NFTs: A use case for sportsbooks
Opinion piece on how operators can utilize a play-to-earn model to gain a competitive edge in both UA and retention...
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Crypto, NFTs, blockchain, the metaverse...if only I had a nickel for every time I’ve heard these buzzwords in 2021. However, as we ride the NFT hype train while it lasts, it’s worth speculating on a strategic play for operators to leverage the strong demand for digital collectibles to optimize UA and retention.
Similar to most editorial opinions written on this topic, I feel obligated to include a "What is an NFT?" primer. NFT stands for non-fungible token, but let's start with defining the word fungible. Fungible, or the idea of fungibility, is defined as “able to replace or be replaced by another identical item”. For example, let's say we both have piggy banks full of quarters. You and I are able to exchange our quarters without the value of each coin ($0.25) changing, no matter the mint date or the state it honors (remember when people used to collect those things?). Note that fungibility is relative; it really only applies when comparing multiple things. In contrast, non-fungible items are unique and not interchangeable. I can print out an exact replica, to scale, of the Mona Lisa, but my print out would never fetch the ~$850M price that the original piece is said to be worth. The exclusivity of the original asset is what drives the value.
Now let's add in the "token" piece. Non-fungible tokens are unique, digital items with blockchain-managed ownership. Like anything on the blockchain, their history (how much they’ve sold for, when and to whom) is public. Forgeries are nonexistent in the NFT world; there are no counterfeits1. NFTs have essentially taken the world of collectibles (e.g., trading cards, fine art, etc.) and moved them into the digital age.
So how does this apply to operators, such as DraftKings, and their ability to not only win market share in a landgrab, but also to retain players over time?
As I explained in my piece titled Sports betting media unicorns, operators rely on organic and affiliate content such as short/long-form and VoD, coupled with flashy "$1,000 sign-up bonuses", to shepherd new bettors into their funnel. Content wise, every operator is doing more of the same and spending, on average, over ~170% of GGR in promotional bonuses to acquire new bettors over the first 10 days of a state launch. However, the key to achieving market leadership is finding an approach that provides value over the entire customer lifecycle rather than just the initial conversion. In an attempt to combat extremely low switching costs for consumers, operators are proactively pursuing experiences that drive loyalty. Penn National is betting on differentiated, cult-like content through their investment in Barstool Sports. FanDuel is betting on the TAM potential of in-play betting with their Simplebet partnership. FuboTV is betting on a bettor's desire to pair placing bets with watching the action play out live (i.e., the RedZone experience) via their acquisition of sportsbook operator, Vigtory.
When thinking about new opportunities in the sports betting space, I love to draw inspiration from the world of video games. Analysts who cover the gaming ecosystem do a fantastic job of documenting data-driven approaches around UA and monetization mechanics that have been tested and validated across massive userbases. Specifically for this piece, I am borrowing from the relatively new play-to-earn model in gaming, which creates real-world economies for games and opens up a completely new way for ownership of assets to be treated and assigned2. Traditional free-to-play games provide simulated economies that do not offer true ownership of digital assets to players. For example, when a player buys custom skins or cosmetic items for their avatar, they are only getting entertainment value out of those items and consider the investment as a sunk cost. Should the player decide to no longer play the game, they are out that money.
Alternatively, a play-to-earn model leverages blockchain technology that enables players to earn and own in-game collectibles over time. The aspect of ownership is important to consider as it gives people a sense of status, inspiration and pride. Think about the difference in ownership behavior between a home owner and a tenant. More importantly, players can make money by trading and selling unique, NFT-based items. In the aforementioned scenario in which a player decides to no longer play a game, they are now able to liquidate their items in return for cash - and at a positive ROI assuming the unique, finite items appreciated in value. For the first time, gaming is giving people all over the world the chance to earn real money while doing what they enjoy3. The play-to-earn model has the potential to significantly increase engagement, retention and customer LTV.
As it relates to sports betting, I believe that operators can utilize the same model to drive efficient UA and strong retention. Let's cover UA first. In the most straight-forward example, imagine if DraftKings, who is an authorized sports betting operator of the NBA, did a partnership with NBA Top Shot in which each new depositing bettor received a single NBA Top Shot common moment. For reference, a common pack on NBA Top Shot’s platform costs around $9 and yields three common moments. However, pack drops have become wildly popular; the latest drop had almost 100,000 people waiting in line just to get a pack4. In the event that such a partnership would have too much hair on it, DraftKings could also mint collectibles for its own platform. Let’s use the expected Ohio legalization this year as an example. Upon sports betting going live in the state, imagine if unique digital badges, depicting some creative display of the DraftKings logo and an aspect native to Ohio (perhaps a buckeye), are made available to the first 5,000 new depositing bettors. Note that the new bettors would still have the choice between a cash signup bonus or NFT bonus by utilizing different sign up codes. Nothing is more important than the performance over the first 10 days after sports betting goes live in a state, and this approach would not only create significant buzz, but also meaningfully reduce total average CACs.
Now, let's cover loyalty and retention. Once the players are through the door, there should be additional play-to-earn mechanics utilized within the sportsbook app. Borrowing from Barstool Sports' The Overs Club, DraftKings could organize a similar in-app event in which the first 500 bettors to achieve a 60% winning percentage or higher on at least 25 Over bets receive a "Hammer The Over" digital badge. Another idea is to design the digital collectibles around regional fandom. For example, the first 1,000 bettors to achieve a 55% winning percentage or higher on at least 50 bets related to the Buffalo Bills (e.g., straight bets, prop bets, etc.) receive a "Bills Mafia Sharps" digital badge. The content treadmill can go on and on as a live ops team would be responsible for creating appealing events and digital collectibles that drive increased engagement (i.e., more bets). And let's not forget that the future value of each group of minted collectibles is driven by its finite supply.
The final piece would be to facilitate or partner with a liquid marketplace where players can sell collectibles, at an assumed higher price based on supply and demand, to monetize their efforts. If you're any bit familiar with NFTs, I'm sure you've seen the valuations that some of these unique assets are fetching 🤯.
While all of this sounds great in theory, I would be remiss if I did not mention the assumed difficulties in retrofitting blockchain technology to an existing non-blockchain tech stack. I assume there would be significant technical hurdles in the event that an operator such as DraftKings were to pursue this initiative.
While the NFT craze continues to peak within the tech world, the reality is that a large percentage of the population has either yet to understand NFTs or is highly skeptical of their utility. Believers will have to rely on digital collectibles such as NBA Top Shot and NFT-based music and art to bridge the gap to mainstream consumers. The question is not if, but when when NFTs will gain broad-based adoption. In the meantime, it would behoove progressive companies to start considering potential use cases.
https://www.si.com/nba/2021/03/17/nba-top-shot-crypto-daily-cover
https://medium.com/upland/play-to-own-an-evolution-model-thats-a-win-win-for-gamers-b96511e7ed9c
https://venturebeat.com/2021/03/03/yield-guild-games-will-let-players-earn-income-from-nft-games/
https://lastwordonsports.com/basketball/2021/03/15/nba-top-shot-what-is-it/#:~:text=NBA%20Top%20Shot%20has%20become,as%20%E2%80%9Cdigital%20trading%20cards.%E2%80%9D