Daily Fantasy Sports Industry Update 2016 Adam Krejcik, Principal, Eilers & Krejcik Gaming, LLC Chris Grove, Senior Consultant, Eilers & Krejcik Gaming, LLC February 22nd, 2016 This presentation has been prepared exclusively for clients of Eilers & Krejcik Gaming, LLC and no parts of this report may be copied, reproduced or disseminated without prior permission.
Overview This presentation is meant to provide an update on the state of the Daily Fantasy Sports (DFS) industry including: recap of 2015, key trends & themes, financial analysis, regulatory landscape, fundraising market, and updated market sizing projections. II. Recap of 2015-to-Present III. Key Trends & Themes IV. Financials: FanDuel & DraftKings V. Regulatory Landscape VI. Fundraising Market VII.Updated Market Sizing Projections & Outlook 2 of 27
Our key takeaways: Uncertainty is the word: The trajectory for 2015 viewed from 2014 was clear growth ahead, with the only question being how much and how fast. But viewing the year ahead today, it is easy to imagine a number of wildly divergent trajectories for DFS based on political, legal, economic, business model, consumer, and market pressures. Explosion of regulatory interest: While only a handful of states considered the DFS question prior to the start of the 2015 NFL season, as of Feb 17, 2016 there were 29 states considering 36 unique pieces of DFS-related legislation. Reversal of fundraising environment: Major DFS sites enjoyed a receptive fundraising environment as recently as August 2015, when DraftKings reportedly raised $200mm at a $2bn valuation. That environment is understood to now be significantly - arguably brutally - more challenging, and both DK and FD have likely lost their unicorn status. Revenue growth and diversification (less reliance on NFL): The growth of golf, MMA, and esports, along with a more robust focus on MLB and the NBA, resulted in a 2015 revenue picture for the major operators where NFL action dropped from over two-thirds of the total to around half. 3 of 27
Our key takeaways (continued): No one knows what DFS is yet: While DK / FD are the most popular variant of DFS, they are far from the only. As states enter the conversation, the definition of what DFS is and what DFS can be will continue to evolve. Likewise if pro sports teams and leagues decide to place a firmer hand on the real-money fantasy sports wheel. And the intersection of DFS with commercial / tribal gaming will almost certainly result in new approaches. What happens without the ads? The historic levels of ad spend from 2015 will not be repeated in 2016. How that absence will impact year-over-year NFL growth, user reactivation, and distribution of market share among leaders are just a few of the open questions stemming from that reality. The uncertain outlook for power users: A tiny sliver (~1%) of users at major sites account for the majority (> 60%) of entry fees. Can those users maintain that volume as regulatory changes (e.g., script bans), changes to the player ecology, and motivation half-life all impact the first full generation of DFS pros? 4 of 27
*** The full version of this report is available to clients of Eilers & Krejcik Gaming, LLC. For more information please visit: www.ekgamingllc.com or email: dleary@ekgamingllc.com *** Disclosure Eilers & Krejcik Gaming, LLC is an independent research firm and is neither a registered broker dealer nor a registered investment advisor. No information contained in this report shall constitute as a recommendation or solicitation to buy or sell a security. Individuals receiving this report should consult with an investment advisor or registered representative before making an investment decision related to any information contained in this report. In addition, Eilers & Krejcik Gaming, LLC either does, or may seek to do business with any company mentioned in this report. This report was prepared for and distributed to clients of Eilers & Krejcik Gaming, LLC. If you are not the intended recipient and/or received this report in error, please delete this document and notify Eilers & Krejcik Gaming, LLC at teilers@ekgamingllc.com, or call 714-769-9154. This report is also protected by federal copyright law. Any unauthorized review, dissemination, or copying of this communication is strictly prohibited. By accessing, reading, storing, distributing and archiving this research report, you hereby agree, fully, and without dispute, to all terms and conditions outlined above. 5 of 27