The predicted daily fantasy bloodbath is proceeding right on schedule.
On Tuesday, Yahoo Finance reported that ESPN has ended its exclusive advertising agreement with DraftKings, in yet another major blow to the daily fantasy sports world. The deal, which was announced last June, made DraftKings “the official daily fantasy sports offering across ESPN’s platforms.” Now it’s over, leaving another huge hole in the sports media advertising coffers.
Back in July it was reported that DraftKings committed to $250 million in ad spend on ESPN over two years. Given how much the company is struggling, it makes sense that DraftKings wanted out of the deal and ESPN obliged.
While the company will presumably still have some ads on ESPN properties, the exclusive deal is now out the window, along with what would have been a huge pile of cash for the network.
Meanwhile, Twenty-First Century Fox, which had a $160 million stake in DraftKings, has “written down the investment by about 60 percent” as noted by Tech Crunch. Fox claims that, “based on information concerning DraftKings’ current valuation in a recent financing transaction, the Company determined that a portion of its investment in DraftKings was impaired and record a loss of approximately $95 million…”
As states across the country continue the fight to label daily fantasy sports as a form of illegal gambling, the industry continues to take massive financial hits. New York Attorney General Eric T. Schneiderman has been targeted by both FanDuel and DraftKings after he ordered both companies to shut down operations in the state. The two companies are currently allowed to operate in the state while their appeal of his cease-and-desist request works its way through the legal system.
Meanwhile, payment processor Vantiv Entertainment Solutions recently told customers it will stop processing for daily fantasy sites as of February 29, in another massive blow to the industry.
To give you an idea how big the daily fantasy empire is, remember the following from this past September:
"“One network source pegged the two daily fantasy companies’ total advertising investment across sports on all networks at a massive $500 million so far this year.”"
Now imagine if that golden goose suddenly stopped laying so many eggs. Sure DFS companies will still produce ads, and will still hand stacks of cash to networks and leagues, but with the hits they are taking there is no way they can keep that tidal wave of dollars flowing.
In the end, this can all be traced back to the insider trading scandal that came to light in October. Once the public believed that they were getting fleeced by employees of the companies they were spending money on (and getting bombarded with loud advertisements by), the wheels began to come off the DFS train.
Television networks, radio stations, and websites will be able to recoup some of the inevitable lost revenue by selling ads to other industries, but it remains to be seen how profound the ripple effect will be from this year’s downtick in daily fantasy advertising.