Do you watch football on Sunday afternoons? If so, you’ve almost certainly seen ads for your chance to win a million dollars on FanDuel or DraftKings, the two most popular sites for “Daily Fantasy Sports”. The ads are at once intriguing (fantasy football attracts almost 75M people players year ), but also tiresome. Surely running similar ads for similar products countless times throughout a three-hour broadcast is not the best use of marketing dollars, right?
The Trends Influencing Daily Fantasy Sports
Before we address that question, let me briefly explain the game and the trends influencing it. Daily Fantasy Sports, or “DFS”, is a version of classic fantasy sports, allowing individuals to choose a new team each week and compete online for prizes. The game’s popularity has grown substantially over the last twelve months, and even a scandal involving a DraftKings employee using insider information to win big on FanDuel is unlikely to slow the momentum. Those two companies dominate this market with a combined 96% share. Each has raised millions in venture capital at valuations exceeding $1B, from traditional investors like KKR and from sports leagues themselves (Major League Baseball and the NBA are both DraftKings investors). A recent study projected that industry revenues would exceed $14B in revenues by 2020, an incredible five-year CAGR of 41%.
Why are Sports Fans Pushing Back?
Sounds like a booming market, right? So then why are sports fans pushing back? Why did ESPN’s top fantasy reporter get such massive dissension from fans when he prominently included DFS in his weekly column, leading him to apologize and remove most DFS references from future columns? The answer lies in human nature. Consumers, at least in the aggregate, are hesitant to embrace new activities and technologies and marketers need to be careful not to overexpose consumers to anything new. Even the iPhone took nearly three years to reach 25% market share. Apple’s initial advertising approach was to slowly grow their relatively low level of advertising so as not to overexpose the brand, and instead build an almost mythical aura around their technology.
The DFS sites have taken a vastly different approach. Because there are two dominant but relatively even players, each has felt compelled to outspend the other in a “land grab” to get as many early adopters as possible. If FanDuel runs one ad, DraftKings runs two. If DraftKings runs two ads, FanDuel runs four. And on it goes, in a prisoner’s dilemma that oversaturates the market and, I believe, is likely to slow the growth of the whole industry.
Why DraftKings and FanDuel Should Cut Their Marketing Spend
If both companies were to cut back their advertising, I believe the industry could grow faster based on its intrinsic appeal, and each company would maintain their market share. Unfortunately, the incentives don’t support this and each is likely to continue their spending until one emerges as a winner.
As a consultant, how would I advise these companies? It’s a difficult challenge; with two well-financed players going after a huge and untapped market, the competition is going to be intense. Picture the Coke vs. Pepsi advertising battles of the 1970’s or the Nike vs. Adidas fights in the 90s, only with more potential media on which to advertise. It is important to note, however, that the winners of those wars were not the companies that simply spent the most. Coke and Nike came to be their industry leaders because they understood WHY customers truly desired soda or sneakers. Pepsi and Coke both knew that customers wanted a sugary, bubbly drink. Pepsi essentially said, great, we’ll sell them on how delicious our drink is! Coke, on the other hand, asked why do customers want such a drink? They learned that cola was really just a means to an end: customers drank it because they wanted to enjoy a happy feeling that they could share with others. To this day, Coke’s advertising focuses more on that feeling (“Open happiness”) than on the actual taste of their drink. Similarly, Nike aimed not to sell sneakers, but a feeling of athletic accomplishment (“Just do it”).
This brings me back to FanDuel vs. DraftKings. As you can see from their ads (DraftKings commercial FanDuel commercial), both companies seem to think that the chance to win huge amounts of money is the reason customers play their games. But I would compare DFS’s appeal to that of fantasy football – is financial reward really what makes fantasy football popular? When I picture fantasy football, I picture myself having pizza and beers at a draft party, or ribbing friends about a trade that worked out for me. I don’t picture myself collecting $50 from each of them at the end of the season (or, much more frequently, handing $50 to the league winner). No doubt, winning money is an important mechanical component of fantasy sports – just like a sweet aftertaste is an important component of Coke. The deeper feeling most players like me are looking for, though, is one of comradery and fun with friends, and that is how I would position a DFS company. I am just one person in an industry that appeals to millions, so I would, of course, want to conduct focus groups and surveys to confirm this hypothesis. The good news for DFS companies is that there are already so many passionate fantasy sports enthusiasts out there – they just need to understand those fans better.
FanDuel and DraftKings are taking a high-quantity approach to advertising, instead of high-quality, with only a limited understanding of the appeal of fantasy sports. As a result, their ads seem off-target and more annoying than inspiring. Just like in any other industry, the competitor that is best able to reveal their customers’ deepest motivation for purchasing is most likely to build a long-lasting brand that truly resonates with consumers.
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