The Lure Of Big Numbers
Why the industry needs to be careful about its constant hunt for more margin
Margin gains have been the talk of the sports betting industry for the past year. Win rates are ratcheting up and everyone feels very pleased with themselves.
Structural hold, that verbose and deeply dull term, is all management want to talk about as they are winning 10%, 11% even 12% thanks to same game parlays and bet builders.
Players are losing at a faster clip than ever before and this is, apparently, very good news. To the extent that management now talk of trying to push it ever higher because more money is better than less money.
But…is it?
More Margin, Less Problems
This isn’t just how things have always been with punters just loving big priced bets as some lazy commentators will like to tell you. This is a radical shift.
Margins are now regularly above 10% and pre-match football margins often above 20% at some of the larger recreational operators. And crucially this has all happened largely organically. It wasn’t planned or schemed, we’ve just sort of ended up here.
And nor is it just limited to sports betting with casino games getting decidedly less user friendly in terms of return to player levels over the past year or so. Again this wasn’t a strategic shift as such, but a reaction to declining customer yields.
Casino sites in many nations are seeing regulation pushing down player values and the response predictably has been to dial down the RTP. Where we once saw 96% we now commonly see 92% or even 90%. Across the sector you are just getting a bit less for your money than you used to.
There is, however, a perfectly valid argument that this is a good thing.
The thrill of the chase
Do players actually enjoy winning less? Well not as such, but the overall experience of placing a sports bet or playing slots is about far more than just money in money out. And the shift in margin is partly because players enjoy betting these higher margin products more than lower margin ones.
Underlying all of this are two differing factors: operator and consumer behavioural shifts. The first one is fairly easy to understand. Operators faced with rising costs (and falling ARPUs in the UK) have looked to trim the fat and gently nudge up overrounds and cut back on aggressive pricing and bonusing. In other words they’ve stopped trying to give it away.
The second trend is a little harder to unpick. Betting volumes that used to be overwhelmingly on the core win or handicap markets are now increasingly moving to player proposition markets and same game multiples. What we’ve seen is a mix of natural and prompted migration to bet builders/SGPs and to a lesser extent traditional multiple and special bets.
But…why?
It’s all fun and games
Well partly this is due to operator promotion of these bets. But largely it’s because they are a more fun user experience, they provide a longer and less breakable in-game sweat (it’s always feels possible for someone to score a goal it does not always possible for your team to win) as well as providing that optimal win big stake small UX.
I could write a lot more on why bet builders connect so well with players, but that isn’t really what I want to look at here. Let’s just accept as a baseline that customers use bet builders/SGPs because they like them not because they are told to and that even at stupidly high hold rates they still get something from them.
So what’s the problem then? In fact is there even a problem? Customers love the user experience and they just happen to be inherently higher margin products. Operators win money more quickly from the customers and everyone is happy. Right? Well…kind of.
The industry is in danger of believing its own marketing message that gambling in and of itself is entertainment. This isn’t really what happens though. Thinking of what to bet on is entertainment, watching it play out is entertainment, but losing is not entertaining. Or fun. You do need to win sometimes.
Losing is for losers
Betting is only fun if you win now and again. And people betting 100/1 shots at 33/1 aren’t going to win very often. It’s entirely possible for your average player to go months without winning anything. A perfectly normal variance where you place 5 bets a week could see you go 30 weeks without winning.
Even placing 20 $10 bets a week and the odds working exactly as they should (you win once in 99 times) sees you getting back $340 after five weeks slog and $990 invested. This isn’t how it always was either for a lot for customers. A mixed betting portfolio with some singles, some multiples and some jackpot bets is going to kick up a few winners no matter how bad you are.
But a full slate of builders every weekend can you see run drier than the Rio Grande in summer. And as operators increasingly push players to ever bigger, ever higher margin bets, this becomes much more common as a user experience.
Please win something
Operators know this and you now see the strange phenomenon of forcing wins onto players. Super boosts where 1/10 shots are boosted to evens just so players can remember what it feels like to win something. That may not be the sole function of them to operators, as they’re also a great way to get players to redeposit among other aspects, but that’s often their function to the player.
Casino gaming has seen a similar phenomenon in recent years but stripped of the consumer behavioural aspect and driven almost entirely by the need to make more money from fewer players. How do you increase ARPU? You can reduce generosity. OK cool done that. What now? Simply crank down the RTP. OK great.
And that is what the UK has done. To surprisingly impressive success. ARPUs have gone up, at least for now, player numbers continue to rise and nobody really seems to care that much. They spend a bit less time on site and lose their money a bit quicker and operators are paying out less overall. So again what is the problem here?
Well just how sure are we that customers are happy? Are they really finding the games as entertaining and rewarding (in all senses) as before. Are the games actually as much fun at lower RTP levels and if not why don’t we push it down even further? At what point does the RTP actually start to degrade the gaming experience?
Let’s just see what happens
The truth is people aren’t especially thinking about most or indeed any of these questions. It’s just A/B testing live and at scale. This isn’t some grand strategic plan, it’s operators reacting to market conditions and consumer preferences and as players run to higher margin products being very reluctant to dial down the margin.
And the short-term is people are too lazy or stupid or indifferent to care if a game gives them 97% or 92% or even 89%. One game developer I spoke to said there is even evidence that players prefer lower RTP games if the mechanics are built for them. But this is all fairly short-term thinking.
Because customers are not thinking about themselves losing. that’s what you are thinking about. They don’t want to lose more slowly, they have come to win. The long-term impact is much more insidious and subconscious. That gradual gnawing feeling that this isn’t for you, or you just can’t win.
And that’s not really a great message for an entertainment industry to be sending out.
The wrong sort of player
This increasing ennui in the user experience happened to a large extent in poker and to think it can’t or won’t happen in sports betting is fairly naïve. And even in casino where there is an underlying acceptance that you can’t win long term, there is diminishing entertainment value in only ever winning small or sporadically.
Eventually your healthy sustainable non problematic player base might start to turn away and what you are left with is the players at the wrong end of the distribution curve. The endless hunt for more and more margin could in turn lead to less and less fun for all the right types of players.
And that doesn’t seem to be where the industry really wants to be.