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Before walking through the list, it’s important to first restate Krejcik’s caveat: these predictions do not represent “baseline expectations,” but rather “some possibilities over the next 3-5 years” with the expectation that “at least a few predictions come to fruition.”
With that said, let’s survey Krejcik’s possible paths ahead for the daily fantasy sports market.
Not too much to debate here – even a relatively modest growth rate will eventually push total DFS turnover above and beyond the total bets booked by Nevada’s legal sports books.
Eilers sees the crossover happening in 2016 (and DFS never looking back). Growth in mobile sports betting in Nevada (or a stall in the stratospheric growth of DFS) could theoretically push this back a year or so, but that’s probably a stretch.
Krejcik speculates that the DFS leader “files for an IPO in early CY16, predicts entry fees of over $2.5bln for the upcoming year” and that the deal “is oversubscribed,” resulting in the company listing on the NASDAQ with a valuation of over $2bn.
There, Ader argued that “it is very likely we will be seeing one or perhaps both Fan Duel and Draft Kings in the IPO markets” in 2015.
Prediction 12 is a two-parter.
The first calls for “one state where the law is unclear or questionable about legality to allow DFS cash games within the next 12-24 months.”
The second part calls for real-money DFS to be available in all U.S. states by 2020. That’s a more aggressive prediction, both because it calls for five states to reverse course from blocked to allowed and because it assumes no states will move to restrict the activity.
Speaking of regulation, Krejcik predicts that it won’t present the biggest threat to the industry.
Instead, Krejcik suggests that the “skill gap” threat to the health of DFS ecology could hamper the mass-market appeal of the product.
If, Krejcik warns, competitions are overrun by “algos and quants,” then user growth – and the revenue growth it begets – could simply fail to materialize.
At this point, most major professional sports have some sort of tie-up with a DFS site at the league level.
For example, the NBA has not only a marketing partnership with FanDuel, but also a equity stake in the company.
The most notable league holdout to date is the NFL. Krejcik posits that status could change via “a joint investment into both FanDuel & DraftKings rather than an exclusive partnership.”
It’s difficult to overstate the impact that such an investment would have on the DFS industry at large, and on FanDuel and DraftKings specifically (especially DraftKings).
The NFL would not only be endorsing DFS, but also committing to a particular vision of the marketplace – a vision that might not evolve organically in the absence of the NFL’s influence.
Prediction nine involves some of the more fanciful thinking of the presentation (but that is, of course, what bold predictions are for). Here, Krejcik suggests three possible avenues for DFS expansion via television exposure:
Prediction eight is as grounded (and inevitable) as nine is whimsical.
Much as the mid-2000s are thought of as the “glory days” for online poker players, when competition was soft and promotion values were high, Krejcik foresees 2013-2015 being “remembered as the hey-day for DFS from a player perspective due to large overlay opportunities and noticeable skill gap between “grinders” and “casual”” players.
“This will not last,” Krejcik adds, “as the market becomes more efficient.”
I’d assign a similar level of inevitability to Krejcik’s seventh prediction – that the DFS industry “will likely face one major PR fiasco.”
Krecik offers up a quick list of sample crises.
None seem anything other than plausible, and a handful are already developing (3,5 and 6, albeit to varying degrees).
At least for the next 12 months, “we will not see either company launch a standalone DFS site (partnership, investments, white-label solution possible),” predicts Krejcik.
… this seems like one of the safest bets in Krejcik’s lineup.
2014 witnessed some consolidation via acquisition in the DFS space. Krejcik sees the general M&A trend continuing in the next one to three years, but with more of the activity concentrated at the top of the industry food chain.
His possible M&A scenarios for 2015-2017, listed from most likely to least:
It’s interesting to consider what the impact of the NFL investment (as described by Krejcik) would be on possible M&A scenarios (and their relative likelihood).
Here we find less a prediction and more a bit of free (and valuable) advice for daily fantasy sites.
Krejcik characterizes the standard revenue model in the status quo for DFS (entry fees) as “largely borrowed from the online poker world and ripe for innovation,” calling on FanDuel and DraftKings to “experiment with new revenue models and figuring out ways to monetize large and growing user base.”
One commonly-suggested path to extra-entry-fee revenue: premium content, UI experiences or similar incremental upgrades.
And as cooperation between DFS sites and sports teams / leagues deepens, there may also be ways that dollars can flow back in the direction of the sites via marketing or affiliate initiatives.
Right now a staggering amount of DFS activity takes place in Q4. For example, FanDuel generated nearly two-thirds of their 2014 revenue during the fourth quarter.
Krejcik believes this could change (albeit perhaps gradually) predicting that “DFS begins to gain awareness in Europe as Fantasy Soccer begins to gain traction / mindshare and some DFS companies begin sponsoring major soccer clubs.”
But the center of the DFS universe is now, and looks to remain for the next several years at least, the U.S. market for American football.
And as long as companies remain in land-grab mode, focus and resources will remain disproportionately trained on that center.
The number of DFS bills introduced so far in 2015 is rivaled only by the number of sports betting bills already in play (Indiana, New York, South Carolina).
Krejcik sees those seeds bearing fruit, predicting that legalized sports betting outside of Nevada will pass by 2020 and spark “a new iGaming wave as multiple states begin to offer mobile sports wagering.”
Critically for DFS, this trend will not result in cannibalization, per Krejcik’s view, as the products will prove complimentary at best, non-competitive at worst.
View the entire presentation here.
Image: James Mattil / Shutterstock.com.