DraftKings And FanDuel Merger, Lobbying Likely To Be Focus Of DFS Industry

Real Growth For The Daily Fantasy Sports Industry Not Likely Till 2018 And Beyond

DFS growth
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The daily fantasy sports industry, in many ways, looks like it will be stuck in a holding pattern for much of this year, at least in terms of growth.

The starting point for DFS in 2017

Much like 2016, the industry’s top priority in 2017 is unlikely to be scaling. The focus of DraftKings and FanDuel, at least, will likely be elsewhere.

A recent forecast for the DFS industry from Eilers & Krejcik Gaming estimated that handle grew four percent, year over year from 2015 to 2016, and that revenue was up about 15 percent.

That doesn’t mean there aren’t scenarios in which DFS can see a meaningful uptick in handle and revenue this year — or in which an operator outside of the “big two” can gain ground. But that’s not within the most likely range of outcomes.

Here’s a look at the road ahead for the industry.

2017’s focus for DFS: Legality, regulation, merger

The handle and revenue numbers came in an environment that was certainly less than ideal in 2016, with legal and regulatory concerns often overshadowing any efforts to grow.

However, many of the same concerns that hung over the industry in 2016 are still in play this year, plus one major new one:

  • The merger: DraftKings and FanDuel announced they would be merging in 2017, likely in the second half of the year. When that happens, the two companies are likely to lose some liquidity, depending on how the merger goes down. And the logistics of the merger will probably take precedence in the short term over growth.
  • Legal concerns: A number of legal concerns still hang over the industry, including pending lawsuits over DFS’ legality in Illinois and Texas, and a class action lawsuit against DraftKings and FanDuel. The momentum of state attorneys general opining on DFS seems to have waned, but the possibility of negative opinions surfacing still remains.
  • Lobbying/regulation: The industry made a lot of headway in 2016 on gaining legal clarity via new laws: Eight states in all legalized DFS. But the fight in the statehouses is far from over. Gaining legal clarity in large states like Florida, Illinois and California are probably top priorities in 2017.

All of those things will consume time, money and energy for DraftKings and FanDuel.

DFS may be able to focus on growth beyond 2017

Prior to 2016, the DFS industry was focused almost solely on scaling. (Or, for smaller operators, trying to find a path toward competing with DraftKings and FanDuel.)

In an alternate universe, things could have broken differently for the DFS industry, and that focus on growth could have continued to present day with fewer speed bumps.

That’s not to say that the companies haven’t done things aimed at the future and growing the industry. Both companies tried to make their contests more social. DraftKings created its own standalone app aimed at engaging sports and DFS fans. Verticals outside of NFL daily fantasy football — notably NBA and golf — have seen large upticks in an organic fashion.

But even the best-case scenario from the Eilers & Krejcik forecast on DFS metrics shows less-than meteoric growth between now and 2020.

The most optimistic (and perhaps even likely) scenario for 2017 is that the merger goes smoothly, legal concerns continue to disappear, and more industry-friendly laws go on the books. And that could pave the way for a brighter future in 2018 and beyond.

Dustin Gouker
- Dustin Gouker has been a sports journalist for more than 15 years, working as a reporter, editor and designer -- including stops at The Washington Post and the D.C. Examiner.
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