Thursday, December 11, 2014

The Daily Fantasy and Racing Juggernaut

There was a panel this morning at the RTIP about Daily Fantasy Sports, its growth and possible benefits to racing (through crossover). You read that right, some are looking at an industry that no one heard of in 2010 (Fanduel had fewer than 1,000 players in 2010, according to the WSJ), that has had exponential growth rates, to somehow help racing.

I am sure Matt Hegarty will have a story on the panel later, so check his feed for that.

The DFS industry is in no way helping racing, and I doubt it ever will.Why? Because it's taking people who are betting racing, converting them to their platform, not the other way around.

This year there will be 800,000 to 1,000,000 DFS players, up from 1,000 in 2010. Like Ebay in 1995, which experienced 70% monthly growth rates, these firms attract investment money. For Fanduel, these investments are from organizations like NBC/Comcast and other heavy-hitters. Because of that, an eco-system is produced, which encourages growth. 

Like any startup, they have a high "burn rate", which simply is a new way of saying negative cash flow. Negative cash flow does not matter to these companies, just like they don't or didn't matter to Ebay, Facebook, Amazon or dozens of other companies you and I use daily. The negative cash flow occurs because they use the bulk of their revenues to attract new users, through advertising, lower rake, bonuses etc. Although advertising figures are not available (these companies are private and do not have, nor do they want to reveal what the ad budgets are), they are more than 100% of revenues. Conversely, racing spends (according to a study in Canada that I am too lazy to link), about 2% of revenues on advertising; bingo spends upwards of 20% for comparison.

These firms need critical mass and spend as much as they do, because each eyeball, or potential customer provides it with "Life Time Customer Value". Lifetime value for the restaurant down the street is meaningful, yes, but lifetime value for a gambling site (or Ebay, or poker site, or Etrade) is everything. These people repeat visit, and spend more than one visit that can yield revenue. Not to mention, it's no fun to play a DFS against three people (just like it's no fun to bet into a small racing pool).

When these companies reach some sort of critical mass the growth rate slows (this will likely peak, drop off, then slow) and they monetize more, becoming a regular business.

So let's recap:  Racing, with high prices, that does no advertising, that offers an inferior betting product, that has little synergy, has no burn rate and has been around with ostensibly the same pari-mutuel system since 1907, is somehow supposed to go get these DFS customers?

Are you kidding?

There are (according to the Fantasy Sports Trade Assn), 43 million Fantasy sports players in the US and Canada. According to the DFS sites (in the WSJ story), over 90% of them have never played a cash game. Be ready for more and more advertising, more and more chatter, more and more means to get to you - the guy or gal who plays an office pool or has a team that runs the season.

This is only the beginning. They're coming for you and they're coming for horseplayers.

Racing cannot gain, nor will they in the immediate future do nothing but lose some of their market to these sites. Those are the cold hard facts.

1 comment:

Unknown said...

I've always thought these sites to be an end run around the confiscatory takeout rates we suffer.

Why not go full monty and just bring betfair here?

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