Football is the crown jewel of the DFS industry. If you are being honest with yourself there’s a 99% chance that season long fantasy football was the gateway drug to your new daily fantasy addiction. At some point you probably won a season long league on Yahoo sports, CBS, or ESPN and thought to yourself, I can make money doing the daily fantasy thing. It’s a logical progression that we all made at some point. The sites know this too and that is why this is their prime recruiting season. The larger prize pools are meant to draw in new users through a shock and awe campaign. If the size of some of these prizes is mind boggling to you please do not think you are alone. Ever since Draft Kings fired the first shot with their $5 Million opening week NFL guarantee, the arms race has been heating up. You don’t think these guys went out and raised over $100 Million dollars between them in the last three months just to sit on it, do you? As with any good rivalry there’s always a bit of gamesmanship, so Fan Duel got their shots in by running a $1.2 Million dollar guaranteed tourney to trump the $1 million Draft Kings had at the same $200 price point. This also allowed them to have a $120K first place prize to be larger then the $100K prize Draft Kings was offering. They also ran a $1 million prize pool at the $25 price point to trump Draft Kings $27 price point for a $500K pot of money. Both paid out the same $100K prize for first place. Make no mistake about it, the rivalry between these sites has a Larry Bird/Magic Johnson Dynamic. The are all cordial and friendly towards each other when you see them at events, but when competing for your DFS dollars they will rip each others hearts out to get it. The question now is

 

CAN THESE PRIZE LEVELS BE SUSTAINED?

 

In order to answer that question we need to look at how they did filling these tournaments. We want to know if they were filled or if they had overlay. Obviously when there’s more money being paid out then there is being collected, the business model will be unsustainable longer term as every time that happens the site takes a loss. During other seasons the sites do a good job of adjusting the number of entrants and guaranteed money on a daily basis based on the recent performance and size of those pools. They know which are filling and which are not and they adjust the guaranteed money up on those that are filling and drop it down for those that have not been. Football though is more about recruitment and therefore the thinking is, it is OK to take a loss here if you get in new blood and new money to grow your user base. It’s the old tobacco industry marketing plan where they gave away free cigarettes and samples knowing they will make money off of you later on when you are hooked. It’s a delicate balancing act for these sites and by October I think they are going to have to make some decisions about how far down the subsidy path they want to travel. Let’s take a look at how they did in week 1 and what they have on tap for week 2.

 

Draft Kings

 

Sunday Millions

It was a $1 Million dollar prize pool with $100K to first place and a buy in of $200. They had 3958/5555 seats filled for a total of $791,600. That means they took a hit of $208,400 on this tourney and there was a 20% overlay.

 

Gridiron

This was a $500,000 prize pool also with $100K to first that had a $27 buy in. They only filled 15697/21000 seats for a total of $423,819. That means it was also a loss of $76,181 with about a 15% overlay.

 

Fan Duel

 

Monster

The largest prize pool and payout on the weekend with $1.2 million up for grabs and $120,000 to first with a $200 buy in. They filled 4489 seats for $897,800. They did sell more seats then DK, but with a prize pool of $1.2 million vs. $897,800 they lost $302,200 on it and had a massive 25% overlay.

 

Sunday Million 

The most successful tournament of the weekend was this $1 Million dollar prize pool with $100K to first place and a $25 buy in. They filled every one of the 45,977 seats they offered with plenty of time to spare. It filled later in the day on Saturday with very few cancelled entries freeing up precious spots for those to slow on the trigger. They took in $1,149,425 for a profit on the tournament of $150K and frankly they underestimated the demand. There was a rake of about 15% here and was by far the only successful big money tournament this weekend from a pure business financial side of it for the sites.

