The future outlook for the DFS industry has again been sharply downgraded, according to a new research report from Eilers & Krejcik Gaming. The report projected the overall DFS market to reach at best $7B in total annual entry fees by ’20, down by half from a $14B projection the firm made in its DFS industry update a year ago. Not surprisingly, ongoing governmental scrutiny on fantasy sports and last year’s temporary withdrawal of DFS from New York are among key reasons for the more conservative forecasts, as well as increased difficulty retaining more casual players. “The churn rate among casual players is much higher than we originally anticipated and it looks increasingly unlikely that DFS will reach some of the more bullish forecasts we laid out a few years ago -- at least not in its current form,” the report reads in part. A more neutral forecast, suggesting improvement in the DFS regulatory environmental, projects annual industry fees of $4.8B by ’20. A worst-case scenario -- assuming further adverse regulation in at least one key state -- pegs the market at $3B by ’20. The report estimated total ’16 DFS entry fees at $3.26B up 4% from the prior year. Eilers & Krejcik were bullish on the proposed FanDuel-DraftKings merger, saying, “We consider it a clear net positive for both companies. That’s not to say there won’t be bumps in the road, but our view is that the sooner this merger happens, the better.” The report also predicted more turbulent times for the DFS industry at large, but suggested a smaller, but more stable business could ultimately emerge. “While mass market would be preferential for companies (and investors), that is not to say DFS cannot thrive and be a profitable industry over the long term,” the report reads in part. “We are seeing very positive retention rates with core users, and we believe DFS operators can create a positive (lifetime value) model, so long as they keep user acquisition costs under control” (Eric Fisher, Staff Writer).
NO SURPRISE HERE: In Boston, Curt Woodward noted entry fees paid to DFS companies grew 222% in '15, so the drop-off was "no surprise." Eilers & Krejcik Principal Adam Krejcik said, "It’s not bad, in light of the regulatory headwinds and the reduction in sales and marketing." Eight states in '16 "passed laws to regulate or legalize" DFS contests. Krejcik said the roughly $3B in players fees reached in '15 is now likely a "nice, sustainable floor for the business." Neither DraftKings nor FanDuel is currently "profitable." But Eilers & Krejcik estimated that a "merged company could operate near break-even after trimming costs." The report said that DraftKings "likely lost" $61M on $169M in net revenue last year, while FanDuel "probably lost" $44M on $166M in net sales. Increased sales will "likely depend on expanding the user base" of DFS (BOSTON GLOBE, 1/7).
