[toc]Leading one-day fantasy sports site FanDuel has released their financial information for the fourth quarter of 2014.
FanDuel’s topline numbers for Q4
FanDuel releases four key metrics on their investor page:
- Entry fees: $370,703,531
- Prizes: $333,889,866
- Revenue: $36,813,665
- Paid actives: 1,012,265
A few other important metrics emerge from those four:
- Effective rake (Revenue / Entry fees): 9.9%
- Revenue per paid active (Rev / Paid actives): $36.36
- Average entry per paid active (Entry / Paid actives): $366.21
Putting some context to the numbers
The big question: is one-day fantasy sports displaying growth rates commensurate with a market expected to grow into the billions by decade’s end?
User growth impresses
A clear bright spot for FanDuel in 2014: growth in paid active players per quarter.
Critically, FanDuel put up big percentage gains here even when the absolute numbers involved got larger:
- 3Q14 was up nearly 300% over 2013.
- 4Q14 continued the trend, notching 424% year-over-year growth in terms of active paid customers.
Revenue trajectory looks on track
The chart for revenue growth looks relatively similar:
(The predictable (and increasingly severe) dips are due to the fact that DFS activity is heavily concentrated around the NFL season.)
FanDuel’s total revenues for 2014 came in at ~$57mm – actually a bit below the $60mm FanDuel projected.
Note that the company offered the $60mm projection for 2014 in the fall of 2014.
The miss could be read as suggesting that, for all of the staggering stats, the fourth quarter was actually something of a disappointment for FanDuel.
But in any case, the growth is there and it’s obvious.
Revenue per user cuts both ways
One chart that doesn’t fit in with the theme of unrestrained growth: average revenue per user.
There, FanDuel saw a rare decline, shaving off about 5% year over year, or roughly $2 per active paying user.
That continues a trend from 3Q14, where FanDuel suffered a nearly 15% drop year-over-year.
And that drop took place in the context of an increasing effective rake (or “hold”):
- 4Q13 – 9.1% effective rake.
- 4Q14 – 9.93% effective rake.
So even as FanDuel’s rake has effectively increased, the amount they’re making per paying user has decreased.
But the decline in revenue per user can also be read as a positive – at least for now:
The y/y decline in entry fees per paid active on FD isn't a bad thing, likely indicates higher number of casual players, which is a good.
— Adam Krejcik (@akrejcik) January 13, 2015
That’s true – but only to a point. Eilers’ forecasts for the industry require some upward movement (quite a bit for the bull case) in player values to achieve.
The caveat in the room
The important thing to note for both active user and revenue growth is that we’re not talking about a purely organic – or necessarily a sustainable – phenomenon here.
- The DFS industry at large dropped mid-eight figures on marketing in 2014. Some $20mm+ was said to spent on ESPN ads alone through Q3.
- The industry benefited from a tremendous surge in media attention in 2014. And much of that attention was generated by one-time events (like the NBA partnership, big funding rounds, and so on). It may not be such a novel topic in 2015.
- The industry also benefited from a tidal wave of sponsorships in 2014. One could argue (i) that such sponsorships are inherently front-loaded in terms of the amount of consumer interest they generate and; (ii) that future sponsorships are, all other things being equal, likely to produce diminishing returns.
FanDuel’s market share estimate increased to 80%
The FanDuel investor page now estimates FanDuel’s DFS market share to be 80%.
The company does not articulate their methodology for determining market share.
Previous iterations of the page (retrieved on July 3rd, 2014) estimated the company’s market share at 65%. In a presentation given by the company, FanDuel’s market share in December 2013 was pegged at 75%.
DraftKings numbers complicate the claim
Unlike FanDuel, DraftKings does not publicly release much in the way of financial information.
FanDuel booked a hair over $57mm total in 2014 revenue. Based on that metric, the market share split starts to look more like 65/35.
Based on paid active users as reported by both companies for Q4, the split looks closer to 75/25.