Evaluating Week 1 Of NFL For DraftKings, FanDuel: Was Free Money Part Of The Plan Or Worrisome?

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DFS Week 1 NFL

Last year during NFL season, almost everyone was eyeing the daily fantasy sports industry and the amount of money flowing through the sites.

Some major media outlets used to rush to get stories out on Mondays to talk about how DraftKings and FanDuel were doing in terms of entry fees and revenue.

Those days are over, although that’s at least partly because right now there’s no hard data being compiled on how they are doing. They are also privately held companies that don’t have any obligation to report their metrics.

The top-level look at Week 1 of NFL for DFS

But a cursory look at the guaranteed contests at the “Big Two” of DFS gave us our first look at how things look as daily fantasy football ramps up. There is little way to gauge how much money is flowing through non-guaranteed and private contests.

So that leaves us to look at guaranteed contests. And on that front, what was obvious was that there was a lot of overlay in at least some contests at both DraftKings and FanDuel, but more so at the former. (FanDuel appeared to have fewer contests with overlay; its contest guarantees were also significantly more conservative than DraftKings’, generally.)

If you’re not familiar with that term, overlay is what occurs when the entry fees for a contest do not cover the guaranteed prize pool. Every contest has a break-even point, where enough entries come into the site to cover its cost; the rest of the money is revenue for the operator.

Obviously, when a site is handing out free money on a contest, it is not making money. At some point, profitability has to be a concern for the sites (more on this below).

For instance, the biggest contest of the weekend was the Millionaire Maker at DraftKings: It guaranteed a prize pool of $5 million, with a buy-in of just $3. More than 1.4 million entries were generated, an impressive number to be sure; DraftKings users could enter a maximum of 150 entries.

However, the entries only generated about $4.3 million, or some $700,000 short of hitting the guarantee; that’s money that DraftKings had to add to the prize pool. While that was the starkest example of overlay in Week 1, it was a common refrain in contests throughout the lobbies of FanDuel and DraftKings.

The questions left to answer in Week 1’s wake:

The DFS take on NFL Week 1

This much we know: DFS sites generally plan to offer overlay, especially in the first week of NFL season, as a marketing cost. For one, it creates a higher percentage of winners for ‘x’ contest, in turn creating a better experience for more users. Full contests mean they are harder to beat or cash, simply because there are more players vying for the same prize pool and number of winning positions.

DraftKings, for its part, said the overlay in its contests, and the Millionaire Maker in particular, was planned.

“Week 1 is a chance to really reactivate players who were playing last season, but didn’t stay with us for other sports, which is not uncommon,” Jason Alderman, senior vice president of corporate communications at DraftKings, told Legal Sports Report. “Having a $5 million contest with a $3 entry was really about reactivating and marketing.”

“Week 1 was an intentional approach. We knew it wouldn’t fill up, we wouldn’t want it to fill up,” Alderman continued. “There’s nothing more frustrating for a fantasy player wanting to get into a contest and then have it fill up. So we will built it toward that purpose.”

Alderman also noted that DraftKings’ private contests were up three times from last year, at least in part due to the launch of its new “Leagues” product.

Other takes on Week 1 for DFS

Some industry analysts and insiders had a different take on the overlay on Week 1. It ranked from wondering aloud about the prudence of massively overlaying contests to saying Week 1 overlay wasn’t planned, at least to the extent that it occurred.

More from Heitner here. Adam Krejcik, of Eilers & Krejcik Gaming, agreed.

Chris Grove, publisher of LSR, in his gaming email update, the Grove Report:

Some marquee events featured big numbers in terms of players and entries. But several marquee events featured significant overlays. The industry line is that overlays are a marketing expense, and that Week 1 overlays were part of the plan to drive signups and reactivations.

That’s a fair argument. But less-than-stellar turnout in some high-profile contests and the the new, cost-conscious attitude of DraftKings and FanDuel both suggest that the week may have performed below operator expectations.

StarsDraft CEO Matt Primeaux had perhaps the most interesting takes on social media in the wake of Week 1, on overlay and its place in today’s DFS landscape. Primeaux founded start-up Victiv before it was purchased by Amaya and rebranded.

One industry insider who did not wish to be identified told Legal Sports Report that Week 1 likely was not intentional, and went quite a bit further.

“It was a complete and utter failure from a business intelligence standpoint,” the analyst said. “Every gaming company in the world has a BI unit. It’s their job to make sure there is no overlay at this point in the business life cycle.

“DraftKings is desperately trying to show retention numbers to investors. What they have done is once again overpaid for their customers and misread the numbers needed to make a profit.”

What will see in Week 2 and beyond

Where’s the truth on the overlay? All part of the plan, or a complete disaster?

The truth could be somewhere in the middle. Overlay could have been planned at FanDuel and DraftKings, just not to the levels seen.

And the visible overlay doesn’t even account for “hidden overlay,” in terms of free entries handed for this week and future weeks by DK and FD to encourage users to play in Week 1.

For DraftKings’ part, you can expect to see less overlay. The $5 million Millionaire Maker this week is a $20 buy-in; Alderman says this was planned, not a reaction to the Week 1 numbers. A $3 buy-in this week guarantees a million dollars.

At FanDuel, the $2 million and $1 million contests are back at $25 and $5 buy-in levels.

“There’s a different dynamic for Week 2,” Alderman said. “Week 2 and subsequent weeks, it’s really about getting those players who are already playing to play as many contests as possible, or to start a new ‘League’ with their buddies.”

Here’s what is clear: If DraftKings and FanDuel continue to see massive overlay in their guaranteed contests, it’s not a good sign for the industry. If Week 1 really was a blip — and planned — we should see less overlay this weekend.