The National Football League season that kicks off Thursday will
provide a reality check for an investor darling that has yet to make a
profit: the daily fantasy-sports industry.
The fantasy-sports
operators allow customers to draft virtual teams of professional
athletes and compete against each other based on the teams’ real-world
performances that day or week. The companies put customers’ contest
entry fees toward cash prize pools and keep around 10% in commissions
for themselves.
FanDuel Inc. and DraftKings Inc., which together
control some 95% of the North American daily fantasy market, both
entered the billion-dollar-startup club in July after big fundraising
rounds, hitting respective valuations of $1.3 billion and $1.2 billion.
But neither has made a profit because of heavy ad spending to draw in
customers.
FanDuel, credited with starting the industry in 2009,
generated $57 million in revenue in 2014 and awarded $564 million in
cash prizes. The company has said it would dole out $2 billion in prizes
this year, implying it hopes to more than triple its revenue to about
$200 million in 2015.
DraftKings, founded in 2011, made $30
million in revenue last year and gave away $300 million in prizes. It
has pledged to give away at least $1 billion in prizes this year.
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