FanDuel Loses Super Bowl, Has Lots To Learn About Sports Betting

FanDuel Loses Super Bowl, Has Lots To Learn About Sports Betting

FanDuel is one of the most famous names in daily fantasy sports (DFS), but they’ve been making a new name for themselves in the new legal sports betting arena. With the flagship FanDuel Sportsbook Lounge setting the tone at The Meadowlands in New Jersey, the brand has the aesthetic cachet to attract the big bucks. However, after tanking more spectacularly than the Rams offense in its first-ever Super Bowl, FanDuel lost an estimated $5 million on the biggest game of the year.

This can be blamed on inexperience more than anything, however. Nevada sportsbooks – which have been doing this for decades now – won almost $11 million on Super Bowl 53, which represents a win rate of 7.4 percent. For sportsbooks, this is considered a high winning percentage, with average “holds” (aka house takes) coming in at between five and six percent.

There are a number of explanations for how FanDuel so thoroughly muffed the Super Bowl in its first year of offering action on the game, but the actual cause is a little tougher to pin down, and there are probably a few significant factors in play. Hopefully, FanDuel will learn from this debacle and prevent such a big loss in the future. After all, while it’s great that lots of folks won big on Super Bowl Sunday, sportsbooks can only stay open if they can stay profitable.

Unlike most kinds of gambling, sports betting doesn’t always require players to lose for the house to win, and savvy books plan their odds around built-in “fees” on each spread bet. Ideally, these will cover any losses on straight bets (or props and the like), but sometimes, a book just gets unlucky. That said, an unlucky Super Bowl doesn’t fully explain the big hit FanDuel took this past weekend.

How FanDuel Lost $5 Million On Super Bowl 53

If you look at the numbers, New Jersey – the state where FanDuel operates at The Meadowlands and over the Internet – lost $4.5 million on the Super Bowl. That’s the combined total loss between all books operating in Atlantic City, at The Meadowlands, and at Monmouth Park. While all other NJ books lost less money than FanDuel, they were all losers on the day.

For example, DraftKings, FanDuel’s largest competitor in DFS and a primary competitor in the New Jersey sports betting market, lost just over $1 million on the Super Bowl. No book was in the black after the Patriots’ 13-3 win over the Rams. But FanDuel was by far the deepest in the red. How did this happen? In a word: promotions.

Promotions are a common thing in the retail sports betting space, but you mainly come across them at offshore books. With the widespread legalization of sports betting in the US post-PASPA, however, there are more and more brick-and-mortar promos popping up. Given the Super Bowl’s status as the most popular sports betting event of the year, it’s not surprising that promos were offered at just about every New Jersey venue. These books are all new and all fighting for market share, remember. And because of that, more than anything else, a runaway promo is to blame.

The Promo That Lost The Super Bowl

The FanDuel promo that ultimately cost them the most money on Super Bowl 53 was advertised all over the Internet. In NJ, wagering online with a regulated, licensed bookmaker is legal, and most of FanDuel’s reach is naturally over the Internet. (You still have to physically be inside New Jersey’s borders to use FanDuel’s online betting system, thanks to the Wire Act’s guidelines.)

Essentially, FanDuel was running the most generous bonus ever, advertised simply: “Bet $5 Win $265”. These represent 53-1 odds. What this meant in practice was that when new players signed up for a FanDuel account, they’d place a pre-game straight moneyline wager on the Pats or the Rams to win the game, and if their bet was a winner, they’d be paid out at the odds of the bet in addition to receiving $265.

Unfortunately for FanDuel, 86 percent of the wagers placed on the Super Bowl – and 90 percent of the money placed on the big game – was put on the Patriots. The Patriots, of course, won the game, and FanDuel was out a tremendous amount of money on the day. Without the bonus loss, FanDuel would have still finished in the red, but they took a huge gamble on this particular promo, and they lost.

Is FanDuel Really This Bad At Sports Betting?

Though things look bad on paper, the reality of the situation isn’t so dire. FanDuel is new to the game, but they’re not really this bad at sports betting. After all, the FanDuel brand is owned by a global sports betting and oddsmaking powerhouse, Paddy Power Betfair, which has been setting lines for a combined 50 years. They know what they’re doing.

In essence, this promo – likely the first and only of its kind going forward (at least in New Jersey) – was designed as a marketing push first and an actual profitable wagering scheme second (or third, or not at all).

