In a Friday investor note, Truist Securities analyst Barry Jonas grappled with the issue of the pricing of online sports betting.

Jonas leaned on data provided by HoldCrunch, a firm founded by former FanDuel VP Tom Johnson. HoldCrunch forecasts the movements of handle and gross gaming revenue.

He defined the “price” of a bet as the relationships among the odds on the bet, the betting lines, and the potential return to the player.

“Price is an important point of competition, along with product, brand, promos, and other factors, though it functions as a double-edged sword,” explained Jonas. “Too low will likely attract customers, though not monetize effectively, and too high will drive customers to other platforms, while monetizing over-aggressively.”

The lowest average vigorish or fee per bet has traditionally been offered by FanDuel, Jonas continued. However, he noted that BetMGM and newcomer Fanatics were becoming more aggressive in that respect.

An outlier is Caesars Sportsbook, whose competitiveness in recent quarters has been diminished. Jonas blamed this on “the need to accelerate profitability … at the expense of handle share,” particularly with a $500 million-plus return on investment pegged for 2025.

While FanDuel ranked highest in HoldCrunch’s chart demonstrating favorable odds (for consumers), Caesars lagged the rest of the 2024 marketplace by 20 percentage points. No other company was shown to be in that stratum.

But Jonas noted that Caesars Entertainment’s acquisition of Australian firm ZeroFlucs was “a timely reminder of pricing capabilities being taken more seriously.” He also applauded ESPN Bet for a highly competitive price offering, second only to FanDuel’s.

As for the actual determination of pricing, Jonas said that hinges on three factors. The first is hold rate, whereby a book takes a higher price in order to increase its hold percentage, as Caesars is doing.

The second factor is competitiveness, the desire to defend one’s handle share by putting distance on the competition in pricing. Finally is accuracy of modeling, “the confidence (or not) to offer customers competitive prices, while at the same time believing profitability targets will be met.”

Jonas employed Illinois, where tax rates on sports betting were recently hiked, as a microcosm of this discussion. He opined that FanDuel and DraftKings might worsen their odds and pricing in order to keep up with the state’s revenue demands. This, however, could open the door to rival sportsbooks to play catch-up via better odds —although quality of online products might be an issue with consumers as well.

The analyst described DraftKings and FanDuel as the pacesetters for the online sports betting industry. He wrote that “the two would keep within a specific distance of each other on price versus other books that were more sporadic in their behavior (sometimes competing, sometimes not, or in one sport but not another, and often going beyond the distance marker that FanDuel and DKNG would almost never cross).” Jonas added that in the past year, rival books have grown more assertive in competing for price advantage.

Jonas drew a distinction between FanDuel’s generally opting for the lowest price against DraftKings’s “slightly less competitive” odds (fourth in the industry). He described DraftKings as being offset by faster profitability and a strong product that would retain consumers. “With FanDuel having similar product capabilities (in our view), it’s likely their perennial customer-friendly pricing is strategic to drive customer scale and loyalty,” the analyst wrote.

He warned, “Competitive pricing comes at a cost,” explaining, “the highest performing books aren’t always necessarily the ones that offer customers the best prices, given they’ll likely become less profitable in doing so.” The goal, he added, is to keep one’s lead on the competition, while still returning a profit.

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