Fantasy Sports "Grows Dramatically". Can it Keep Going?

The Fantasy Sports Trade Association announced some new numbers today.

It is estimated that 57 million people in the US and Canada now play fantasy sports. This is up 40% from a similar study last year. All that advertising you see from Draft Kings and FanDuel is clearly working to get people in the door.

One in five play DFS, and overall per capita spending on fantasy sports is $465 per year which is up from $95 per year in 2012 . That translates to around $26.2 billion spent in fees, wagers, pools etc.

The two major Daily Fantasy sports sites are targeting an increase in handle this year to about $2B, from $1B in 2014 (that might be conservative). With an average of somewhere around 8% rake, that generates about $160 million in revenues.

Where can it go from here? Top line revenues will increase, in my view, because the industry is still in a growth phase, and it has significant capital to burn through. What happens next is where it gets really problematic. Lifetime value of a customer can fluctuate based on customer satisfaction (or utility) and that number is a function of hit rates and takeout. At the present time, DFS is pretty tough - though nowhere near impossible - to win at. The smart companies in the space will probably be trying to nurture these customers the best they can by keeping an eye on internals. Those who find a way to cultivate the customers that are coming in the door (increase their play rates etc) will succeed, in the short to medium term.  The long term - post IPO - I feel is much muddier to forecast.

Fantasy Sports' $26 billion dollar market is fractured, and big tent. At the present time the market is probably much bigger than racing's - when it comes to pure handle - and it will continue to eat away at it. How much is anyone's guess, but with finite gambling budgets, daily fantasy is a big player in the market.


ITP said...

If only horse racing could find a way to eliminate DFS by making it illegal or something. That would give racing numbers a needed boost which would slow down the declines.

God forbid racing would ever try to compete with other gambling games going after similar customers.

GordonFerguson said...

You are saying that, as if this were a bad thing. The whole DFS-community is really blowing up, but it is not bad. You have whole websites dedicated to that (like e.g. FantasySportsDaily) and there are people working there, earning there money like everyone else. Why should it be worse than horse racing?


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