Week 1 of the NFL season has come & gone.
Below is a screenshot of MGT's DraftDay.com 1 second before NFL games started at 1pm EST (see chatroom time stamp)
- This is what was visible on my screen .... the games not filling guarantee prize pools (money listed in green above) goes on further.
Here is an estimated loss - just on the guarantee prize pool games visible on my computer screen 1 second before games started last Sunday, week 1 of the NFL season.
Is $27,539++ dollars going to sink MGT or ruin anyone's day?
Not really.
But I thought daily fantasy sports were blowing up? Did all the players just forget it was week 1 of the NFL season this past weekend??
But let's forget the $27k ++ loss ... notice that these sites don't print money on games that do hit guarantees! DraftDay is offering lower guarantees on it's NFL games week 2; which increases the already wide gap between DraftDay and competitors who offer $1,000,000 guarantee prize pools. Not to mention if the guarantees inch low enough on DraftDay, 4th or 5th tier sites could ultimately compete with DraftDay for a #3 position.
Will week 2 be better for DraftDay? Maybe ... maybe not. At best, even a "good week" would likely only erase loses from week 1. That reduces DraftDay's potential to profit this football season even further considering the football season is 17 weeks long. Also, while lower guarantee games might start filling on DraftDay - it also lowers the potential profit the company can make on those games as well.
But forget all this part II. Daily fantasy sports websites don't print money. Even week one of the NFL season. That's why larger competitors are still raising money themselves.
Remember, in the company's most recent 10-Q it states:
Management believes that the current level of working capital combined with gross margin from DraftDay, along with the At the ATM Agreement, will be sufficient to allow the Company to maintain its operations into June, 2015, at which point the Company may need to seek additional sources of financing. There is no guarantee that additional sources of financing will be available or on terms acceptable to the Company, if at all. (p.22 10-Q)
Based on week 1 NFL numbers and all the other costs associated with running a daily fantasy sports website - do you think it's possible MGT realizes positive gross margins from DraftDay this football season? You can leave your answer in the comments below. And if not, does that accelerate the possibility of MGT running out of cash even sooner than June 2015?
Further Reading:
For further background on my MGT Capital Investment (MGT) thesis please read my previous articles:
MGT Capital's Stock On A Wild Ride
Is CEO Robert Ladd Good For MGT Shareholders?
One former DraftDay owner is now blogging about the industry and it's worth reading. Notice how many 'winners' he thinks will exist in this industry. You should also read what customers have already said about MGT and the state of FanThrowdown/DraftDay. Search around for other forums and you'll usually read the same thing unless it's one of the company's employees or an affiliate.