How is the current economy affecting bettor behaviour?

Declan Raines, Head of US Gaming at TransUnion, examines how the economy is impacting sports betting in the US, in what can be very much described as a bearish market.

BearMarket

Over the past year, record inflation, escalating interest rates and a potential recession have substantially impacted consumer spending. Despite gas prices dropping and inflation showing signs of easing, the economy is trending downward. Prolonged inflation has cut deeply into disposable income, but what does this mean for the sports betting industry?

As we begin the second quarter of 2023, consumers and players alike are still feeling tremendous economic pressure. In a recent survey, most Americans admitted inflation is impacting their day-to-day spending and showed concern about how inflation will impact their financial health, and ability to pay bills in the new year.

But, unlike previous periods of economic difficulty, we haven’t had the accompanying levels of unemployment that usually rise with inflation. We’re experiencing a black swan event – a once-in-a-generation job market with record-high inflation. Concerns about a recession are prevalent at present, but we’re not seeing that translate to the housing or job markets – many jobs are still available and salaries are increasing.

Amid this unique situation, sports betting operators that rely on discretionary spending may be wondering what is in store for them in the near future.

Gambling implications

Traditionally, when we think of a drop in discretionary spending, we envision eating out less, fewer vacations and cutting streaming services. What people may not consider is how many people step back from betting.

We’re experiencing a black swan event – a once-in-a-generation job market with record-high inflation. Concerns about a recession are prevalent at present, but we’re not seeing that translate to the housing or job markets – many jobs are still available and salaries are increasing

While the global sports betting market is expected to grow to $144bn by 2026, it faces challenges from an uncertain economic outlook over the next year. As bettors exited 2022, nearly half had reduced their discretionary spending. If the robust job market starts to turn and inflation remains high, discretionary spending will decline further.

There is a sentiment that sports betting and gambling are recession-proof. We have found this is not entirely true. Different types of gambling products seem to be impacted differently – casinos can stagnate during a recession, but lottery ticket purchases increase. As the economy inflation rose toward the second half of 2022, consumers engaging in mobile sports betting dropped from 19% in Q2 to 11% in Q4. Consumer liquidity and finances are essential in every industry – especially sports betting.

What we’ve found

In Transunion’s Q1 2023 Consumer Pulse: Online Sports Betting Study, we see the drop in consumer liquidity translates into a drop in discretionary spending. Although prices are still high, inflation is decreasing, but the consumer price index is not following – it rose 6.5% in December.

Of the sports bettors we surveyed, 79% are changing their buying behaviors as a result of inflation and 72% of non-sports bettors are doing the same. Discretionary consumer spending is expected to flatline in 2023. Income growth stagnated in Q4, which also likely influenced the decrease in spending.

To mitigate this risk, operators must strengthen their responsible gaming strategies to identify risky behavior. Additionally, this should apply to their marketing strategies, focusing on acquiring more resilient consumers – those insulated from macroeconomic conditions and shifting away from acquisition to retention focuses

Those surveyed were divided into three categories: high-value bettors, mobile sports bettors and non-sports bettors. High-value bettors had higher levels of income, more optimism about their future income, and increased discretionary spending compared to mobile and non-sports bettors. At the same time, high-value sports bettors show more distress – increasingly dipping into their retirement funds and increasing their available credit usage.

Additionally, many of those surveyed already believed the economy was in a recession, which (perhaps surprisingly) may have skewed their outlooks positively, as it means things can only get better.

Weathering the storm

To survive downturns, betting operators need to start planning strategies to lessen the impact on their profitability.

Responsible gaming risk is expected to increase in the next six to 12 months as more consumers face financial hardship and income declines. This means we will see more instances of problem gambling, as some bettors gamble as a source of income. To mitigate this risk, operators must strengthen their responsible gaming strategies to identify risky behavior. Additionally, this should apply to their marketing strategies, focusing on acquiring more resilient consumers – those insulated from macroeconomic conditions and shifting away from acquisition to retention focuses.

The line between resilient and risky consumers can sometimes be difficult to see. It is crucial we find that line. If we see financial difficulties among certain segments of the population, operators need to identify them proactively so people don't get hurt.

We’ll likely see sportsbooks shift focus from acquisition to customer retention, especially in more mature state markets like New Jersey. Focusing your marketing on bonuses and attracting new consumers as the economy fluctuates may end up costing more money than those same players are comfortable giving back.

There is a sentiment that sports betting and gambling are recession-proof. We have found this is not entirely true. Different types of gambling products seem to be impacted differently – casinos can stagnate during a recession, but lottery ticket purchases increase

Aggressive marketing does not make as much sense when customer liquidity is down. It’s cheaper to retain customers than to acquire new ones due to the amount of marketing and advertising needed. Instead, platforms should concentrate on the player experience and loyalty programs.

Looking forward

It is imperative that companies keep a close eye on their consumer base as liquidity fluctuates with economic conditions and discretionary spending with it. Tailoring their marketing strategies to meet the needs of their customers, and ensuring the correct consumer base is targeted, could mean the difference between survival and failure in an economic downturn.

As we continue into the second quarter of 2023, sportsbook operators should be tuned into the market now more than ever. With worries rising that another recession could come at any point this year, operators must prioritise the customers who will remain resilient through any economic downturn – their loyal, high-value bettors.


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