of its golf and instant-betting products.”
Coming unstuck
Cohesive experience: Donal Barron, ex-head of corporate development at Banach and now an independent consultant, says in-house SGPs benefit from being “more cohesive”.
“The SGP can be compiled from the primary event page, the odds are consistent between the bet builder and the main event page, which is not the case when using a third party.”
The fact that the likes of FanDuel and PointsBet drive their own pricing in-play also means cash out can be offered on all SGPs, which is “fundamental in generating player engagement”, Barron adds.
“If you contrast that approach with DraftKings, which has one source of pricing for its main event, SportCast for SGPs, player props from Swish; none of these prices talk to each other and you can’t incorporate player props from Swish into the SportCast bet builder for example.”
SGP by the numbers
Adding to the mix: Describing their impact on DraftKings’ revenues, the analysts at Macquarie noted that its parlay handle mix added 70 bps to the group’s annual hold rate of 7.7% and a 600 bps decrease in promotional reinvestment as a percentage of revenues in 2022.
More recently, the team at Wells Fargo noted that in January US betting handle had dropped 6% YoY but GGR was up 7%.
With “promotions moderated” and handle growth slowing, GGR growth was surpassing handle thanks to the higher margins generated by SGPs, the team added.
Analysts at EKG noted in a recent analysis of March Madness that they expected 10-15% of all betting on the tournament would be via SGPs.
They added that this was lower than with football due to less familiarity with the teams. But they suggested actual revenue from SGPs is likely to be double the handle percentage thanks to the high inherent hold.
Further reading: The rise of America’s new favorite way to bet.
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Analyst takes
Light & Wonder’s move to explore the potential for a joint Australian listing got the thumbs up from the team at Truist. “We think a potential secondary listing there is largely about multiple arbitrage,” the team added.
Deutsche Bank suggested that Sportradar’s post-earnings share price fall was an overreaction as the company is “already profitable”, has a strong balance sheet (having paid off $220m of outstanding debt) and part of its investments are in AI, which is currently an investor favorite.
DraftKings continued to get the stink eye from the analysts at Roth MKM, who suggested there are more negatives than positives in terms of catalysts. “We don't believe industry revenues will reach the scale needed for DraftKings to generate meaningful operating leverage,” the team added.
An eventual primary listing in the US for Flutter is a done deal, going by what analysts on both sides of the Atlantic said about the news that the company was consulting shareholders on a dual listing. Wells Fargo said the move would be a catalyst, while Peel Hunt said Flutter was “taking our ball away”.
Calendar
Mar 23: Better Collective CMD; Gambling.com Q4
Mar 28: The Data Month; 888 Investor Day
Mar 30: XL Media FY
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