Opinion: The rise and rise of fantasy sports
Adam Krejcik from Eilers Research assesses the rapid growth of daily fantasy sports in the US and its potential for European operators
The daily fantasy sports (DFS) market has captivated investors in the US as well as industry professionals from the traditional land-based casino gaming sector, interactive gaming industry and some of the largest media conglomerates worldwide.
FanDuel recently completed a funding round that saw it raise an additional $70m in financing and it’s impossible to watch an NFL game without seeing one of its adverts at the present time. Rival operator DraftKings is equally omnipresent and both sites have weekly contests with a top prize of more than $1m.
With sports betting so heavily restricted in the US market, and social casino proving such a hugely profitable phenomenon, it’s not surprising to see gambling companies eyeing this market as an incremental source of revenue. And some see it as the future of US sports wagering. But should it be something European operators would be wise to start investing time and money into?
The opportunity costs?
In terms of the market size, DFS is still a relatively small industry; however, the growth trajectory has been astounding and our estimates suggest player spending (i.e. total tournament fees) on DFS sites will likely exceed the total amount wagered annually on sports in Las Vegas by CY16 and all of Nevada by CY17/CY18.
While the long-term opportunity is compelling, user acquisition costs have been skyrocketing and the two major players in the market (FanDuel & DraftKings) are both entirely dependent upon venture capital financing and it’s unclear when either company will be able to generate a profit.
Moreover, the underlying bullish thesis for DFS is the ability to convert season-long players to daily challenge games (currently just ~1% of fantasy players participate in DFS tournaments); while this seems like a reasonable assumption, our analysis suggests an increasing number of high-volume players (sharks) are already having an adverse impact on casual user growth – the perceived ‘hard-core’ nature of DFS could preclude the industry from every reaching critical mass.
In short daily fantasy sports may soon burn itself out, but whatever happens it will continue to dominate discussions in both the social and real-money sectors both in the US and beyond for some time to come.
Eilers Research has published a special report “Daily Fantasy Sports: The Future of US Sports Wagering?” To receive a 20% discount on the $1,000 list price please contact s.compagnoni@egrmagazine.com for more details.