Despite their popularity and near-universal name recognition as giants in the world of sports gambling, Draftkings and Fan Duel are simply bleeding money at an unimaginable rate. In the case of Fan Duels, which is in merger talks with DraftKings, the loses have amounted to tens of millions of dollars every year since inception. This is the type of business model carried by many internet start-ups back in the late 1990s. Forget about profits or anything resembling a normal business model and just spend huge amounts of money on brand recognition and marketing. Of course, that type of business model did not work out well for most internet companies in the 90s as they found technology and competition just passing them quickly because name-recognition did not amount to loyalty.
Casinos and other gambling venues usually have a very different growth curve where there is a decent upfront cost with launching a new casino, but the payoffs come rather quickly as new casinos generally pull more than their fair share of traffic as people are always curious about trying new places. And usually what happens if the casino will spend years later trying to develop loyalty programs to limit the drop-off after those early busy years.
DraftKings and Fan Duel are in a much different business though because the barrier to entry for competition is so low and many mid-level and active gamblers purposefully avoid the two giants in the industry since the competition there is much stiffer. It is much easier to jump to a smaller sports betting site, with at least a solid reputation, and win against the less savvy competition. There is even a lot of temptation to being playing at a brand new site since many of them offer guaranteed games, but cannot fill all the spots, which gives players a major advantage to the point that at some random times, you may enter a game and have so few people play the same game that you are guaranteed to win. For many players, the risks associated with playing at new sites is dwarfed by the chance to play half-empty games against mediocre competition.
It remains to be seen what happens with the DraftKings – Fan Duel merger, but what has become obvious from the financial reports they have released, there is very little chance either of these giants in the industry will be in operation a decade from now in the same manner as they are now. This is similar to what happened in the late 90s when the internet bubble finally burst, and relatively new companies like Google and Facebook were able to get started in the wake of the disaster. Is that what we will see here? Will the real winner in sports gambling be a company that we don´t know about yet, who comes after the demise of DraftKings and Fan Duel?