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FanDuel decided to take the conservative route in the wake of New York State Attorney General Eric Schneiderman issuing a cease and desist letter to both FanDuel and DraftKings. The daily fantasy sports companies reacted differently to the demand, with FanDuel declaring that it would temporarily suspend entry in paid contests for New York residents while DraftKings continues to accept entry fees in advance of an important hearing this Wednesday that could determine the fate of daily fantasy sports in New York for the time being.
FanDuel appears to be weathering the storm of losing out on taking in money from roughly 10% of its existing user base. According to figures released by daily fantasy sports industry watchdog SuperLobby, FanDuel took in $23.6 million in National Football League-related entry fees while only paying out $21.2 million in prizes for its guaranteed prize pool tournaments and cash games this past weekend. That made for an effective margin of 10.28% and approximately $0.90 in prizes out for every $1 in to the operator.
"My biggest takeaway from this weekend is that FanDuel took a firm position to pull out of NYC and still achieved very solid net revenues ," said David Copeland, CEO of SuperLobby.
However, FanDuel certainly felt at least a slight blow after deciding to temporarily discontinue its entry fee games in New York. FanDuel received $1.44 million less in NFL-related entry fees as compared to the prior week ($25.02 million). While prohibiting New Yorkers from participating may not have been the sole cause for the decrease in entry fees, it most certainly played a role.
Additionally, it would be wrong to assume that FanDuel is now generating a profit based on a positive effective margin. FanDuel has at least 427 employees according to its LinkedIn page, has 16 NFL team partners of which it must pay for various rights (i.e. in-stadium signage) and continues to be a top spender for television advertising. According to iSpot.tv, FanDuel has the 12th largest spend among all brands buying television advertisements over the past 30 days. Thus, FanDuel is in the realm of spending millions of dollars on television advertisements, millions of dollars on NFL-team deals and an unknown amount on its workforce and offices, which cuts right into its effective margin.
True operating costs of the daily fantasy sports leaders are unknown, but it can safely be determined that FanDuel and its competitors are still not turning a profit. If they ever will generate a net gain depends on many factors, including the fallout of the New York State Attorney General's determination that the sites are illegal gambling operations.
Meanwhile, FanDuel has shown that participation from New Yorkers may not be needed in order to survive and that international scrutiny of daily fantasy sports is not deterring the vast majority of players from participating.
Darren Heitner is a lawyer and the Founder of South Florida-based HEITNER LEGAL, P.L.L.C., which has a focus on Sports Law and Entertainment Law.
