Sportsbooks spend big money to get customers. But 'free-play money days' shifting to bettor loyalty.

Between J.B. Smoove's Roman Emperor impersonation, Jamie Foxx's persuasion, DraftKings' catchy tune and the Manning family's charm, it shouldn't be too shocking that sportsbooks spend billions of dollars on advertising and promotions to acquire customers.

According to Nielsen, the top four sportsbooks – DraftKings, FanDuel, BetMGM and Caesars – accounted for 93% of the advertising dollars in 2021. Every sportsbook offered sign-up bonuses ("bet up to $3,000 risk-free," "bet $1 to win $200") to entice customers, as legalized mobile sports betting has expanded to 22 states and Washington D.C.

The incessant advertising, particularly during football season, and promotional hustling created a "race to the bottom," some industry leaders said. The correction is coming though, as sportsbooks and brands transition from initial customer acquisition strategies (such as promotions) to keeping customers invested in their platform.

"Branding money and free-play money days are over," SharpLink Gaming CEO Rob Phythian  told USA TODAY Sports. "It’s time to start building some kind of responsible model."

'Race to bottom' in promotions, ad dollars

FanDuel poured $1 billion into customer promotions and marketing in 2021, according to parent company Flutter CEO Peter Jackson. Projections entering 2022 said online sports betting advertising was expected to grow 44.9%, per BIA Advisory Services.

“The levels of required investment to be a winner in this market are high” Jackson said during an earnings call earlier this year, “which we ultimately feel may act as a helpful barrier to entry in the industry.”

Between December 2021 and January 2022, iSpot.tv – an advertising impact measurement company – reported that six major sportsbooks combined to spend $86.4 million on national TV advertising during the football season, with New York scheduled to open for mobile wagering the first weekend of January.

"For a long time, it’s been a race to the bottom in terms of promotional dollars and everybody going one more dollar on what the promo value is, and really using that as the line for acquisition," Hard Rock Digital chief marketing officer John Koller told USA TODAY Sports. There are better ways to retain customers, he said, "and actually create loyalty and advocacy."

Caesars initially led FanDuel in New York but trailed by the NBA All-Star break in February, and CEO Tom Reeg said shortly thereafter it would be pulling back on TV advertisements and promotions. Last August, Reeg said Caesars would spend $1 billion marketing its mobile app over the next two years.

Nothing is stopping customers from signing up at multiple sportsbooks, winning initial bonus money and then not returning once the funds run dry. Constantly being exposed to a certain brand doesn't sit well with the consumer, either.

"If you apply too much frequency to that acquisition or ‘click here, click here,’ it turns into spam and really blows by people," Koller said. "In the long term, you won’t get any retention out of that."

But long-term loyalty is ultimately what these sportsbooks are seeking, the same way Starbucks targets the person who is a daily coffee drinker and Delta desires the business traveler, said head of Sportradar Ad:s Mike Smith.

"So how do you get somebody that's really going to provide that lifetime value?" Smith told USA TODAY Sports.

The market is telling the big operators that the tipping point from acquisition to retention has arrived, Pythian said.

"That doesn’t mean they couldn’t have part of the budget for (acquisition), but I think the mood has shifted," Phythian said. "It was going to happen at some point. And I think the mood has now shifted to performance-based marketing."

Tech helping brands: 'We can be smarter'

The other side of the tipping point is what Phythian's company is waiting for. SharpLink attempts to help leagues and their sportsbook partners place betting markets into the natural audience stream.

"There's more to converting a sports bettor than offers with big bonuses," Phythian said.

SharpLink tried this with NASCAR and BetMGM, the league's partner in this case. The SharpLink technology allowed BetMGM to place customized bet slips on the NASCAR.com homepage. A visitor to the website could start forming his or her bet right there before being transferred to BetMGM to officially book the bet.

The click-through rate (percentage of people who visited the homepage and clicked into the bet slip) was 9%, while industry standard for banner-ad click-through rates is less than 1%. The percentage of NASCAR fans who registered with BetMGM after landing increased by 72%, while the percentage of visitors who deposited with BetMGM after landing was 152% higher.

"Proof in the pudding," Phythian said.

Of course, this requires a league being comfortable with bets essentially starting on its homepage. BetMGM head of partnerships Kyle Wachtel said "they're all at various points" and that most leagues having multiple partners (the NFL has seven official sportsbook operators) makes that effort more difficult. He did call the early results from the NASCAR sponsorship "promising."

"Over time, (leagues are) becoming increasingly comfortable with certain executions," Wachtel said. "We’re glad to move at their pace and figure things out and do things the right way."

Phythian said technology will affect retention efforts by studying a user's past betting or fantasy habits. A fantasy football player who starts Tom Brady at quarterback may see a prop bet – over or under his total throwing yards for the game, for example – populate on the roster page while setting his or her lineup that week.

"We just have so much more data that we can be smarter and more interesting when it comes to keeping players engaged," said Smith.

Content, social experience will signal retention

Peyton Manning's production company, Omaha Productions, and Caesars announced a multiyear deal for an expanded audio lineup. FanDuel sponsors Pat McAfee's daily three-hour show and creates promotions for him. DraftKings has created its own media stable by signing Dan Le Batard's Meadowlark Media and bringing in ex-Barstool personality Jared Carrabis to anchor a baseball show.

Content and entertainment will be an area for media partners and sportsbooks to focus on retention, Wachtel said.

Koller, the Hard Rock marketing chief, said there is a lack of narrative and storytelling in the sportsbook space. Hard Rock leverages the social experiences of its properties to convince bettors to use the app in states it operates.

The social aspect is one element that Greg Kajewski and James Seils wanted to solve when it came to sports betting. Their peer-to-peer marketplace called BettorEdge connects users with no house involved. Customers set the prices and there are no fees or vigs -- it's more like the New York Stock Exchange (trading) than a Las Vegas gambling window (betting).

The goal was to recreate the feel of a gambling group chat on an actual betting platform, Kajewski said. BettorEdge's technology allows friends to comment on trades.

"You don’t have to take your win from a specific sportsbook and then post it on a social platform," Kajewski said. "What if it just automatically did it for you?"

The sports gambling market is still a nascent one, Kajewski thinks, and he said people are still gravitating toward the main players.

"You’re starting to see a ton more innovation around what can happen in sports betting across social platforms, data platforms," said Kajewski, who foresees this decentralized style of sports gambling becoming prevalent within the next decade; BettorEdge's retention rate this football season was 80%, with a 30% referral rate.

The industry's heavy-hitters ought to take a page out of that playbook, said Koller.

“If you can get your friends playing," he said, "you will have a very successful book."

Follow Chris Bumbaca on Twitter @BOOMbaca.

This article originally appeared on USA TODAY: Sportsbooks' 'free-play money days' are shifting to bettor loyalty