What Did We Learn At The FSTA Trade Conference?

[Greg Ambrosius]

I'm always interested in the business side of the fantasy sports industry because we all do well if the entire industry is doing well. And in the pay-to-play space, there are so many different moving parts that all of them seem to come back to what we do here at the NFFC.

So let's look at what happened last week at the FSTA Summer Trade Conference in New York City. It's hard to believe but this is the 18th annual summer conference, something I started as the FSTA Chairman back in 2000 with the help of Krause Publications. Back then the first summer conference was a headliner grabber as Rick Wolf of Sportsline.com announced that they would offer a free commissioner product for the NFL season. When the industry was moving to a pay model, Sportsline shocked the industry by moving to the free model. Everyone had to adjust, but the next year Sportsline moved back to the pay model and has remained that way ever since.

Now here we are 17 years later with a much bigger, more vibrant, more successful industry and a headline grabber again happened at the summer conference. This time it was offered by the Federal Trade Commission as they announced on the morning of the show that they would deny the merger between FanDuel and Draft Kings. The FTC felt that the combined companies would own over 90 percent of the Daily Fantasy Sports market, making it too close to a monopoly for the space. Here's the article from Forbes:

https://www.forbes.com/sites/darrenheit ... 1be97d2adc

It was one of many things we learned in New York. Here's a short list:

1. FTC Blocks Merger Against FanDuel and Draft Kings: As I stated above, this was the big news of the conference. Neither Nigel Eccles of FanDuel nor Jason Robbins of Draft Kings were at the conference or available to speak on a panel, which was understandable. But also unfortunate. It could have been national news to hear their thoughts on the FTC's decision, but with so much at stake you can't blame them for not talking immediately. Draft Kings raised $100 million before the decision just in case the FTC ruled this way and it would seem that FanDuel will need to raise capital now as well. This won't get resolved before the football season and may not lead to a merger down the road, so the DFS market is in flux again.

2. Attendance Was Down: Two years ago at the Crowne Plaza in New York City, there were 550 industry executives on hand. This year attendance was about half of that. Why? Many of the upstart DFS game operators, software providers, content providers have either left the industry or are hunkered down and saving expenses. Other businesses are also watching costs now. It's still the best place to network with industry decision makers and to create new partnerships, but the reality is that legislation has stymied growth in the fantasy sports space. The barrier to entry for new game operators in DFS or any season-long contest is higher than it's ever been with so many state fees and taxes. It's just the new reality for our industry.

3. Axios Financial Report On FanDuel And Draft Kings: Also on the morning of the conference, an Axios report came out on the financial reports involving FanDuel and Draft Kings. It was a head scratcher even for long-time veterans of the industry as the report stated that both had lost hundreds of millions of dollars through the years. In fact, Axios reported that Draft Kings had lost $509 million in 2015 on $89 million in revenue. It did not list FanDuel's 2015 numbers, but remember that 2015 was the year in which both companies owned the airwaves with advertising and both companies spent heavily to add more consumers. Both companies have cut their marketing budgets significantly in the last two years to reach profitability, but the financial numbers listed in this article below are staggering:

https://www.axios.com/the-draftkings-fa ... 23508.html

4. FSTA Ipsos Demographic Survey Shows Strong Season Long Audience: The annual Ipsos survey showed growth for the industry once again during a turbulent year, which was good news. The survey showed that 53.8 Americans 12 or older played fantasy sports in 2016 with an additional 5.8 Canadians saying they played fantasy sports. That's a growth of 3% year-over-year with a total of 59.3 million North Americans 12 or older playing fantasy sports. Of that, 18% of adults in North America now play fantasy sports.

Breaking that down further, 32% age 18-34 (the ideal demographic) now play fantasy sports, compared to 20% of those aged 35-54. Even with the DFS churn rate, last year there was an influx of 21% of first-time players. The average adult age of players is 39 with 53% earning $75,000 a year or more. The average player spends $465 per year on fantasy sports products and ancillary products.

The good news is that even with the growth of DFS, 84 percent of fantasy players still play season-long games. A total of 61 percent play exclusively season-long games, 17 percent play exclusively DFS, and 23 percent play both. The average season-long player plays in almost 3 sports per year and has almost 10 teams for all sports. The average player has 4 baseball teams, 3 baseball teams and 3 basketball teams. Also, 82 percent play in pay leagues with 73 percent competing in prize leagues.

Also good news, 84 percent participate in draft parties. Many private leagues hold their drafts at sports bars or friends' houses rather than just online and the amount of money generated through all of that along with draft kits, magazines, and more exceeds $1 billion per year. DFS accounts for almost $3 billion per year, while the entire industry generates over $7 billion a year, according to the Ipsos survey. So impressive growth all around.

5. Steve Cohen Inducted Into the Fantasy Sports Hall of Fame: It was an honor to make Steve Cohen the 19th inductee into the Fantasy Sports Hall of Fame. Steve started FootballInjuries.com in 1991, was a producer of the Mike & Mike Show at WFAN for more than a decade, moved to SiriusXM in 2004 to launch the NFL Channel and started the Fantasy Sports Channel in 2010. He started FootballInjuries.com with Jay Glazer and added Adam Caplan a few years later. He became good friends with Bill Parcells, who loved the detailed injury reports and became the industry's top injury expert for more than a decade before launching what is now the most influential media outlet for our industry. He gave a moving speech that touched a lot of people.

