The document discusses the rapid growth and dynamics of daily fantasy sports (DFS) following the UIGEA's passage in 2006, highlighting major players like FanDuel and DraftKings, along with their market shares and financials. It notes the demographics of DFS players, current competition formats, and potential future entrants, while also addressing risks related to legal regulations and player attrition. Despite high engagement rates and revenue growth, both major DFS platforms currently operate at a loss and face challenges related to sustainability and profitability.

1. Daily Fantasy Sports (DFS) Notes
Robin Howlett

2. Why DFS?
• Unlawful Internet Gambling Enforcement Act (UIGEA)
passes in 2006
– Prohibits online gambling except for fantasy sports and horse
racing
– Cripples US online poker and sportsbook markets, many
businesses stop accepting US customers
• Apr 15 2011, “Black Friday” – Feds seize domains of largest
online poker sites still accepting US-based players
• DFS explodes in popularity in 2013 with first $1M single-
winner prize (similar to Chris Moneymaker winning 2003
WSOP)
• Now the fastest growing segment of the digital and
interactive gaming space

3. Market Size & Demographics
• ~50M traditional (season-long) fantasy uniques
• DFS only has ~1.5M uniques (3%)
– Penetration rate is small as industry is young
– Whether rates will approach/exceed much higher levels
remains to be seen once early-adopter phase has passed
– Debate is whether DFS will remain a niche product due to
its more technical nature
– Life-Time Value (LTV) of players currently high (~$750) but
potentially overvalued and unsustainable
• DFS players primarily millennials (tech-savvy) and
overwhelmingly male (est. 95%+)
– Significant interest from leagues and media outlets

4. The Current Players
• FanDuel & DraftKings
• Everybody else

5. DFS Formats
• Person-to-person (P2P), roster-based, salary caps:
– FanDuel (team sports), DraftKings (team and individual
sports)
• Simplified P2P, reduced rosters:
– TopLine Game Labs (DailyMVP, FanNation)
• Against the House, lineup:
– BetAmerica HomeRun predictions
– Game Sports Network (GSN) HotRoster
• Event-based, P2P, market makers:
– ScoreStreak (ran out of $)
– Tradesports (Yes/No preditions)

6. Two-Horse Race:
FanDuel & DraftKings
• FanDuel & DraftKings estimated combined market
share 97%+
• Estimated split:
– FanDuel: 75%
– DraftKings: 25%
• Split is highly sensitive to time of year and offerings:
– NFL dominates revenues and traffic; FanDuel has clear lead
in NFL
– DraftKings has official MLB tie-in and offers Golf,
MMA/UFC, and NASCAR DFS competitions, which FanDuel
does not

7. FanDuel $ Q4 2014
• $370M+ Entry fees
• $333M Prizes
• $36.8M Revenue (9.9% effective rake)
• 1M+ paid active users
[1] FanDuel Financials

8. FanDuel $ Q4 2014
• 300%+ YoY Revenue growth
– 2013: $14.3M
– 2014: $57.3M
• 424% YoY growth in active paid customers
– Q4 2013: 193k
– Q4 2014: 1.01M
• However, YoY avg. revenue per user decreased (-
5.3%), and effective rake increased (9.1% to 9.9%)
[1] FanDuel Financials

9. DraftKings $
• DraftKings do not disclose as much investor
information as FanDuel
• Site has quoted
– “$30M in revenue in 2014”
– “350K monthly active paid users in 4Q 2014”.

10. Venture Funding: FanDuel
• $86.2M in 6 rounds incl. $70M Series D (Q3
2014)
• Investors include Shamrock, NBC Sports, KKR
among others
• Multi-year NBA partnership included equity
stake for NBA in FanDuel
• Suggested valuation $1.0B to $1.5B

11. Venture Funding: DraftKings
• $75M in 5 rounds incl. $41M Series C (Q3 2014)
• Investors include Raine Group, Atlas, GGV,
Redpoint among others
• $250M Disney investment (Q2 2015) was
cancelled/postponed (reason not entirely clear)
– Deal allegedly included agreement for $500M
marketing spend by DraftKings on ESPN properties
– DraftKings will have exclusive DFS advertising rights on
ESPN starting 2016
• Official partnerships with MLB and NHL
• Suggested valuation ~$1B

12. Current DFS Business Behavior
• “Land grab” currently:
– Rush to partner with teams, leagues and media
outlets
– Significant marketing expenditures driven by venture
capital
– Aggressive courting of former online poker and
sportsbook players
• Lack of regulation and online, data-driven
business model results in negligible barriers to
entry
• Neither FanDuel nor DraftKings are profitable

