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How Much Has DFS Hurt Racing's Betting Revenues?

As is usually the case, conversations with Crunkster have got me thinking. With regards to the effect Daily Fantasy Sports (DraftKings, FanDuel etc) handle has had on horse racing revenues:

This is a completely dicey question; not only with racing and fantasy sports, but right down to the age-old question about how much that new McDonald's has hurt my downtown burger business. It's hard to quantify.

Here are the numbers.

Draft Kings - the smaller of the big two DFS sites - has "soared past $200 million in prize payouts" as of December 19th. FanDuel, the larger of the two, paid out more than $500 million in 2014, and have guided the VC street that their revenues will be over $50m. o_crunk gave us a link on the twitter box which said the CEO of FanDuel estimates revenues near $100 million industry wide. Using the industry analyst rule of thumb, dividing total revenues by 10% (about the average takeout) leaves us with total betting handle on DFS in 2014 of approximately $1 billion. 

Projections for 2015 have both FanDuel and DraftKings reaching $1 billion in handle each, but that's a far ways off. However, industry CPA's are in the $68 dollar range, so there is massive growth potential at that cost per acquisition.  They just might reach that.

Regardless, that is neither here nor there right now. How much of racing's losses can we attribute to DFS growth in 2014?

Clearly some. Racing has the same demographic as DFS, and it takes time (upwards of 10 hours per week according to industry surveys), leaving little for other pursuits. In addition, I don't think for a minute that increases in sports betting that's being seen in Nevada and elsewhere the last two quarters is not attributable to some of these DFS coattails. I have bet more sports since November than I have in years. It's not by accident.With competitors like DFS out there, some in the funnel leave, and those who might enter the funnel are poached.

Having said that, I feel Daily Fantasy Sports has a long way to go before it captures a high percentage of racing's market share. First, they have a business strategy of harvesting the 40 million or more Fantasy players to bet small amounts. Unlike in horse racing, this does not translate to every day players playing large amounts, e.g. it's easy to bridge from a $50 a day horseplayer to $500 a day, but much harder in DFS right now. Second, the quick action of horseplaying (this industry constantly tells you slots, not it has quick action, but they are mistaken), is something that DFS can not match. From a velocity of handle perspective it's much easier to be a large horse bettor than to be a large DFS player.

I don't think anyone knows how much of this year's handle losses are due to DFS, but I do feel they are tangible. There is only so much skill game gambling time in this world - it's zero sum in many ways - and when people leave racing (for even a week) and get a taste of DFS, some of them won't come back. In addition, when you handicap DFS players, you are handicapping games, making it more likely you will bet on the Toronto Maple Leafs tonight as you start Kessel, Kadri and Booth. The threat to the horse racing market's pull on gambling fixes is real.

Where DFS goes from here is anyone's guess. I know racing in some form will be around forever, but DFS will cause it to lose customers. There's no way around it.


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