DraftKings and FanDuel paid out about $1.5 million in overlay in their Major League Baseball contests on Tuesday, as the two biggest daily fantasy sports sites apparently failed to attract NFL fantasy players to their MLB product at the rate they projected.
DraftKings, FanDuel provide the “free” part
The phrase “Free Money Tuesday” is used by grinders in the DFS industry to describe Tuesdays after NFL weekends. That’s because the sites put up big MLB contests, trying to get fantasy players to use their winnings to play baseball. MLB fantasy pros and grinders have an edge on the casual fantasy player, and have an expectation to win against them — hence the “free money.”
The “free money” part is not supposed to come at the expense of FanDuel and DraftKings, however. They are trying to attract a substantial chunk of their player base to generate more rake (fees charged to players) before the next NFL contests get underway.
“I think they definitely tried to parlay the interest from NFL season and churn players’ winnings, and also try get the second deposit from the guys that burned through their bankroll in Week 1,” said David Copeland, co-founder of the DFS tracking site SuperLobby.
On Tuesday, it appears both sites overshot the market. DraftKings and FanDuel guaranteed $6 million across their largest two contests each — $2.5 million and $500,000 at DK and two $1.5 million contests at FanDuel.
A screenshot from the DFS tracking site SuperLobby.com right as the contests closed captured the carnage:
The final tally? About $740,000 of overlay in those contests at DraftKings, and about $680,000 at FanDuel. Overlay, for the uninitiated, is money that DFS sites have to add to the prize pool that is not covered by player entries.
As one DraftKings employee put it:
One reason they probably don’t let me run the DK twitter is that I’d probably just tweet “Welp” right now
— Jonathan Aguiar (@JonAguiar) September 15, 2015
That’s not going to break the bank
FanDuel and DraftKings probably aren’t going to lose sleep over giving away that amount of money in the short term; both are fresh off completing investment rounds of hundreds of millions of dollars. And DraftKings is already planning to give away $100,000 in a freeroll this weekend.
At the same time, the sites are trying to work toward eventually becoming break-even or profitable in the long run. Both are spending tens of millions of dollars in advertising in the run-up and start of NFL season. Paying out that much overlay might have been viewed as an acceptable outcome on the low end of possible scenarios, but overshooting the market on Tuesday also isn’t a great sign.
“It just feels like gross overestimation on people who joined for NFL to jump over to MLB,” said RotoCurve co-founder and industry insider Michael Rathburn. “I understand keeping the foot on the gas, but it’s reaching a point where it’s too much.”
Dan Back, host of the RotoGrinders Daily Fantasy Fix Podcast, agreed.
“I think the sites misjudged the crossover appeal of their new NFL customers,” Back said. “Many of the new sign-ups probably don’t even follow MLB or college football and don’t understand the concept of ‘overlay.’ I think NBA will have greater appeal, because by November many of these players will have a greater understanding of exactly how DFS works.”
Despite the poor showing, Copeland believes both sites still got something out of “Free Money Tuesday.”
“As a CRM (customer relationship management) strategy, if you divide the overlay total by the total of players they got to make another deposit, plus the players that never played MLB before, I think they will live with it,” Copeland said.
What’s next for FanDuel and DraftKings?
Every weekend is crucial this NFL season as the two sites vie for market dominance. Both have remained aggressive for Week 2, with DraftKings ($10 million) and FanDuel ($5 million) guaranteeing the same amounts in their top contests for the second straight week, despite just six days of run-up.
Will the huge amount of ad spending by FanDuel and DraftKings result in and increased user base and more entries on Sunday, or will they continue to pay out hundreds of thousands in overlay? Will they try to “out-guarantee” each other again next Tuesday in a DFS version of chicken? We’ll find out the answers to those questions over the next week.