4 DFS Industry Predictions: 2015 Edition

Daily Fantasy Sports grew from a small niche community into a full-fledged industry in 2014. Revenues grew by more than 300% year-over-year, and flirted with the $100 million mark in terms of yearly gross revenue.

The sudden growth of, and interest in, the DFS industry in some ways mirrors the Bitcoin explosion of 2013, but as is the case with Bitcoin, there are still many unanswered questions for the DFS industry and the path forward is far from certain.

With this in mind, here are four predictions for the DFS industry in the coming year.

Talk of a DFS IPO will heat up

DFS certainly has a next big thing buzz about it, and while growth and consumer awareness are through the roof let us not forget that the biggest DFS sites have yet to realize a profit.

DFS could very well be the next big thing, but it could also end up being a money sink for investors, and some of the first-wave investors (which I suppose are actually the second-wave investors, as most of the DFS pioneers from 2006-2007 have already left the industry) may start pushing for an IPO rather than stick out long-term to see if the buzz materializes into profit.

With entries way up, and gross revenue way up, following an unprecedented marketing blitz, an IPO may be the path forward for one of the major DFS sites.

A major casino corporation will integrates DFS

At the Global Gaming Expo (G2E) 2014, MGM Resorts CEO Jim Murren talked a bit about the casino corporation getting into Fantasy Sports, saying MGM was considering investing in the industry, and has already spoken with regulators in states where the company operates casinos.

Murren’s comments were directed at the broader Fantasy Sports industry in general, but it could be Daily Fantasy Sports contests that are the better fit for MGM. DFS more closely resembles classic sportsbetting, whereas Fantasy Leagues require a much longer commitment.

While Nevadans have legal sports betting options at their fingertips, for all intents and purposes it is illegal in every other state – In addition to Nevada, Montana, Oregon, and Delaware, have federal PASPA exemptions that allow limited legal sports-betting options like parlays.

Therefore, DFS contests run through a major casino’s sports book would not only provide an added layer of legitimacy to the industry, but could possibly engage people from across the country in what would be a preemptive online sportsbook by a major casino.

Should sportsbetting become legal, MGM (or some other casino corporation) would already have an online player database from their DFS website and sportsbetting could be added with the proverbial flip of a switch.

Another possible land-based casino that might delve into DFS is Station Casinos. Station owns the Ultimate Fighting Championship and DraftKings DFS is now offering MMA contests.

That being said, Adam Krejcik of Eiler’s Research has postulated DFS might not be all sunshine and puppy dogs for land-based casinos. In his “predictions” Krejcik posited that:

“A major operator from the land-based Casino Gaming industry decides to enter the business and integrate a DFS platform with its land-based sports book. After much hype and celebration, they shut it down after one-year as revenues fail to meet expectations and online customer acquisition costs run wild.”

Regulation talk for DFS begins

There is a lot of money changing hands at DFS sites and its only a matter of time before lawmakers decide to step in and make sure their states get their share of that pie. And that means licensing and strict regulations for DFS operators.

Currently DFS relies on the UIGEA Fantasy Sports exemption, but that could quickly change at the state or federal level, and regulations could be enacted requiring a stricter licensing process and more robust oversight, likely by gambling regulators.

If this seems unlikely, consider that a UK-based DFS company must possess a gambling license, and it’s quite likely this is where the U.S. is eventually headed.

2015 will likely see the regulation ball get rolling, even if it only amounts to preliminary talks.

Growth rate slows

In the past three years DFS has spread like wildfire. As Adam Krejcik of Eilers Research detailed in his DFS white paper, the industry has grown by at least 250% for three consecutive years.

• DFS 2011: $1.28 million
• DFS 2012: $6.12 million (+384%)
• DFS 2013: $21.9 million (+259%)
• DFS 2014(E): $91.3 million (+337%)

Eilers put forward three projections for the DFS industry over the next five years. A baseline estimate of $1.18 billion, a bearish estimate of $471 million, and a bullish estimate of $2.6 billion. In their bearish scenario Eilers projects year-over year growth of 155% from 2014 to 2015, with growth slowing even further (58% in 2016 and 27% in 2017) but I envision a scenario where growth in 2015 would drop off even further.

The reason I say this is, 2014 saw DFS sites go through money like Wes Welker’s Kentucky Derby bets. For this reason, I expect DFS growth to stall in 2015. The industry will still push forward, but in my opinion, don’t expect the exponential growth that has been seen over the past three years, or even Eilers projected 150%.