For DraftKings, FanDuel And Daily Fantasy Sports, What A Difference A Year Makes

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daily fantasy sports one year later

At this time last year, the sky was the limit for FanDuel, DraftKings and the rest of the daily fantasy sports industry.

DFS, one year ago

Both DFS sites were coming off massive fundraising rounds. For the daily fantasy football season, they were offering the biggest prize pools in their histories.

The two sites ascended to become some of the largest spenders on TV commercials for a time, including one ad being run by DraftKings every 90 seconds, at one point.

The headline at Legal Sports Report on August 30? “DraftKings’ CEO Says Company Has Passed FanDuel For No. 1 in Daily Fantasy Sports.”

While the idea of who is No. 1 in DFS still matters almost a year later, it’s not the kind of verbal or legal spat that DraftKings and FanDuel are going to be found engaging in publicly these days.

A brief overview of where DFS is now

Today, the landscape for the DFS industry is drastically different, mostly in the wake of the DraftKings data leak that resulted in increased scrutiny from both the media and government.

What started as a fight to the death for DraftKings and FanDuel has turned into a fight for survival, one that they have fought, at times, side-by-side.

That battle has been fought at the state level, where a number of attorneys general have come down for or against the legality of DFS — usually the latter.

Lobbyists representing the common interests of the two sites have been active in statehouses around the country, trying to codify the legality of paid-entry fantasy sports. The legal clarity that DraftKings and FanDuel neither had nor sought has now been clearly established by new laws enacted in eight states in 2016.

All of that effort has left a great deal of uncertainty hanging over the industry and where it goes next. Whether or not you agree with the assessment of a recent ESPN piece that says the industry “imploded,” no one can deny that the outlook from this time a year ago is drastically different.

Here’s a look at some of the then and now for DFS:

The prize pools, entry fees and users

Once upon a time, forecasts said that the DFS industry could reach $2.5 billion in revenue by 2020.

No one is making such bullish predictions anymore after the events of the past year. That type of revenue would have required entry fees/handle to head far north of $20 billion, a figure that seems out of reach in the latter half of 2016.

Eilers & Krejcik Gaming’s latest report on the DFS industry revised estimates back a great deal because of legal concerns the industry has encountered in the past year. That includes a “base case” scenario where entry fees for 2020 eclipse $8 million, which would be more than double what the industry saw in 2015.

The guaranteed prize pools at DraftKings and FanDuel this year bear out those predictions, to some extent:

Of course, GPPs alone don’t paint the entire picture on DFS revenue, but it does provide a snapshot of where things stand.

A recent Fortune piece reported that both revenue and users were up about 100 percent at DraftKings for the first half of 2015.

However, DraftKings and FanDuel spent hundreds of millions of dollars on advertising and customer acquisition over the second half of 2015. Legal concerns or no, if that money hadn’t created some sort of bump in those figures, it would have signaled a major problem for the industry.

The legal picture for DFS

You can’t really consider the underlying economics of the DFS industry without talking about legal and regulatory issues confronting operators.

First, there’s the matter of which states are served by DFS sites. That can be a constantly moving target, but at this time in 2015, DraftKings and FanDuel served 45 states.

Since then, the legal climate has changed. Negative attorney general opinions in a variety of states have doubled the number of excluded states at DraftKings (10) and FanDuel (11).

In the interim, most sites were out of New York for several months before a law was enacted this month; they had also left Mississippi for a time before returning.

There are still legal battles brewing in Illinois and Texas — two of the largest states for DFS play.

The states that have passed DFS laws have created new costs for sites, and barriers to entry for some. Those costs take varying forms:

Other sites take varying tacks when it comes to states and legality, which is helping to shape the rest of the marketshare not owned by FanDuel and DraftKings.

The other DFS sites

The rest of the DFS industry is pretty unsettled these days.

Yahoo remains the clear No. 3 operator, and appears to be moving ahead with plans to be a part of the regulated market.

From there, things become a little less clear (this is not an all-inclusive list of DFS operators):

Fundraising for DFS

Not shockingly, the investment environment for DFS in 2016 pales in comparison to a year ago.

Funding was flowing into most of the sites listed above last year, and even others that have since shuttered. North of a billion dollars had flowed into DFS coffers from fundraising heading into 2016.

Fortune reported that DraftKings received a “large” funding round sometime this year. But other than that, venture capital appears to be mostly sitting on the sidelines while waiting to see how DFS’s legal and regulatory concerns play out.

Advertising for DFS

While you will see DraftKings and FanDuel commercials this NFL season, you will likely see only a fraction of what you did in 2015. Both companies led the entire US for TV spend for a weekly period at different points last year, and both were regularly in the top 10 in spending for large swaths of time last fall.

Why has that changed? Some of that is the money that is available: Both companies simply have fewer resources to deploy on this front.

And the ads you do see will be different. You will probably see fewer — or at least muted — references to the money users can win. The ads last year played up how much money was changing hands, which was at least partially responsible for the mess experienced by ther DFS industry over the past year.

This year the industry will play up the fun nature of DFS, rather than the prize money.

The DFS industry pivot

Getting back to fantasy sports’ roots — that it’s a fun and social game that’s not necessarily all about the money — is where DFS is trying to head. The aforementioned advertising will also play up this angle.

That’s been obvious in parallel products rolled out by DraftKings (Leagues) and FanDuel (Friends mode) ahead of NFL season. FanDuel, for its part, is saying overtly that is now trying to compete with season-long fantasy sports.

The giant guaranteed prize pools will always still be there and are a major source of revenue for the industry, which collects a portion of entry fee for revenue. But the lottery-style contests where first place wins a million dollars — or at least of money — are not necessarily great for the DFS ecosystem.

And yes, it is still about the money. DFS are trying to eventually turn a profit and justify their lofty valuations. That requires a lot of users, and a lot of money flowing through the two sites as they are currently constructed.

The industry also has to deal with being regulated for the first time, something it didn’t have to do prior to this year. Membership in and adhering to the charter of the Fantasy Sports Trade Association was always faux regulation; efforts to self regulate in a meaningful way petered out before they started.

Will the industry, led by DraftKings and FanDuel, successfully pivot to a regulated market where revenues can once again start growing exponentially?

That story for the DFS industry hasn’t been written yet. What is clear: 2016 is the start of a new, and not final, chapter for daily fantasy sports.