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Have DraftKings and FanDuel Created Fantasy Sports Own Advertising Phenomenon?

If you’ve monitored sports news lately, DraftKings and FanDuel have dominated headlines with their current battles between different states, such as New York and Illinois, who argue that these two fantasy sports apps may be running illegal gambling operations.

However, prior to this news, FanDuel and DraftKings seemed to appear at every commercial break, on every channel, back-to-back, with promises of “winning big” on daily fantasy sports. With the recent explosion of advertising initiatives for these communities, consumers have been introduced to the world of online sports betting, while advertisers are scrambling to react to changing market dynamics.

Advertising on channels like television and Facebook tends to be cyclical, with pricing volatility around events like holidays, Black Friday, Christmas, NFL Playoffs and the Super Bowl. Cost spikes are generally not expected late in the third quarter, but advertising costs rose by more than 15 percent for many Facebook advertisers in the third quarter of 2015. While evaluation of industry data and conversation with many large advertisers believe the daily fantasy sports industry is solely responsible for the recent fluctuations in the market, this is a challenging conclusion to prove quantitatively.

Analyzing fantasy sports advertising
On television and Facebook, daily fantasy sports companies have ramped up their ad spend in 2015, and they’re now spending more than yesteryear’s advertising behemoths. According to a September article that appeared in The Wall Street Journal, “DraftKings was the single biggest advertiser on television in the last seven days… for about $20 million,” and “FanDuel, for its part, has spent $20 million on 7,500 airings since Aug. 1.”

The new fantasy sports advertising phenomenon
With deep pockets and a willingness to pay a high price for ad placement, DraftKings and FanDuel unleashed a strong and lasting influence on the U.S. ad industry in 2015. On Facebook, where ad impressions are purchased with auction pricing, DraftKings and FanDuel effectively priced other advertisers out of the social media and traditional advertising market as they entered the auction with aggressive bids and huge budgets. For example, after careful examination of mobile-app advertising throughout the year, it was evident that when DraftKings and FanDuel increased their Facebook marketplace spend in September, the cost of numerous apps inflated – this rise in cost coincided with the start of the NFL season, on Sept. 10, 2015. (Reference graph below)

This rise in advertising cost leaves advertisers scrambling to protect their own costs and to identify new ad inventory to purchase. However, even app stores are applying limitations. Currently, Google is not allowing any advertising for fantasy sports on Google.com or in Google Play. App stores that are currently allowing fantasy sports advertising, such as the Apple App Store, have seen an increase in overall advertising costs. Based on these current trends, the industry should expect to experience very similar cost spikes in advertising, should Google Play allow fantasy sports advertising. We may have just witnessed a new “fantasy sports advertising phenomenon,” with a dramatic rise in advertising costs tied to the NFL season.

Industry regulation
While gambling on sports is illegal in most of the U.S., the largely unregulated daily fantasy sports industry is thriving nationwide. However, as DraftKings, FanDuel and the daily fantasy sports industry continue to gain exposure, government regulation is already stepping in to have their say on these companies. On Nov. 11, 2015 New York’s Attorney General, Eric T. Schneiderman, issued cease-and-desist letters to DraftKings and FanDuel, ordering the companies to  “stop accepting wagers inside New York.” According to an official statement by New York’s Attorney General’s office, an investigation found that “both companies consistently use deceptive advertising to lure consumers into an unregulated online gambling operation that, while marketed as a game that anyone can win, in fact distributes the vast majority of winnings to a small subset of experienced, highly sophisticated players.”

For advertisers that are feeling the pain of the recent market volatility, this may be the first step of things to come in terms of new regulations for the advertising industry as a whole. With very prominent investors like MLB, Walt Disney, Comcast, NBC Sports and Turner Sports among others, DraftKings, FanDuel have made their presence visible not only among daily fantasy sports players, but also among advertising’s hard-hitters. As the legal issues are resolved, expect to see daily fantasy sports continue to have an influence on overall advertising prices, especially in Q3 when they will once again try to dominate the start of the NFL season — this will be evident in Facebook’s and Google’s advertising Q3 cycles. However, daily fantasy sports may have to play under news rules to win the game.

 

 

 

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