In February, Boston-based online gaming and sports entertainment company DraftKings expressed its plans to grow its market share for the remainder of the year. Accordingly, its ad spending budget was beefed up considerably during the first quarter. At the end of May, the company signed a multi-market agreement with High 5 Games to strengthen its foothold in Michigan. At the end of July, DraftKings attended, promoted, and sponsored the 2022 National Conference on Gambling Addiction and Responsible Gambling.
Fast-forward to the second quarter of 2022, DraftKings put its massive ad spending on pause, according to a fresh Insider Intelligence piece by Daniel Konstantinovic. What caused the halt and how come other big operators including Caesars Entertainment followed suit? Let’s find out!
Concerned Investors Urging for Ad Spending Cutbacks
In a clear desire to strengthen their foothold in the freshly opened sports betting markets in many US states, sportsbooks started to pump large sums of money into their advertising budgets. Nonetheless, DraftKings, Caesars Entertainment, and other big names in the industry began to change their mind and cut their ad spending during Q2 2022. Why? For starters, because of the concerns expressed by investors regarding the current state of the global economy. Secondly, because of the lack of sufficient sporting events during the second quarter for bettors to actually wager their money on and bring profits to sportsbooks. Last but not least, worries regarding consumers’ spending habits that are expected to also hit a cooling-off period along with supply chain problems also led to the decision to reduce ad spend in Q2.
While DraftKings’ second quarter ad spend went up 16% to $197.5 million, the numbers were drastically lower compared to the massive 270% increase recorded in the second quarter of 2021. At the same time, Caesars Entertainment also announced that it had cut around $500 million in unnecessary ad money during the same period.
Focus on Profitability
The pressure to limit these expenses comes after the confident burst of sports betting operations at the beginning of the year. Then, huge volumes of bets were placed through sportsbooks in just a few days. The pending recession and the heavy ad spending in the previous year were, however, enough to convince most sportsbooks to take a moment to regroup and shift the focus on profitability in the long term. This conservative approach for the second quarter belongs to the industry’s long-term plan to drive profitability.
Now, part of the funds will reach the field of politics, with emphasis on a Californian ballot initiative backed up by DraftKings and FanDuel meant to make online betting legal. Nonetheless, the second half of the year will bring about a good number of sports events, including the 2022 World Cup. At the same time, the current partnerships signed by sportsbooks are generating ongoing profits. The fact that sports betting is expected to stand its ground during a potential recession also adds a note of optimism for sportsbooks like DraftKings.
With fresh partnership opportunities on the horizon, including Disney’s interest in seeing sports betting reach ESPN or the National Football League’s new streaming service will all help sportsbooks keep making nice profits in the future, in spite of whatever might be coming their way.