What return can you expect after spending nearly $206 million on advertising?
DraftKings and FanDuel, two of the biggest startups in fantasy sports, are finding out. The $206-million sum--$131.4 million by DraftKings and $74.5 million by FanDuel--is from Jan. 1 to Oct. 5 in 2015, according to CNN.com, for television ads airing nationally.
Valuation: $1.2 billion
Total capital raised: $375 million
2014 Revenues: $30 million
2015 TV ad spend to Oct. 5: $131.4 million
Valuation: $1.3 billion
Total capital raised: $361 million
2014 Revenues: $57 million
2015 TV ad spend to Oct. 5: $74.5 million
Now that that's out of the way, it begs a question: What circumstances could compel a startup--no matter how much capital it has raised--to spend way more on TV ads in 2015 than it grossed in 2014? Even if each company quadruples its 2014 revenues in 2015, the total spend would constitute a high percentage of 2015 revenues. What's the point of spending so much on TV advertising?
For one thing, as the Wall Street Journal points out, television still boasts a greater ability than any other medium to quickly reach a massive audience. For another, the era of analytics--crunching viewer data from cable and satellite boxes--has made it easier for advertisers to determine when target customers are watching.
Politicians and their campaign advisors have already figured this out. There was a time when politicians would advertise on local news--it seemed like a safe bet to capture the eyes and ears of would-be voters. But the data has shown you're just as likely to reach voters if you buy airtime during Law & Order reruns, notes Bloomberg Politics.
So if you're DraftKings and FanDuel, you're in heaven. You don't need analytics to tell you: During football season, your prospective customers are tenoned to their couches all day Sunday, Monday night, and Thursday night. But it's precisely for that reason--the consistent, TV-watching habits of pro football fans--that you're in a position to learn more about when else they're watching TV, after crunching data from the NFL's opening weeks. As the weeks go by--and the inbound leads turn to sales--you can get even smarter about which TV time slots work best.
In short, we're still months away from learning if DraftKings and FanDuel got their money's worth from their expenditures. Nonetheless, it's easy to see why the companies would choose a marketing strategy of saturation by television.
But when does saturation become oversaturation? As Barry Petchesky points out on Deadspin, there have been more than 60,000 commercials for DraftKings and FanDuel this year. And it's getting on the nerves of sports fans. He writes:
It's this oversaturation of ads that turned so many people against daily fantasy and caused them to root for DraftKings and FanDuel to fail. Which is a damn shame, because daily fantasy should be a wedge into regulation and smarter legislation of sports wagering.
In other words, the attention DraftKings and FanDuel have received is a mixed bag.
On the plus side, every sports fan in the U.S. knows who they are. What's more, the startups--by spending heavily on TV--are showing a commitment to their partnerships with the pro sports leagues and the TV industry.
Those partnerships are significant. FanDuel's investors include Comcast and NBC Sports. DraftKings's backers include Fox Sports. In addition, two of the NFL's most influential owners--Jerry Jones of the Dallas Cowboys and Robert Kraft of the New England Patriots (who happen to be facing each other this Sunday)--are investors in DraftKings. And the NFL's Jacksonville Jaguars have a deep alliance with FanDuel: This season, the team opened FanDuelVille, a dedicated space at its stadium with room for 3,000 fans to watch games, monitor their fantasy football stats, and enjoy a few cocktails.
But on the minus side, the attention has put both startups in the spotlight. Both DraftKings and FanDuel have been named in a class-action lawsuit accusing them of negligence, fraud, and false advertising. The gambling behaviors of their employees have come under scrutiny. Lawmakers and state attorney generals are making inquiries too.
Of course, a little hot water is hardly the end of the world. Game-changing startups often find themselves pushing boundaries and bending rules on their way to mainstream acceptance. What the future holds for both companies will be a compelling business story to follow for the next few seasons.