FanDuel has 50% market share in the American sports betting industry, per its Q4 2022 results. It’s the market leader in almost every US sports betting market by 10-20% and shows no signs of ceding its market dominance.
If FanDuel is the clear No. 1, DraftKings is the clear No. 2.
There’s reason to believe, perhaps, if there was ever a state where DraftKings could be No. 1 in sportsbook revenue, it would be Massachusetts. The company was born in Boston, where it still has its headquarters. It’s recruited a who’s who of Boston sports legends to help advertise the product in the Bay Sate.
At the end of the day, there’s no reason to expect Massachusetts will deviate from the pattern. FanDuel is structurally more competitive in ways that its closest competitor, DraftKings, either hasn’t replicated or developed too late.
For sports betting in Massachusetts, we believe bettors won’t care enough that DraftKings was founded in the state they live in.
Instead, they’ll care about the sportsbook brand that does a better job of reaching them.
Early FanDuel victories
Part of the reason FanDuel’s market share is so much higher than its competitors is the structure of the online sports betting industry.
During its November Capital Markets Day (CMD) presentation, Flutter Entertainment CEO Peter Jackson highlighted the same pattern in other digital industries — where one company takes most of the pie, and other companies battle for the rest. Netflix had 3.7 times more market share than Prime Video. Uber had 2.6 times Lyft’s market share. Spotify had 2.1 times the market share of Apple Music. And so on.
Further, FanDuel made strategic decisions that snowballed into greater advantages. The greatest factors in FanDuel’s market dominance include its:
- Early launch of Same Game Parlay product
- Customer acquisition and retention abilities
- Promotional spending strategy
SGP early launch
“We were the first ones to market with both Same Game Parlay and Same Game Parlay Plus, and … 86% of our active bettors last year placed a parlay bet,” Alexander Pitocchelli, director of communications at FanDuel, told PlayMA. “So that was a huge driver for us, especially during football season, which is one of our busiest times.”
Parlays are profitable for sportsbooks because each parlay leg decreases the chance that the parlay will win. This allows FanDuel to make more money across decreasingly likely bets.
FanDuel being the first to market with SGPs gave it an early advantage in profit margin. It made more money than its competitors on a popular bet type, which could be reinvested to improve its risk management, potentially allowing the company to safely accept even more liability.
Five years into legal US sports betting, being first to market with this high-margin product snowballed into a revenue advantage.
Customer acquisition and retention
PlayMA has previously reported on FanDuel’s superior ability to convert its existing daily fantasy sports (DFS) customers to sportsbook users. FanDuel’s CMD offered a more detailed glimpse into how its customer conversion works.
In total, 25% of FanDuel’s new customers come from referrals, which not only scale with FanDuel’s customer base but also cost 60% less than its other customer acquisition methods. However, that doesn’t explain FanDuel’s initial advantage in customer acquisition.
What comes closer to explaining it is FanDuel’s improvement in its penetration with each legalization wave. Here is FanDuel’s breakdown of the percentage of the adult population it converted to its app 12 months into each wave of sports betting legalization:
FanDuel has not only captured more customers over time, but it has also acquired them more quickly. This is another strategic investment with compounding returns. Improving customer acquisition speed gave FanDuel a head start in new markets, giving it more customers to make more referrals.
Promotional spending strategy
The standard first bet bonus will be a familiar Massachusetts sportsbook promo to many bettors. However, 95% of FanDuel’s bonus offers are automatically sent to users. This eliminates a level of bureaucracy that reduces the amount of money that FanDuel must spend on staff and the time necessary to draw customers back to the app.
The extra revenue that FanDuel doesn’t need to spend on those overhead costs can be reinvested into better risk-management systems, further improving FanDuel’s margins and reducing its customer retention costs. This financial snowballing effect gives FanDuel a greater cost advantage over time. It’s a critical feature shared by all three strategic victories covered here.
FanDuel’s market position over DraftKings
In his book Good to Great, Jim Collins describes the flywheel effect, in which small victories accumulate to build greater advantages over time in the same way that a heavy flywheel moves faster the longer that someone pushes it.
Over the past five years, FanDuel’s early victories secured the top market position. In Indiana, where DraftKings launched almost three weeks before FanDuel, DraftKings’ earlier launch was able to keep it in the market-leading position … for a while.
After two-and-a-half years, FanDuel overtook DraftKings. FanDuel’s early strategic victories undermined an old advantage that was important early in the industry’s lifetime. Today, FanDuel’s market dominance reveals the keys to long-term competitiveness in the online sports betting industry.
And that will hold true for FanDuel Massachusetts in DraftKings’ backyard, too.