Eilers Research’s Adam Krejcik gave the keynote address at the Daily Fantasy Sports Expo in Miami on Thursday. In that presentation, he gave insight into who is No. 1 in the DFS industry, the new and prospective entrants to the market, and the reasons behind the explosive growth of the industry.
Who is No. 1?
We addressed this question at Legal Sports Report a few days ago, and came to mostly the same conclusions regarding the status in the duopoly between DraftKings and FanDuel.
Using raw prizes awarded by both in 2015 ($2 billion by FanDuel; “more than $1 billion” at DraftKings) it would seem the former would still have the lead. Alexa traffic rankings also still put FanDuel ahead of DraftKings, but by a smaller margin this year than last.
But Krejcik said he agreed that “there is plenty of data to suggest DraftKings has significantly closed the gap and may have surpassed FD in 2Q’15.”
He notes that visits to DraftKings’ platform surpassed FanDuel in June. From Krejcik’s presentation:
DraftKings’ willingness to offer other sports — like fantasy golf — and its partnership with Major League Baseball have also helped DraftKings increase its marketshare in the second and third quarters. And right now, DraftKings is No. 1 in Legal Sports Report’s Site Standings.
Krejcik agrees that how the sites do in NFL season will determine who is actually No. 1.
Also of note: Krejcik believes both companies need to have exit plans in mind, as he questions how much equity either has left to sell after the latest rounds of financing were completed.
Who is No. 3, and Yahoo’s disappointing entrance into DFS
Krejcik listed five sites that he believes will all be very close for the No. 3 position in the industry:
- Fantasy Aces
- Fantasy Feud
To some, it might be shocking that Yahoo is only in the mix for No. 3, and hasn’t claimed that spot immediately upon entry into the market. Why is that? More from Krejcik’s presentation:
Yahoo’s entrance into DFS (from a B2C standpoint) has so far been underwhelming. We were hoping for more in terms of product innovation and leveraging existing assets (i.e. large season-long fantasy user base). Instead, initial product looks eerily similar to FanDuel, there have been player payout concerns, and an embarrassing gaffe on its last earnings call (i.e. CEO Marissa Mayer reportedly misread the teleprompter when she said Yahoo already had 1.3M DFS users).
More on the erroneous user claim from Yahoo here.
What can the growth in DFS be attributed to?
Krejcik gave the keynote at the Fantasy Sports Trade Association Winter Conference earlier this year. And even since then, the growth is notable. Here is a look at the projections for entry fees then and current projections, through 2020.
The surge in the popularity of DFS can be attributed to the following (among other things), according to Krejcik:
- Growing consumption of sports via TV, online, print and social media.
- Its ability to provide “instant gratification and engaging 2nd screen experience” that attracts millennials.
- It is an alternative to sports betting in jurisdictions around the U.S. that don’t allow wagering on sports.
- Large prize pools offered by the “Big Two.”
What is PokerStars up to?
According to Krejcik, PokerStars is “currently building internally, but also evaluating M&A (mergers and acquisitions) opportunities.” While PokerStars’ parent company, Amaya, had originally said its DFS platform would be ready by NFL season, that’s starting to look increasingly unlikely.
With that uncertainty on top of others, Krejcik says he and others at Eilers are “skeptics”:
While there are a number of similarities between iPoker and DFS and Amaya should be able to leverage its technology and US customer lists, we believe for Amaya/PokerStars to truly take market share from either FD/DK they would need to allocate a very big sales & marketing budget and we do not believe management is willing to spend at a level that is required for it to be competitive in the market.
Who are the big winners in the DFS industry right now?
That honor belongs to media companies — namely ESPN and Fox — who have taken little investment risk while extracting “significant capital from the DFS industry.” Most of that is coming from DraftKings, which is dedicating hundreds of millions of dollars in ad spend across those families of networks in coming years.
The leagues are also benefitting, “getting very favorable investment terms, substantial sponsorship dollars, and the underlying product helps drive user engagement and retention,” as Krejcik put it.
Problems and opportunities
The DFS industry faces a number of serious issues, according to Krejcik, including the looming specter of scrutiny from governments and possible regulation; the skill gap that exists between the top players and casual DFS users; and the problems associated with large ad commitments and the inflation of how much DFS sites must pay to get a sponsorship deal.
Opportunities for the industry include new verticals; new business and revenue models; the potential for further penetration into the season-long fantasy user base; international expansion; and fantasy for eSports.
In the end, there’s a lot to like about the state of the DFS industry, but also a lot to worry about.