FanDuel targets 12% margin on US sports betting operations
In 2018, he said, the prevailing logic stated that betting operators could not take a margin of more than 3% – the accepted level of margin on which Nevada’s retail sportsbooks operate – as online operators would be expected to compete directly with Vegas pricing.
By 2019, however, online betting margins had rapidly increased to some 6%, and now FanDuel – which Core said was the first online betting operator in the US to turn to profit in August – has a target of 12% margin across its wagering operations.
Part of the reason, he suggested, is the lack of higher-margin iGaming options available in the US, with just a handful of states allowing operators to offer online slots and table games.
“We don’t see iGaming going much further than where it is today in 2023, or possibly even 2024. We see sports betting continuing to be the buzzword in 2023, as it is today,” Core said.
“So unfortunately, we don’t see a lot of growth in iGaming, because of the regulations and land-based casinos and their lobbying and influence.”
Sports betting operators should therefore be prepared to set margins higher in order to secure a chance at generating profit in the coming years, he argued.
FanDuel senior director of product and operations Gareth Core: “We don’t see iGaming going much further than where it is today in 2023, or possibly even 2024. We see sports betting continuing to be the buzzword in 2023.”
Smarkets founder and CEO Jason Trost, who joined Core on a panel discussion examining the barriers to entry in US sports betting and iGaming, said his business takes a different approach.
The Smarkets exchange and counterpart sportsbook brand SBK is aiming to turn US betting into a high-volume, low-margin industry, Trost said, with a view to creating the best possible experience for bettors. This would mean processing a higher volume of transactions in order to generate revenue.
In the current scenario in the US – where extremely high regulatory costs and tax rates, together with burdensome licensing and compliance requirements make market entry increasingly difficult for small businesses – the ultimate loser will be the customer, Trost argued.
The situation creates a market with limited competition and less room for innovation, he said, leaving customers with a limited selection of operators to choose from.
Still, Trost believes Smarkets will be able to carve out market share by offering better odds than its competitors. Even for casual and recreational bettors, he said, pricing will eventually become an increasingly important consideration for customers.
“I think over time, things will progress,” said Trost. “You know, that’s true in all industries – everything’s getting cheaper and cheaper, and consumers are expecting everything to get cheaper over time.
“And I think if there’s a sportsbook out there that offers way better prices, and that’s fun, and there’s another one that offers way worse prices, that’s also fun, I think people will choose the one with better odds.”
Ultimately, panellists concluded that a variety of business models have the potential to find success in the US. But with FanDuel closest to a profitable operation, higher sports betting margins could be here to stay.