DFS companies to cut back on advertising

Fearing a regulatory push back on perceptions that they are promoting online gambling, daily fantasy sports market leaders FanDuel and DraftKings are planning a drastic reduction in adspend, according to a report in the Wall Street Journal Monday.

In a desperate race for players and market supremacy, the two companies saturated sports television with their adverts, triggering intense scrutiny when an insider information scandal created havoc and falling revenues last year (see previous reports).

The repercussions continue to reverberate through the industry as individual US states debate whether the genre is legal or not in online gambling terms.

FanDuel CEO Nigel Eccles confirmed to the Journal that his company was reducing adspend to de-emphasise big jackpots and other aspects of playing daily fantasy sports that resemble gambling.

The Journal reveals that FanDuel and rival DraftKings raised major funding from investors and together spent an estimated $500 million on advertising in 2015.

This increased brand recognition and the number of users, and FanDuel’s revenue nearly doubled to about $100 million in 2015.

However, in cost-per-player terms it was expensive at around $174 per new player at DraftKings and $123 at FanDuel, creating operating losses for the companies.

When the “insider” scandal broke the situation rapidly deteriorated, in part due to the massive advertising exposure the companies had achieved which attracted intense regulatory, enforcement and legal scrutiny.

The companies soon found themselves spending increasing amounts on lobbying, litigation and fighting adverse market perceptions, along with the expense of making changes to a more acceptable way of operating.

Eccles told the Wall Street Journal that his company will cut adspend to less than half this year, compared with 2015, whilst DraftKings CEO Jason Robins revealed that his company plans to spend less than a quarter of the 2015 adspend it invested.

The FanDuel chief executive says that the new advertisements for his company will tie fantasy sports to the emotions wrapped up in being a sports fan, introducing the term “sports-rich,” to try to steer clear of the gambling association.

FanDuel had a cash balance of about $50 million in May 2016, down from $274 million last June, according to recent financial filings, and announced that it would have adequate funding for the next 12 months.

However, it warned that its future could be threatened if individual US states bring more regulatory or legal challenges.