Caesars Sportsbook commercials to “disappear from screens” as CEO Tom Reeg pledges to dramatically curtail media spend in bid to reach digital profitability
Caesars will “dramatically curtail” its US marketing efforts effective immediately according to CEO Tom Reeg, who insists the operator has already smashed its online market share targets.
Since launching the Caesars Sportsbook brand, Reeg said the business had gone from an “afterthought in the market” to winning a combined US sports betting handle market share of almost 21%.
In Q4, the operator more than tripled its digital revenue year-on-year to $116m. However, this came at a cost, as Caesars reported a Q4 net loss of $360m for the division during the reporting period, rising to $580m for full-year 2021.
In fact, Caesars made a bigger loss on the digital division in Q4 than its online operation generated in net revenue for the whole of 2021 ($337m).
As with most US sports betting operators, the losses were attributed to high marketing spend and the cost of acquiring new customers, particularly in newly launched states like New York and Louisiana.
Caesars’ share price fell by more than 3% following the publication of the results as investors continue to struggle to see a path to profitability for Caesars Digital – and many of its rivals – in such a competitive and expensive operating environment.
“That leads me into digital, where I know the market is struggling,” said Reeg on the Q4 analyst call. “Investors are struggling with it. Can this be a profitable business? We’ve gone from kind of ever-increasing bullishness to unlimited bearishness at this point,” he added.
To remedy this, Reeg has promised to pull the vast majority of Caesars’ above-the-line digital division marketing spend in the US. This appears to have done the trick, at least in the short term, with Caesars’ pre-market share price up by more than 5%.
“You are going to see us dramatically curtail our traditional media spend effective immediately,” said Reeg. “We have accomplished what we set out to do. We set out to become a significant player, and it’s happened significantly quicker than we thought.
“I think most of you know me as someone who’s not one to spend any money needlessly. We’ve gotten to where we need to be and you’re going to see our commercials largely disappear from your screens,” he added.
Caesars Sportsbook ads will continue into March Madness in some states as it was too late to change the schedule, according to Reeg.
The operator has spent a fortune to date on traditional media marketing, led by Hollywood-style TV ad campaigns fronted by actor and comedian JB Smoove, including a 30-second spot starring Halle Berry during this month’s Super Bowl.
It has also broken the bank to acquire customers in key battlegrounds including New York, where Caesars currently leads the monthly revenue rankings. When the market launched in January, the operator offered a deposit match of $3,000 to new users.
“I know there was a lot of focus on our $3,000 deposit match in New York and the thought that, gee, I could just put in $3,000, make a couple of easy bets and withdraw my money,” said Reeg. “But our average deposit in New York was about $450.
“Our results in New York were not driven by a lot of $3,000 deposits responding to our offer – it was hundreds of thousands of smaller customers that came to our site.
“The reason that you go after those brand-new customers as avidly as all of us do is because the customer that you find in the first quarter post-launch is worth something in the neighbourhood of 2x what you find afterwards, so there is a method to the madness here.”
On the call, Reeg revealed that overall betting volumes in New York, and Caesars’ current market share in the state, were both double what the operator had originally anticipated.
Caesars has recruited around 500,000 customers in New York since going live on 8 January and the state is nearly as large as the rest of its US digital business combined.
Reeg described the consumer demand for mobile sports betting in New York as “absolutely staggering” and said Caesars dealt with 75,000 customer queries within the first 72 hours of launch.
Caesars’ higher-than-expected market share means the cost is also greater than the operator had originally modelled for, with the Super Bowl in particular triggering some sizeable pay-outs.
Considering New York went live after the Q4 reporting period, in January 2022, Reeg warned investors the bottom line will almost certainly get worse before it gets better.
“We were extremely pleased with how we came out of the box,” said Reeg. “But because of the launch of New York and Louisiana in the first quarter, you should anticipate that this current quarter is our peak EBITDA loss and that you’re never going to see a quarter like this again.
“That quarterly loss is going to be larger than it was in the fourth quarter, but you’re going to see us moving toward profitability and making moves both in traditional media and ultimately through offers to customers, because we have reached where we want to reach in terms of customer acquisition,” he added.
Caesars reported a 63.5% year-on-year rise in overall Q4 net revenue to $2.59bn, primarily driven by recovery across the operator’s regional and Las Vegas-based casino properties. The business made an overall Q4 net loss of $434m.
For full-year 2021, the operator reported net revenue of $9.57bn amid an overall net loss in excess of $1bn.