BUSINESS

Fantasy sports ad blitz could breach $150M in Q3

TAGs: daily fantasy sports, dfs, DraftKings, fanduel, Frank Pallone Jr., Jasmine Solana, National Football League

Fantasy sports ad blitz could breach $150M in Q3Footballs fans, brace yourselves for glut of daily fantasy sports TV advertising.

DraftKings and FanDuel, two of the leading daily fantasy sports platforms, spent a combined estimate of $31 million to drive many fans crazy during National Football League’s first week, but according to a Nomura analyst, there will be more ad blitz coming in the next months.

“Although perhaps a temporary phenomenon, we believe that growth in ad spending from DFS could drive an incremental 40-60 (basis points) in 3Q15 Internet/media ad spend growth,” Nomura analyst Anthony DiClemente said in a research note. “An incremental 50bps represents roughly a third of our estimated +1.5 percent year-on-year 3Q TV advertising growth assumption, with most benefits accruing to broadcasters of the NFL.”

DiClemente forecasts that DFS sites will spend more than $150 million for TV advertising in the third quarter of the year, while total ad spending will reach between $140 million to $175 million in Q3.

“We estimate the final weeks of 3Q represent a combines $50-60 million in further spending. Further, we assume DFS ad spend was split 60-40 between TV and digital,” the analyst explained. “There may also be an indirect ‘virtuous circle’ benefit given that the services themselves likely increase TV rating.”

Broadcasters CBS and Disney-owned ESPN are expected to reap the greatest gains from DFS ads, mainly due to their NFL and college football broadcasts.

“ESPN is certainly positioned well, given $250 million of ad spend guaranteed by DraftKings over the next three years. CBS also is likely to capture a large share of the dollars spent,” DiClemente said.

Over at the digital side, Yahoo, Facebook and Google are seen as the largest beneficiaries. Yahoo is estimated to see a $10-20 million net revenue lift from DFS advertising.

“We estimate that Facebook and Google capture the largest share of DFS Internet ad spend, however, their large revenue bases make the incremental revenue contribution less obvious,” DiClemente said.

Thanks to their ad blitz, FanDuel and DraftKings have already caught the eyes of New Jersey Sen. Frank Pallone, who asked for an inquiry on the link between fantasy sports and gambling. DFS sites currently operate under a carve-out in the Unlawful Internet Gaming and Enforcement Act (UIGEA).

In a letter to the House Energy and Commerce Committee, Pallone said, “These sites are enormously popular, arguably central to the fans’ experience, and professional leagues are seeing the enormous profits as a result.”

The industry is shelling out hundreds of millions to promote daily fantasy sports, but are daily fantasy sports sites making money?

DraftKings and FanDuel—two upstarts reportedly valued at over $1 billion—are raking in money as fantasy sports revs up, which they also give away at the same time.

The two sites are offering huge bounties to DFS players. DraftKings has a guaranteed $25 million prize money for the opening week, including a $2 million top prize and a $1 million second prize, while FanDuel guaranteed $12 million in prizes, including a $1 million top prize for every week of the NFL season,” CNBC reported.

FanDuel CEO Nigel Eccles told the news outlet that the massive payouts are funded by entrance fees, explaining that in essence, “The money that comes in, we take about a 10-percent cut and we pay out everything else in prizes, so it’s really self-funding.”

In these real-money contests, users pay an entry fee to choose their team with a salary cap, and they stand to win cash prizes or lose their entry fee depending on how the players perform in real-life games. The odds of an average player winning is slim, with only 1.3 percent of DFS players win 91 percent of player profits through the use of automated software.

According to the Fantasy Sports Trade Association, more than 56 million Americans play fantasy sports in the United States and Canada, nearly double the number of participants in 2009. Those players spend an average of $465 annually on league-related costs, single-player challenge games, and league-related materials.

Despite the explosion in popularity, fantasy sports companies have yet to turn a profit. So far, it’s the people making and selling the ads who are making a lot money, thanks to the industry willing to spend to promote DFS. It will be interesting to see how things play out when these sites—DraftKings and FanDuel in particular—start to gain their footing.

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