The daily fantasy sports site ScoreStreak announced that it would be “temporarily suspending all operations,” telling users it basically needs more money and a round of investment funding to reopen.
The lifecycle of one DFS site?
Using a non-traditional approach to DFS, ScoreStreak launched last May, after receiving $1.2 million in seed funding in Q1 of 2014. That initial funding round plus revenues generated over the past year was not enough to keep its doors open, for now.
Real-money games at the site are not available to users, who can no longer deposit but can withdraw all of their funds. Here is part of the email sent to ScoreStreak users:
Over the last two years we’ve seen incredible growth from our beginnings as a small start-up in Silicon Valley to having thousands of active users playing in our games each month. Late last year we began the search for our next round of funding and the process has taken longer than any of us expected. We are currently seeking an investment of $5 million to bring you significantly larger guaranteed prize pools, new site features and more users to the community.
In order to ensure the best user experience possible, we will be temporarily suspending all operations at Scorestreak until our next round of funding has closed.
Reading between the lines, it seemed like ScoreStreak was simply out of money, which is more or less confirmed in the site’s Frequently Asked Questions. Despite claiming a growing user base and more entries month-over-month over its history, that growth apparently was not enough to sustain ScoreStreak. From the FAQ:
Simply put, we need to raise more money.
But our expenses are still higher than our revenues. We have important features to add to our app and website, and we know that our players want larger guaranteed contest prizes. All of these things require us to raise more funding.
Flaming out or reloading?
The question for ScoreStreak will be how likely it is to raise another round of funding in today’s DFS environment. Closing operations to look for funding makes the temporary closure turning into a permanent one appear likely, but perhaps not a foregone conclusion.
The possibly abrupt end for ScoreStreak came after what seemed like a good first year: an initial round of funding and winning the Fantasy Sports Trade Association’s Elevator Pitch at last year’s summer conference for “up-and-coming fantasy businesses.”
While most sites in the DFS space are based on salary-cap formats, ScoreStreak — led by CEO Ross Borden, formerly of NCSoft, Namco and 3DO — took a different approach. The site allowed entrants in their fantasy contests to pick any player they wanted, but fantasy points were scored based on the goal the entrant set for that player (i.e. touchdowns thrown for a quarterback in an NFL contest).
The first domino?
While it seems like there is plenty of funding still coming into the DFS space, there are also plenty of sites that have found more success in the tier behind DraftKings and FanDuel — like Victiv, Fantasy Aces, DraftDay and Fantasy Feud, to name a few.
And that doesn’t even include developments for the DFS space on the horizon this year, like the planned entries of Yahoo and Amaya Gaming/PokerStars.
ScoreStreak will try to convince a potential investor it has the right formula and people in place to compete moving forward in the industry. But while the barrier to entry into the DFS space might still be low, the cost of player acquisition and to compete in the first or second level of daily fantasy sports providers appears only to be going up.
And it seems hard to believe that ScoreStreak is the only smaller DFS provider running up against cash-flow issues. To date, it’s believed that no DFS site has turned a profit, as costs still exceed revenue, even for the biggest providers.
So is the virtual shuttering of ScoreStreak’s doors a one-off, or could we see more small sites follow suit in the coming months? Although there are bullish forecasts for revenue generated the DFS industry in the coming years, clearly not every DFS site is going to survive, putting a possible cycle of contraction or consolidation on the table.