For those of you that are new to the daily fantasy scene (I’m sure there are a lot of you) you may not understand how a company like Fanduel or DraftKings makes money. They take a small percentage off the top of each contest buy-in. Fanduels rake is about 10%, this gets lower as the buy-in goes up, but every time you put down that $5 dollars in a H2H you win only $9 dollars. Pretty easy right. So the amount of revenue that Fanduel takes in a given year is very closely related to the amount of players and entries they have. I have discussed the growth that the DFS industry is going through and with that growth revenues go up as well. So it’s no surprise that earlier in the month, Paul Martino, Managing Director of Bullpen Capital, was very optimistic in his forecast of daily fantasy sports future.
The risk, legality of daily fantasy sports. That was back then, not now. Referencing recent investments by Shamrock Capital Advisors and Comcast Ventures, both of which are really large players in the venture capitalist game and would go in on something that even looked legally suspicious. Bullpen Capital was also on the forefront of that investment that reached the $70 million dollar mark.
Flash Forward to today and the headline reads:
Not a huge surprise. Thousands of new players are heading to Fanduel and DraftKings because of very regular (at least on ESPN) advertising and support from the NBA, MLB, and now officially the NFL. (Never really liked the Pats till now) Fanduels original projection of $40 million dollars in revenue for 2014 is now $50 million, and I wouldn’t be shocked to see that go up again before the year is over. Let’s face it, the NFL Sunday Million fills every week and keep getting larger. Mr. Martino’s forecast was dead on.
A Forecast Of My Own
Thanks to the popularity in daily fantasy sports, through both its user base and its new found sponsors, we are going to see Online Poker and some type of controlled sports betting beginning to creep into to the market in a legal way. New Jersey has been looking to bring some type of legal sports betting into its Casino landscape, mostly because the profits in that area of NJ’s economy is struggling. Casinos in Atlantic City are closing and Governor Chris Christie is looking to help out his state’s fledgling economy. Then ABC News reports that New Jersey will OK real money skill gambling.
That sounds a lot like daily fantasy sports and raking. New Jersey is looking toward popular mobile games like Candy Crush and Fruit Ninja for inspiration, knowing how much money they take in and if the customer were given the opportunity to cash in with the skill they’ve acquired through playing, they would. Recently, Poker Stars has also been looking for a license to operate within New Jersey’s borders as well and with a new attitude towards online and skill based games for money this looks like it will become a reality.