Fantasy-Sports Rivals Slice Ad Spending – Wall Street Journal
After inundating sports fans with a barrage of commercials during last year’s football season, fantasy-sports websites FanDuel Inc. and DraftKings Inc. are cutting back sharply on their advertising, as they seek to rein in spending and limit the impression—partly created by their own ads—that they are peddling a form of gambling.
“I won $15,000 off of a $5 entry,” a user testified in one. The ads saturated sports television, helping to attract new users—along with intense scrutiny from regulators and wariness among some players.
“It tipped over an invisible line,” said FanDuel Chief Executive Nigel Eccles. “When people saw the ad the 35th time, they were like, ‘We get it.’ ”
This year, as the football season once again approaches, Mr. Eccles says the company is cutting way back on commercials. It is also rebranding both its website and its commercials, in part to de-emphasize big jackpots and other aspects of playing daily fantasy sports that resemble gambling.
The highs and lows over the past year for the burgeoning daily fantasy-sports industry have become something of a cautionary tale for how risky sudden, mass exposure can be for a new product—especially one that has potential regulatory and legal hurdles. The daily fantasy-sports industry is still a relatively small one, with an estimated 4.5 million users last year.
Flush with cash from media-company investors FanDuel and DraftKings together spent an estimated $500 million on advertising last year, according to analysts Eilers & Krejcik Gaming. (FanDuel is backed by Comcast Corp.
DraftKings is backed by 21st Century Fox Inc.,
which shares common ownership with Wall Street Journal parent News Corp.
The advertising boom increased brand recognition and the number of users enormously. FanDuel’s revenue nearly doubled to about $100 million in 2015, from $57 million 2014, according to the company. But the cost of the ads was enormous—an estimated $174 per new user at DraftKings and $123 per new user at FanDuel, according to Eilers & Krejcik. —which meant operating losses at both companies last year.
The ads also created a backlash. Users began to become concerned by reports that they could be taken advantage of by more skilled players. Both companies say that they have been rolling out more features aimed at trying to quell concerns, such as more ways to play against friends and protections for new players.
More problematic was that several state attorneys general, including in New York and Texas, investigated the sites and said they violated state gambling laws, which led the sites to stop operating in some important states.
The companies insist that their products don’t violate gambling laws, because the games involve skill.
Daily fantasy-sports sites generally allow users to create virtual sports teams using real athletes from a given league. The make-believe team’s standing rises and falls based on the real-life performance of its individual members. The site operator makes money from entry fees, often amounting to about 10%, and doles out cash to users whose teams do well.
Both companies say they have cut back sharply on ad buying as the football season approaches. DraftKings intends to spend less than one-quarter of its previous advertising budget this year, DraftKings CEO Jason Robins said, while Mr. Eccles said in a recent interview that his company is spending less than half of what it spent last year.
FanDuel’s new ads will seek to 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. In one prototype for an ad the company expects to air, viewed by The Wall Street Journal, a man walking across a football field and through a locker room says, “Butchers are meat-rich. Me? I’m sports-rich.”
“I love sports,” he says in the ad. “This is everything I want to do.”
Part of the reason for the changed approach is necessity. Because of the regulatory challenges, the sites have less money to spend on advertising and more pressure to become profitable, along with hefty legal and lobbying bills. The lobbying effort has started to pay off, with six states passing laws to explicitly legalize fantasy sports. The New York legislature also passed such a law, which is now awaiting approval by the governor.
FanDuel had a cash balance of about $50 million in May, down from $274 million last June, according to a recent financial filing. The company had already allocated some of its advertising money for football season by that point, company officials say.
The company said in May that it should have adequate funding for the next 12 months, but warned that its future could be threatened if states bring more regulatory or legal challenges.
Write to Alexandra Berzon at email@example.com
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