Taking Inches and Giving Miles
Operators have made bonuses a centerpiece of their marketing strategy to attract online sports betting and iGaming players, and they’re learning how much is too much by turning to analytics to offset bonus hunters as they focus more on retention.
“I think everyone in the industry would tell you that they made mistakes when it came to marketing strategy, and what you see now is a result of everyone learning from all of their early effort,” says Brian Wyman, executive vice president with The Innovation Group consultancy. “I am sure they can all point to examples of where they overspent or their timing wasn’t perfect. There was a lot of learning.”
The U.S. Supreme Court’s decision in May 2018 to overturn a federal ban on full-fledged sports betting started the bonus race. Today, 38 states and the District of Columbia offer retail and all but eight of those states offer online wagering. Seven states offer iGaming with more expected to follow in the future.
“You need bonuses to acquire players because it’s competitive,” says Ozric Vondervelden, CEO of U.K.-based Greco, which helps operators manage bonus abuse across their businesses. “If your competitors have bigger bonuses, they are going to acquire more players generally. Everybody went with the crazy acquisition strategy because they’re trying to create a monopoly, but everybody is losing money and it’s now a race to see who survives at the end—the last man standing and who can afford to lose the most money.
“They are happy to take this short-term loss to have a long-term return from the players. The risk is they’ll never get that long-term return from the players because the player’s attention was only to take value. It’s been unsustainable and a race to the bottom, and created this culture of bonus abuse.”
Josh Swissman, founding partner and managing director at GMA Consulting, says one tipping point was when New York state launched sports betting in January 2022, when operators paid a $25 million license fee and a 51 percent tax rate, making margins thin before promotions cut into the bottom line.
“The industry is new to the U.S. and people are still learning how to operate,” Swissman says. “Without a strong promotional strategy, you find yourself in a pretty noisy world without making much of a dent in the marketplace. You will find yourself in an environment where your customers won’t stay with you because everyone else is offering promotions.”
Greco, which has one client in the U.S. in Resorts Casino Hotel in New Jersey, did an analysis of the state a year ago to understand the value of all the bonuses—one of the only industries that incentivizes new players by giving them money. It found that if a player was to do every welcome offer and was “somewhat careful” about the games and stakes they chose, the amount they made was $18,500, Vondervelden says.
The average bonus promotion in New Jersey was $759 for iGaming and $570 for sports bettors. There were 30 welcome offers for iGaming and 20 for sports betting, according to the study.
“This is a lot, and you can argue it’s creating a problem for the industry because it’s encouraging bonus abuse,” Vondervelden says. “The other side of that is that maybe welcome offers need to be smaller in the U.S., and I think when it comes to retention offers, they could be bigger. If you can analyze a player effectively you don’t have to take risks because you can give value to players that you know and are going to get value back.”
In the U.S., there were many operators that offered $1,000 bonuses on deposits with the proviso that it be turned over five to 10 times before it turns into cash, Vondervelden says. Bonus hunters play slots and tables and place sports bets, prioritizing the latter more because there’s less risk, especially when they hedge sports bets with different operators, he adds.
“Once they played through five times, it turned into $800 cash,” Vondervelden says. “They can go for low-volatility games and not have big wins or losses and give 2 percent away with every bet and not give enough of a house edge.”
What’s taking place in the U.S. isn’t new, Vondervelden says. The same thing happened in the U.K. about 15 to 20 years ago when operators offered huge bonuses. But over time once the market became saturated and there were no longer as many new players to acquire, it died down. A typical offer today is $25.
“But the U.S. has done this on steroids, and it has cost every operator many millions,” Vondervelden says. “The bonuses in the U.K. were never as crazy as this. Typically, they were about £100 (about $125) and went up to £500 (about $625). Anybody that’s smart can take that value.”
A lot of bonus abusers in Europe relocated to the U.S. to exploit casinos across state lines, and there are syndicates operating out of the universities, Vondervelden says. They are recruiting students to use Social Security numbers and they gamble on their behalf and split the profit. In addition to these professional bonus abusers, there are also smart players who are able to take advantage.
“There’s a big bonus abuse problem in the U.S., and we’re waiting on the market to mature in the sense of shifting focus from acquisition to more of one with their current player base,” Vondervelden says. “Now they have started to saturate a little, and operators are now starting to look at how they build metrics around existing players, how they retain them, and how they get the most out of them.”
Wyman admits bonuses have “come down a little bit” in part because there are some jurisdictions where free play is taxable and some jurisdictions where the tax deductibility of free play has sunsetted.
“Your cap on free play deductibility has come down over time, so less of the free play that operators are offering is tax-deductible, and that has changed the model a little bit,” Wyman says.
For how much in bonuses is enough, Wyman says that’s a hard question to answer in the early stages of figuring out how to do one-to-one marketing. Some operators have their own internal tech stack, but they got them by acquisition rather than organically.
“Their core competency is marketing data analytics and data science, and they’re figuring that out on an individual customer or customer cohort basis,” Wyman says. “I don’t think there is a right or wrong answer to that in aggregate. They have really sharp folks working in these analytics functions and to some degree they have taken some of the best analytics folks out of land-based casinos.”