13. The Future Players
• Amaya (AMYGF)
– New owner PokerStars and Full Tilt Poker ($5B acquisitions),
already has casino gaming, testing sportsbook and prepping DFS
site for 2015/16 NFL season
– Highly profitable (40%+ EBIDTA margins) and experienced in
about monetizing online gaming users
– Could either build in-house or seek M&A opportunties
• Yahoo (YHOO)
– Largest traditional season-long fantasy operator
– Season-long and daily fantasy cross-over opportunities, large
existing user-base and technology/media powerhouse (see
exclusive NFL game streaming deal)
– Prepping DFS site for 2015/16 NFL season or Q4 2015
– Likely to be developed in-house

14. The Casino/Gaming Incumbents
• Casino industry
– DFS threaten both dollar and time commitments by
players/gamblers to brick-and-mortar casinos
– Seeks involvement in DFS but wants to protect existing business
– Licensed and regulated industry; may fund/lobby for increased
federal oversight of DFS to protect their markets
• Zynga, King, and social gaming industry
– Still highly profitable
– Experienced in real-money gaming products and
• Churchill Downs Inc
– Casinos, TwinSpires ADW, Big Fish Games ($885M 2014 acq)
– Long history with online gaming and sportsbook due to horse
racing exemptions to online gambling bans

15. Kingmakers: NFL
• Historically the biggest beneficiary of fantasy
sports
• FanDuel’s growth and dominance has been
directly tied to daily fantasy football
• League has been taking a watching brief
• Leadership has been adverse to gambling
connections
• However, some team owners are investors
(e.g. Robert Kraft in DraftKings)

16. Kingmakers: ESPN
• Dominant sports media outlet
• Has prominently featured traditional and daily
fantasy sports within its properties, broadcasts
and publications
• DraftKings exclusive DFS advertising deal with
ESPN may be inspired if growth continues at
current pace and DFS becomes mainstream
during sports broadcasts

17. Princemaker: PGA
• One of the hottest new verticals
• DraftKings offers golf, FanDuel does not
• Significant media exposure with 2015 US
Open due to Dustin Johnson’s final hole 3-putt
handing first-time DFS money-game player a
~$1M prize

18. Engagement: DFS, Leagues, Media
• Media: DraftKing and FanDuel user surveys
stated:
– 47% “started following 1+ new sports” due to DFS
– 35% consume “a little more live sports content”, 43%
consume “a lot more live sports content”
– 40% increase in time spent consuming sports media
• Leagues: Driving attention when fan interest has
historically been at its lowest
– Regular season games
– Blowouts
– Unfashionable/small-market games/events

19. Risks: Legal
I am not a lawyer (IANAL)
• ~45+ States “permit” DFS
• Post-UIGEA, significant risks still possible for DFS to be
deemed “gambling”
• Poker’s “Black Friday” showed Government can move to
shut down online businesses/markets overnight
• Casino and gaming advisor industries have increased calls
for DFS to be regulated and licensed
• Should a DFS-related gambling scandal occur in a
professional or college team or individual sport event,
political support for non-regulated DFS sites may be
impacted negatively

20. Risks: Reality
• For the format that has proven most popular (P2P,
roster-based games), the number of gaming
opportunities tends to be much lower than casino,
poker or even sportsbook gambling e.g. NFL DFS
• Acquisition costs are high and continue to rise;
financial viability of industry run as it is today may not
be possible
• Far more than poker and horse racing gambling, daily
fantasy is significantly more conducive to players using
automated software to optimize investments; may
drive casual players away

21. Risks: Attrition
• DFS sites, like other online properties highly sensitive to network and liquidity
effects (eBay, poker), will tend to compete entirely on customer acquisition spend
until one company “wins”
• Both poker and horse racing have shown that bad players (the “fish”, due to the
skill gap vs. the good players) cannot and will not sustain losing large sums of
money forever
• Good players must have enough of an edge over the competition to compensate
for any effective rakes.
• Attrition takes place when the bad players leave, leaving a proportionally larger
pool of higher-skill players whose competitiveness cannot compensate for the
rake.
• DFS may accelerate this attrition due to the nature of it being primarily a data-
driven competition, conducive to automated, technical tooling for placing highly-
optimal investments.
• Bad/casual players will not be able to compete; either the rake would need to be
reduced (affecting revenue) or handle decreases (as volume players reduce
investments, also impacting revenue)