There were panels on the growth of e-sports and more, but those were the highlights above. The good news is that the industry is growing, but challenges lie ahead for all of us, game operators and consumers alike. As I always say, the best lies ahead of us and that is still true for today. Let's make it happen.

[headhunters]

great post greg. i think you meant to write " 4 FOOTBALL" teams 3 baseball, 3 basketball

[Edwards Kings]

3. Axios Financial Report On FanDuel And Draft Kings: Also on the morning of the conference, an Axios report came out on the financial reports involving FanDuel and Draft Kings. It was a head scratcher even for long-time veterans of the industry as the report stated that both had lost hundreds of millions of dollars through the years. In fact, Axios reported that Draft Kings had lost $509 million in 2015 on $89 million in revenue. It did not list FanDuel's 2015 numbers, but remember that 2015 was the year in which both companies owned the airwaves with advertising and both companies spent heavily to add more consumers. Both companies have cut their marketing budgets significantly in the last two years to reach profitability, but the financial numbers listed in this article below are staggering:

https://www.axios.com/the-draftkings-fa ... 23508.html

Interesting (though extremely limited) financials. I am familiar with the vulture capital (i.e. private equity) firms ability to get equity valuations far in excess of reasonable multiples, but I am only a dumbass CPA. KJ or multiple others who participate in the NFBC can comment on valuations with more knowledge/experience than me.

That said, a $1.2B FanDuel valuation on $91M in latest year revenues and approximately $150M in operating expense (thought that number is probably low as I imagine "EBITDA" is actually a non-GAAP "Adjusted EBITDA" used by equity firms in calculating valuation) is extremely high, even with the hockey-stick growth. What we do not know is what part of the valuation is associated with their their intangible assets (like proprietary software, customer lists, etc.).

No real point, just surprised at the numbers.

4. FSTA Ipsos Demographic Survey Shows Strong Season Long Audience: The annual Ipsos survey showed growth for the industry once again during a turbulent year, which was good news. The survey showed that 53.8 Americans 12 or older played fantasy sports in 2016 with an additional 5.8 Canadians saying they played fantasy sports. That's a growth of 3% year-over-year with a total of 59.3 million North Americans 12 or older playing fantasy sports. Of that, 18% of adults in North America now play fantasy sports.

Breaking that down further, 32% age 18-34 (the ideal demographic) now play fantasy sports, compared to 20% of those aged 35-54. Even with the DFS churn rate, last year there was an influx of 21% of first-time players. The average adult age of players is 39 with 53% earning $75,000 a year or more. The average player spends $465 per year on fantasy sports products and ancillary products.

The good news is that even with the growth of DFS, 84 percent of fantasy players still play season-long games. A total of 61 percent play exclusively season-long games, 17 percent play exclusively DFS, and 23 percent play both. The average season-long player plays in almost 3 sports per year and has almost 10 teams for all sports. The average player has 4 baseball teams, 3 baseball teams and 3 basketball teams. Also, 82 percent play in pay leagues with 73 percent competing in prize leagues.

Also good news, 84 percent participate in draft parties. Many private leagues hold their drafts at sports bars or friends' houses rather than just online and the amount of money generated through all of that along with draft kits, magazines, and more exceeds $1 billion per year. DFS accounts for almost $3 billion per year, while the entire industry generates over $7 billion a year, according to the Ipsos survey. So impressive growth all around.

Also a surprise. I did not realized season long was still as strong as it was. Can I get a link/copy of the study? May come in handy when the issue comes up again in Georgia next year.

[Greg Ambrosius]

great post greg. i think you meant to write " 4 FOOTBALL" teams 3 baseball, 3 basketball

Nope, that's correct. The average fantasy player actually has more baseball teams than football teams, but there's also millions more fantasy football players than baseball. In the niche sports (not that baseball is niche), people who play usually play more teams. There are more casual one-league fantasy football players, which results in the huge number of fantasy football players.

[Greg Ambrosius]

I will also add that something even bigger happened this week and that was when the Supreme Court said it would take New Jersey's case on legalized sports betting. There's no guarantee that SCOTUS will rule in favor of New Jersey and allow states to run legalized gambling, but it pushes the narrative forward. Not only that, but it might prompt Congress to do something nationally before every state has different gambling laws. Why not get ahead of the curve and make sure it's fully regulated, taxed and has safeguards in place across the entire country?

You might think that DFS companies would feel competition from legalized sports gambling, but I think it's just the opposite. DFS companies would have the greatest list of sports fanatics with disposable income and it would open even more doors to monetizing their lists. Maybe online sports gambling doesn't take off -- sounds like brick and mortar sites would be first in line -- but you just never know. Once legislators get a taste of extra tax revenue, no matter how it tastes, it will be hard to stop the expansion. Prohibition may not last much longer.

This is far reaching, but keep an eye on this Supreme Court battle. It could change everything in sports.

http://www.espn.com/chalk/story/_/id/19 ... tting-case