Striking the right balance

The UK sportsbook industry has long been engaged in a fierce price war, but the battle over enhanced odds marketing has intensified in recent months. The sector is coming under increasing pressure from regulatory, tax and compliance requirements, with a potential crackdown on daytime TV advertising also causing headaches. As such, operators are going full steam ahead to acquire players while they can. But some question the long-term sustainability and profitability of such a strategy, and the wider impact it is having.

While marketers and traders slug it out in the trenches, it’s worth looking at the factors that led to the price war in the first place. The Point of Consumption (PoC) tax coming into force back in December 2014 and subsequent crackdown on FOBTs has hit operators hard and where it really hurts – their bottom line – lighting the fuse on mega-mergers such as Paddy Power Betfair and Ladbrokes Coral. These behemoths have since gone head to head in a race to acquire players, with pricing at the heart of their battle plans.

Ryan Murton, head of digital at Oddschecker, says the unprecedented consolidation has seen operators dig deeper than ever before to earn market share, and forced smaller firms to turn to pricing in order to keep pace. “Recent M&A activity has taken its toll and companies are now fighting for their share of wallet. There are also product developments that new bookmakers simply can’t compete with, so they are trying to offset this by outpricing the bigger bookmakers and by offering good acquisition and retention offers.”

Setting the standard
The result is that, for instance, in racing, which remains a rich acquisition channel for sportsbooks, customers have come to expect best odds guaranteed (BOG) as standard, and operators have had to up the ante to remain competitive. Ladbrokes went one step further by offering BOG+, basically giving the punter an additional price boost on top of their already enhanced price. Bet365 followed suit a few months after.

William Hill recently launched its High Five offer where punters placing a bet on any horse winning by five lengths or more get a 25% bonus, while those with a second placed horse losing by a similar distance get a 25% refund. And it’s not just the established operators pushing the boundaries; new kid on the block Black Type has made a show of laying all prices to lose a minimum of £500 per player.

The more pertinent question, however, is whether operators are still able to turn a profit from their ever-more outlandish BOG offers, or whether they are being used as a loss leader to entice players through their digital doors and then engage them with other products and games. When it comes to horseracing operators at least, Stephen Harris, racing editor at online sports betting affiliate bettingexpert.com, says it is certainly the former with a little bit of the latter thrown into the mix as well.

“Offers are available only to a select few and are aimed at capturing new blood. They are certainly not offered over a longer period to anyone price sensitive or selective. The bet size available on enhanced prices or value place terms is very small. Firms like bet365 have led the way and made things very tough for their rivals. BOG, extra places, early prices, and so on are all making racing an extremely tough marketplace. They are happy to use the racing product as a shop window for more profitable products on their superb websites.”

Close the floodgates
Online gaming operators employ some of the brightest minds and sharpest intellects in the technology and marketing industries, so it would be foolish to think offers and bonuses are not regularly and comprehensively tested against complex formula to calculate ROI and player LTV. And with data and analytics playing an ever-greater role in marketing campaigns and promotions, operators and marketers are unlikely to be taking a gung-ho approach to the odds they use to draw in customers.

One thing they may not have considered, however, is how to turn off the taps when guaranteeing offers are no longer profitable or don’t sit alongside their wider marketing and acquisition strategies. Daniel Kustelski, chief exec of Chalkline Sports and former general manager of online sports betting at Sun International, says best odds is something he has always tried to avoid as it is
difficult to close the floodgates to players once they have been opened.

“Back in Africa [when I worked for Sun International] we never really wanted to have the best odds as it was too hard to run a business with that being the sole positioning; its effects on the bottom line are too tough. Besides, once you go there, you can’t bounce back. For example, Walmart, or Tesco over here in the UK, can’t go back to their loyal customer base and say “you know, we simply don’t make enough money and we need to raise prices”. That strategy of low prices is a bit of a problem in that regard,” he adds.

Finding a balance
With that in mind, operators are striving to strike the right balance when it comes to how aggressively they approach pricing offers; if they go too far down the road it could be near impossible for them to come back without losing the players they have spent a small fortune on acquiring. Fintan Costello, founder of Revenue Engineers, goes one step further and says price wars “historically end in tears” and advises operators to “differentiate by moving away from enhanced odds” and offering perceived value in different ways.

“If the best odds really mattered to players, the Betfair Exchange would be the only game in town. Punters are not particularly price sensitive and the enhanced odds offers attract the promiscuous punters who will leave a bookie at the drop of a hat when a better offer comes their way. Instead, operators should focus on ease of use, convenience, brand experience, speed of cash outs and customer service to attract and retain a loyal player base,” he adds.

This is the approach currently being taken by bwin.party, and spokesman Jay Dossetter says price is, of course, just one of the important factors the firm competes for customers on. “Range of markets, the user interface, customer services and promotions are some of the significant areas where we look to differentiate our offer and attract customers. Our strategy is to offer the best overall product, including a fair and competitive price and this is a strategy that is proving highly successful.”

If the odds marketing battle continues to be waged with the vigour that it is at present, the online sportsbook sector could end up in a race to the bottom with itself. The larger operators
with the deeper pockets will undoubtedly be able to hold on for some time to come, but by trying to compete with their larger rivals the smaller sites leave themselves vulnerable and exposed. Competition is good for any industry, particularly when it comes to giving players a choice, more and more firms are at risk of falling by the wayside simply by committing too heavily to enhanced prices. Pricing will remain important, of course, but the key to player acquisition and retention goes far beyond offering the best odds.