With Super Bowl ads starting at $4 million, this sort of loss – and the positive publicity it generated with so many happy, well-paid fans and bettors – amounted to basically just that: a Super Bowl ad. That puts things into perspective and takes the sting out a bit.

When $5 Million Isn’t Really $5 Million

In addition to perhaps serving as an expensive ad and nothing more, the $5 million loss posted by FanDuel isn’t really a $5 million loss. At least, not yet. The way sportsbook promos work is complex, but the short version is this: Your bonus payout is almost never in the form of cash in hand. Instead, you receive bonus “free plays”, which are effectively sportsbook store credits.

That’s the case with FanDuel’s bonus, meaning that much of the losses suffered by the book are actually still in-house; the book didn’t lose all that money as cash. Instead, bettors receive their sportsbook credit, and they can only capitalize on the bonus once they use it to place fresh wagers and win.

If bettors use their bonuses to place losing bets going forward, FanDuel is off the hook. In these terms, the majority of that $5 million loss will likely be cut in half once adjusted for future bet outcomes.

How Does Super Bowl 53 Affect FanDuel’s Bottom Line?

For smaller, independent sportsbooks, a $5 million loss would be a killer, perhaps wiping out an entire year’s worth of revenue. Fortunately for FanDuel, New Jersey is a large market with only a few legal players and a wide online reach. For them, this Super Bowl 53 loss doesn’t even wipe out a month’s worth of revenue.

In December (the last month for which data is available), FanDuel pulled in over $5.5 million. Obviously, this sort of loss is not sustainable, but as a product of regional sports wagering growing pains and a bonus that was sure to be costly no matter what, the good faith built by the brand now should pay off down the road.

The only real concern – and this is equally true for FanDuel and all other New Jersey sportsbooks – is when it comes to how to manage regional sports betting. As you will see, there is a huge difference when it comes to setting lines in a place like Las Vegas and setting lines in a place like East Rutherford or Atlantic City.

Regional Sports Betting Proves Tricky For New Sportsbooks

The thing that most US sportsbooks (and international bookmakers like FanDuel’s Paddy Power Betfair owner) have limited experience in is the phenomenon of the regional bet in the US market. Regional sports betting is always going to be skewed in the favor of local favorites. That is why New Jersey lost so much on Super Bowl 53 while Nevada won at a higher-than-average clip on the same game.

In NJ, the proximity to and fandom for the New England Patriots meant that most bettors in the area were going to gamble on a Pats victory. In order to balance the books properly, experience is needed to establish longer-term betting trends of the local populace. New Jersey simply didn’t have that experience yet.

Case in point: Nevada has had decades to balance out any local skew that Los Angeles-area fans bring to the table, as evidenced by the fact that even a nominally local team (the LA Rams) losing on the biggest sports stage of them all didn’t plunge Vegas books into the red. Further, offshore sportsbooks never have to deal with this issue at all, as they’re open to bettors in all 50 states. Any local favoritism is thus mitigated or neutralized.

So far, in order to compensate for their own local base, New Jersey books – especially FanDuel at The Meadowlands – install huge amounts of vigorish into their odds. Instead of a spread bet running at a rate of -110 on the moneyline, FanDuel will often post lines of -120 or -130 on the same wagers.

This extra “juice” is a safeguard against the regional skew, and it’s something every state that legalizes sports wagering going forward will have to deal with in one way or another. While more “expensive” bets might turn some bettors away or encourage them to use overseas books, this is simply the cost of doing business (instead of going out of business).

Despite Big Loss, No Red Flags For FanDuel In New Jersey

All of the above amounts to this: Despite losing their rear ends on the Super Bowl this year, you shouldn’t look at FanDuel’s big game loss as a red flag. It’s really not even a yellow flag. A repeat of this next season would be a very bad sign, true, but that’s not expected to happen.

With another year under their belts, New Jersey sportsbooks – which are now only 8 months old at most – will be much more mature, with much larger installed user bases. The marketing costs will die down dramatically well before the next NFL championship game, and the books will all more or less settle into their zone of market share.

In other words, you likely won’t see this kind of crazy bonus again in New Jersey, and it is improbable that NJ sportsbooks will post a combined loss after Super Bowl 54 next February. The future of sports betting in the state is extremely bright, and this costly FanDuel misstep doesn’t change that.

Back to USA Online Sportsbooks.

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