 

The Prize Pool Rundown

 

These four tournaments paint a very clear picture of how these two companies are going about their business. Fan Duel is still the largest site with the most players by a decent margin. That margin is obviously smaller now then it was before with the Draftstreet and Star Street acquisitions, but it is still easily seen. Draft Kings views this overlay as a marketing tool and also a way to attract the big players to fire a few more line ups into it. They know there is going to be overlay but trust the big spenders enough to know that it will not be too massive, because those guys will chase the money if it gets too far from the break even level. The more overlay the more people want to play and take advantage of it, so the late surge tends to cut a good 5%-10% off the potential hit if not more. Draft Kings already posted the Sunday Million in their lobby at the $27 price point for this week instead of the $200. They are having a $200 Tourney with a $500K prize pool so they basically switched the prize pools for the buy in levels. They had a lot of trouble filling the $500K $27 last week, so I imagine there might be some overlay in this weeks edition as well with a prize pool twice the size. I doubt they fill the $200 level either, because a lot of the big guns are going to send 8 entries into the Sunday Million for the same Price point as one extra entry into the $200 game. When the prize pool is twice as large and there’s overlay it just makes good sense for the players to do so. As for Fan Duel I think they learned their lesson last week as well. $200 is a decent chunk of change for someone to throw down for one entry into a tournament. It’s tough to find people willing to do that 5000 times, even if a lot of those are multiple entries. At the $25 level though anybody is willing to take a shot at a piece of a million bucks. It looks like they will bump up the prize pool on the $25 tournament to $1.25 million given that they filled it early and could have taken even more entries. They took a big hit on the $200 level and now have that guaranteed at only $400k. If they had that pool at $1 million last week instead of $1.2 they would have only lost a little over $100K on it and that would have been covered by the success of the $25 entry. As much as Wall Street is willing to throw some cash behind these daily fantasy sites at the moment, they are eventually going to want to see a return. If the sites are pricing tournaments knowing there is going to be overlay too often then their war chests are going to dry up and there’s going to be some explaining to do. Ultimately as much as we love overlay as players, there’s no way the levels we saw on opening weekend will be sustained. There’s not a more anticipated time to play some football and as the season progresses you lose a lot of the new players who deposited once and went broke. The hope is that all this marketing can keep the influx higher then the attrition. Without the extra money available, the number of entries is only going to dwindle and the overlay creep up. As we see here that leads to lowered prize pools as it really only took one week to get there for most of the sites from the aggressive tops of opening weekend.

 

The Rest of the Field

 

Smaller sites have to make the same choices the large ones do. Draft Day had their $20,000 Football Frenzy last weekend and only drew 651 $20 entries into it. There was $7,000 in overlay for a 35% pot bump. It was a $2K prize to first place and they already posted one in their lobby with half the guaranteed pot and payout for next weekend. Star Fantasy leagues had a $5,000 pool, $5 buy in that had massive overlay as well. They had 554 entries. It was about a 44% overlay there and they already posted another one at that level for next weekend, so if you don’t have an account, go sign up.  Swoopt another smaller site struggled to fill there $1000, $10 buy in last week and are offering it again. There’s a bunch of other smaller sites in the same boat as them. Fantasy Aces doesn’t really have a large prize pool tournament that pays out cash but they are again offering their $109 Qualifier for the $100K live final they are holding in Sunny Southern California. Opening weekend they filled 142 seats in it for $15,478 on a prize they value at $20K for a $4,522 loss. It was taken down by a sharp young player I met in Vegas last week at an NFL Kickoff party with a screen name of OhioState241. Him, CSURam, and I were all eliminated on the same hand at different tables in the annual poker tournament and chopped the 9,10,11th place prizes. We each took 30% and threw the other 10% on the 2nd 12 line bet of a spin of roulette and tripled up. I can tell you that OhioState241 is as lucky as he is good, so watch out for him at the Fantasy Aces final. CSU covered the larger part of the Roulette wheel bet too and there is not a more down to earth guy for the fantasy superstar that he is. I don’t think it’s a stretch to call him the Derek Jeter of the fantasy world with the way he handles himself and coming from a lifelong Yankee fan that is high praise indeed (Although he’d prefer I compare him to Tulo probably).

Overall I hope you all enjoyed opening weekend and the massive amounts of overlay we saw. If you didn’t get a piece of it somewhere then you are in trouble because the prize pools will be dropping and the number of entries vs. max entrants will get tighter as the season goes. The overlay we saw will disappear. It is probably a good thing too for the long term health of the industry, but it was nice to play for free additional money while it lasted.