The DFS Market Has Slowed Dramatically

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Friday, January 27th, 2017 | Written by Charles Washington

Just two years ago, daily fantasy sports betting sites were showing impressive figures, leading many to speculate that the industry was going to seriously shake-up the gambling market. Many believed that the popularity of the game’s two biggest operators, FanDuel and DraftKings, was not a passing fad and therefore felt that the daily fantasy sports betting industry was ripe for investment. With 2016’s revenue figures made public, however, it seems that such pronouncements may have been premature.

Just 4% Growth in 2016

After growing rapidly in previous years, the daily fantasy sports betting industry is starting to see slower growth. In 2016, buy-ins for daily fantasy sports betting sites generated $3.2 billion in revenues, up only 4 percent from the previous year. While many companies would be thrilled to see a 4 percent increase in profits, the number is very underwhelming for daily fantasy sports betting, which grew by 222 percent from 2014 to 2015.

Naturally, a slowdown in growth was to be expected. No business can realistically double in size continuously year after year. What is surprising, though, is just how quickly the boom has come to an end, and commenting on the development, Adam Krejcik from Eilers & Krejcik Gaming, explained:

“[4%] is not bad, in light of the regulatory headwinds and the reduction in sales and marketing.. So I think that speaks to the public perception; there have been quite a few articles about the death or demise of DFS, and I don’t think that’s the case. But you could certainly say the growth has slowed dramatically.”

Wasteful Competition

One of the major problems for daily fantasy sports betting sites has been the need to compete with one another. FanDuel and SportsKings have spent millions of dollars trying to outdo one another and become the number one site for DFS sports fans. Both companies purchased expensive ad spots during major sporting events, and in 2015, the companies spent $200 million on just TV advertising alone. On top of that, the companies have had to dish out millions lobbying state and federal lawmakers in the hope of keeping their industry legal. Expensive licensing fees have also caused major financial strain as states have signed laws to regulate the industry.

FanDuels/DraftKings Merger Announced

It’s becoming increasingly clear that daily fantasy sports can’t sustain two large sites at these early stages, and on November 18, 2016 the two companies announced their intention to merge their operations. Needless to say, by pooling their resources, they will have more funds at their disposal to ensure positive outcomes in regulatory debates, as well as eliminate the need to spend millions of advertising dollars competing against one another.

The question remains will a merger be enough to make the industry the smashing success that many predicted?

Challenging Times Ahead

A closer look at the numbers suggests that a merger may not be enough to reverse the DFS industry’s waning interest. Roughly 10 million people are registered daily fantasy sports players, but that number seems impressive until you consider the fact that 57 million people play year-long fantasy sports in the United States. In addition, only a percentage of the registered users are active players who log into their accounts regularly to place bets.

Furthermore, since the arrival of daily fantasy sports betting, the industry has been unable to attract volumes of new players to the market. Case in point, the DFS player base today is 95 percent males aged between 25 and 35 who are analytically minded or major sports fans, and in order to continue growing DFS companies will need to get creative and start appealing to a new player base.

Recent Merger

Any information concerning the proposed DraftKings And FanDuel merger has been absent from the news recently, leading some analysts to suggest that the deal may not go ahead due to federal antitrust laws. Meanwhile, it has been announced that two DFS sites vying for a number 3 spot in the industry are about to merge operations, namely FantasyDraft and Fantasy Aces. While details of the proposed merger are sketchy at the moment, a message on the FantasyDraft website stated:

“FantasyDraft has agreed to acquire certain assets from Fantasy Aces, including their player base and corresponding balances. This transaction should take 3-5 business days to complete.”