Daily fantasy sports is a key acquisition and educational tool in the ultra-competitive U.S. iGaming space. The pressure is on to find early-stage DFS specialists as operators look to grow both player-base and brand awareness.
Not many industry observers could have predicted how fantasy leagues or the fantasy sports betting vertical would develop over the last 25 years when media brands like Yahoo and ESPN first launched their own fantasy league offerings in the late 1990s.
To say that DFS has in many ways been the forerunner-originator of the current sports betting explosion in the U.S. might be a tad overblown, but the recent flurry of deals and buyouts by major gambling brands underlines how the vertical is a key ingredient in creating strong real money betting and gaming brands.
DraftKings and FanDuel have built their sports betting operations on the foundations laid by their DFS work and, for the likes of Bally’s and Caesars, DFS provides scale and the perfect vehicle for educating players and raising both their fantasy and sports betting brands.
Free-to-play betting is the perfect educational tool for players to familiarize themselves with fixed-odds wagering and enables operators to build up customer databases in some of the big jurisdictions that so far have not regulated sports betting, such as California, Texas or Florida.
It can also be said that the DFS-sports betting relationship is a kind of virtuous circle: interest in sports betting leads to more interest in DFS and vice-versa, while betting brands invest major budgets into marketing their DFS and fixed odds F2P offerings with grateful media organizations.
First movers and big multiples
For U.S. iGaming operators, the moves are all part of a push “to integrate DFS functionality in order to acquire customers in states that have yet to legalize online sports betting,” says Lloyd Danzig, founder and CEO of investment firm Sharp Alpha Advisors.
The fact that DraftKings and FanDuel have taken so much share of market in regulated sports betting and their brands are now so recognizable also means that “they have maintained enormous first-mover advantages in bringing future sports bettors into their ecosystems prior to many other brands competing for share of mind.”
The multiples at which U.S. operators are trading at currently also makes the search for DFS targets to acquire or partner even more competitive. “Most operators are aggressively seeking to acquire one of the relatively few early-stage companies that have proven their ability to operate a DFS product which appeals to future sports bettors,” Danzig adds.
Monkey Knife Fight was acquired by Bally’s for $90m, with many of the discussions now based around such valuations.
Another industry contact says that with iGaming valuations being so high currently, “it is critical to get involved now in M&A; or launching a DFS vertical so that operators have that database of players ready to market to once sports betting is regulated.”
Creating engagement
Most operators see DFS as complementing and adding value to the central sports betting and gaming proposition. DraftKings CEO Jason Robins commented during an investor presentation earlier this month that the group had seen very strong DFS growth in 2020 as a result of a 20% increase in paid users and former customers returning.
Engagement is also key, and the efforts Fox Bet has put into developing its Super 6 offering show how DFS can reach parts of the population sports betting can’t; through mainstream media platforms and partnerships with major brands like Ford.
Sports betting will of course always be the main draw, but the social aspect of fantasy, especially during events like March Madness, appeals to players.
CDC’s industry contact adds: “For the majority of players and operators, sports betting is the key product. But people also want to draft their teams or do a parlay as they’re talking to their friends and colleagues and the social aspect and interaction should always be taken into account.
“In addition, it’s all about customer acquisition. Sports betting is ultra-competitive and if you’re a small or medium-sized brand you need to do everything you can to sign up players. You can do that through customer engagement and that’s where DFS comes in, especially in unregulated states like California or Texas.”
On the B2B side of things, Andreas Ternstrom, CEO of DFS platform provider Scout Gaming Group, says: “DFS was built up by media companies first and DraftKings and FanDuel to a large extent picked it up from there, but no one could have predicted the regulatory momentum of the past 18 months. What is happening is that operators are cross-selling a substantial percentage of their DFS players into their sportsbooks and those acquisition costs are generally much lower than for sports betting players.”
During its investor presentation in early March, DraftKings said Colorado had the highest conversion rate of active DFS players to real money at 69% and Pennsylvania was the lowest at 50%.
Real potential
Ternstrom says many U.S. operators are now seeing the real potential of DFS; as an acquisition tool for online betting and casino and for generating bona fide revenues, while investors are fully aware of the strong liquidity events that can be generated, as the Monkey Knife Fight and SuperDraft deals have shown.
“There is a clear and easy-to-understand rationale to F2P, but we’re also getting the impression that some operators are asking themselves why they have left the field open to so many DFS brands for so long,” Ternstrom adds.
“It’s a vertical that is good for acquisition, high retention and drives players to real money gaming and has a real social element to it. We think we have a great model with our tournament-style prize pools from our network of operators and being able to offer big prizes on European sports and eSports events in the U.S. brings something new to the table.”
As the country slowly emerges from the COVID health crisis under President Joe Biden, the financial pressures are gradually easing. New York state received a $26bn bailout from the President’s $1.9tn stimulus bill that will help it address its $15bn budget shortfall.
As a result, there are questions about whether the financial imperatives to regulate sports betting will remain, although there seems to be enough momentum nationwide for the regulatory push to continue. In addition, online betting and gaming were never panaceas to state budget shortfalls.
For operators, meanwhile, it is also about being able to juggle all the different plates at the same time, says Lloyd Danzig. “This first-mover advantage is incredibly valuable, but it’s also incredibly difficult to pursue and execute well amidst a sea of high-priority roadmap items.”
