Scott Longley – DFS spotlight attracts major player attention

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Scott Longley

As  legal and political concerns grow over the promotion of  daily fantasy sports (DFS) products in the US. The burgeoning sector is still very much appealing to major brands, gambling operators and technologies. Scott Longley places DFS current context under the spotlight… 

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The beginning of the NFL regular season is always a keenly anticipated event, but this year it was given added spice by the ramping up of the hype and expectation surrounding daily fantasy sports (DFS).

The summer hardly qualifies as a lull in the evolution of the nascent sector. While market leaders DraftKings and FanDuel went through rumoured and actual fund-raisings (which raised the valuations of both companies to circa $1.2bn), new competition entered the market including Yahoo, hoping to leverage its existing season-long fantasy market dominance, and Amaya, the owner of PokerStars which opted to buy its way into the market with the acquisition of Victiv, now relaunched as StarsDraft.

DraftKings has also been making some waves in the past few months with its golf DFS offering, its move into soccer (in partnership with Mondogoal) and the news that it had applied for a UK betting licence. But it is the Boston-based firm’s advertising activity in the first week of the NFL regular season which garnered the most attention as the company emerged as the biggest spender in the market in the seven days to September 14, outlaying an estimated $20m on 5,800 TV spots. In comparison, FanDuel is estimated to have spent half that figure.

But the strategy of the two is obvious enough; break out of daily fantasy’s already substantial bridgehead into the vastness of the mass market of sports fans and both DraftKings and FanDuel will go some way to justifying their unicorn-like valuations.

The early evidence – and bear in mind this is only from the first few weeks of action in the NFL – suggests that DraftKings in particular has enjoyed some success. Google Trends for the month to 28 September shows that both sites enjoyed huge spikes in interest over the first weekend of the season, with the pair running neck and neck for most of the period except on the opening Sunday when DraftKings somewhat leapt ahead of its main competitor.

dfsgraph

The only data we have on user activity comes from Superlobby, an aggregator of all the major fantasy sites including DraftKings and FanDuel, which detailed the amounts of ‘overlay’ (the difference in set prize totals and the total entry fees) for the first couple of NFL weekends.

 

Impressively, in the first weekend DraftKings’ $10m event had no overlay, while another $1m prize contest had overlay of only $80,000. Over the course of that weekend, from 38 NFL contests DraftKings had total overlay of $556,512 compared to its prize guarantees of $21.3m.

In comparison, FanDuel enjoyed a slightly less stellar first weekend. Granted, it aimed its sights lower; its maximum contest had a prize pool of $5m and its total guarantee figure was $13.7m for the weekend. But the overlay on the $5m NFL Sunday Million contest was $795,950 and total overlay came in at $1.4m.

The figures do not include cash games which have no guaranteed prize pool.

However, by week two the situation had reversed somewhat. Perhaps because it throttled back on it advertising (it lost the advertising top spot after week one of the NFL season), DraftKings saw its overlay total rise to $1.53m in week two while FanDuel had only $107k in overlay that weekend.

In terms of paid entries in week two, meanwhile, DraftKings achieved a total of 2.78m for a total paid entry income of $20.3m, but this was still below its £20.1m in prizes. FanDuel received less paid entries (2.2m) but its average entry fee was far higher at $54.47 which Superlobby attributed to its high-roller events which feature the highest buy-ins in the sector.

CROSS-HEAD: Entering the legal minefield

The high-profile advertising has clearly had an effect, and not just in attracting the attention of the intended mass-market sports audience. Legislators at state and Federal level have been making noises during the summer regarding the legal status of DFS. Despite the protestations of the companies themselves, and lobbying of the Fantasy Sports Trade Association (FSTA), the Federal legislative carve-out achieved for fantasy sports – and particularly its daily variant – is not as set in stone as some within the industry would have us believe.

Most recently Rep. Fred Upton, the Republican chair of the House Energy and Commerce committee, told Washington beltway newspaper The Hill in early September that a hearing into the rise of fantasy sports was likely, albeit not in the short-term. This followed on from calls from the New Jersey Rep. Frank Pallone for the industry and its sport body backers to face scrutiny for advertising a product which he said was “gambling outright”.

As Chris Grove, DFS commentator and analyst, suggested of the Pallone news “this doesn’t sound like a hearing the industry will want to have”.

“But that may not be a choice they get to make,” he added. “The advertising deluge around the start of the NFL season has given the industry a profile that may have made federal attention inevitable.”

As Grove points out, the American Gaming Association (AGA) has also already signalled support for such a hearing, and we already have the evidence of comments from the likes of Jim Murren, chief executive at MGM Resorts International, that he believes DFS to be gambling.

The higher the DFS bird flies, it seems, the closer it gets to the legislative sun.

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