As for how much is too much, Swissman says that’s the “magical question” that the industry is still trying to figure out. The right amount to spend on acquisitions is what helps grow a database of new customers at a healthy level, and the right amount to give from a retention standpoint is what minimizes your turnover rate as much as possible, he says.
“You do all that and thread the needle to generate the right amount of profit,” Swissman says. “The wrong amount is one that continues to force you to operate in the red.”
The promotional environment, meanwhile, is becoming “a bit more rational even though there’s still relatively healthy acquisition bonuses,” Swissman notes. It shows up in the earnings reports of how some operators are turning a profit or are on pace to turn one—something they also talked about two years ago, he says.
“These operators were doing it to grow their top line and database, and I think everyone knew as they were doing it that it wasn’t a sustainable practice,” Swissman says. “Now, you’re starting to see operators get to a place of more sustained marketing and promotional strategies and spend. You’re not seeing these huge bonuses that are being offered just to sign up. You are seeing things that are more measured and seeing more of ongoing retention strategies when it comes to promotion.
“When you get to that place where you are not so lopsided with everything focused on acquisition and more on retention, that’s where you get to a point of having a sustainable business model and sustainable promotional market.”
Vondervelden says operators haven’t invested a lot of technology but instead budget their money on players. There’s not enough analytics on players to understand if they are a problem, and what casinos are doing is giving them a second bonus and a third bonus and that’s cutting into profits, he adds.
Greco, which has developed product solutions to help automatically detect bonus abuse in game play, says their software has been used in New Jersey to analyze players with high-risk behaviors that cheat the casino.
“It’s been very successful,” Vondervelden says. “They are finding tricks to maximize the value of the bonus and we can identify when they are doing this. When it comes to retention offers, that’s when you should be bonusing generously. But it has to be targeted on the right players, and it’s targeting that’s missing.”
Swissman says the way to deal with bonus hunters is to be “super laser-focused on customer analytics and have that solid retention strategy of bonuses and promotions. Without that, you end up catering to bonus hunters who will come and take the promotional money and run, so to speak.”
Operators today are investing more in analytics talent and equipping them with software, Wyman says. They are analyzing the data using their own tools and software, but Wyman says he sees it not so much as a technology race but as a talent race. Many operators have enough organization around them, and with assistance from companies can identify these bonus hunters quickly, he adds.
“This is part of the reason why out-of-the-box software isn’t going to solve this problem,” Wyman says. “I think this is exactly why they have good analysts working on these problems. I think there’s a delicate balance here of not throwing the baby out with the bathwater. You have to make sure you are providing people that are spending money incentives to continue with you and your platform and not defect and find it’s more attractive to go next door.”
There hasn’t been a lot of innovation in terms of how operators are marketing bonuses to players because the focus is giving the dollars to the right people in the right amount—a simple process, Wyman says. There’s no novel approach, he adds.
“I think what the analytics people are doing helped most of these guys figure out who are the right players to invest in and what we should be investing in, and I think the fact they are looking at the problem in a similar way across these businesses is going to land them at roughly a similar strategy,” Wyman says.
The difference between the companies, meanwhile, is the amount, cadence and when they give the money back, Wyman says. Some will give it directly and some will give as “bet this bet” and they will give you a $25 bonus bet as opposed to direct mail where one day it shows up in your mailbox. “Sometimes they are gamifying it where they say bet a single game parlay up to $25 and they’ll deposit an equal-amount free bet in your account, or if it loses they will rebate your wager,” he says.
Given that everything’s digital, operators can test offers to players quickly and get that immediate feedback to see if they made a mistake and pull it down, or extend it if it works, Wyman says.
“That’s one of the biggest differences between the digital world and land-based world,” Wyman says. “It’s just the ability to test things and get data back and make quick decisions based on a high volume of players that you touch. Whereas with land-based, it takes a long time, and when you send an offer somebody might not respond immediately—maybe it’s a month or two to respond to it.”
The innovation and thoughtfulness going on right now in the industry deals with responsible gaming, Wyman says. There’s a lot of concern about advertising and the way we’re using incentives to draw in customers to wager.
“I think people are starting to be a little more thoughtful now about trying to provide bonus dollars and do so responsibly and make sure they’re not enabling problem gambling in a meaningful way,” Wyman says. “That’s important for the long-term health of the business.”
With more states yet to adopt mobile sports betting and many more states with a potential for iGaming in the future, bonuses aren’t going to disappear, because those operators will turn their attention to acquisitions.
“Any new state that opens, there’s always a period of heightened promotional spend focused on acquisition,” Swissman says. “That will happen in sports betting markets and iGaming markets that haven’t been lit up yet.”
That means continued heavy competition between top operators such as FanDuel, DraftKings, BetMGM, Caesars, Fanatics, ESPN BET and RSI.
That competition, however, has dwindled because the landscape has consolidated with some operators shutting down in several states and mergers and acquisitions in the last couple of years.
With the high cost of marketing and promotions, Wynn Resorts in 2023 shut down its online gaming and sports betting operations in eight states, with New York as one of the exceptions.
“It’s a little less competitive today than it was during the early gold rush where people were giving really rich bonuses to bring customers in,” Wyman says.
