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Daily fantasy sports entries fell this weekend

Daily fantasy sports web sites had a disappointing weekend. It was their first Sunday of this football season in which total entries fell from the week before.

The week before, amidst an ongoing scandal that led to a harsh flood of negative attention, the leading daily fantasy sites were nonetheless up on Sunday, October 11—in fact they set records for total entries and entry fees (money spent on their sites). It suggested that no amount of negative attention could hurt their business.

Not so for October 18. Two weeks of regulatory scrutiny and negative media attention appear to have caught up with these companies. According to SuperLobby, a U.K. research firm that tracks daily fantasy sports entries, DraftKings and FanDuel both saw tournament entries and entry fees drop from the previous Sunday. The trend was industry-wide: Eight of the 10 daily fantasy sites that SuperLobby tracks were down—the only two that had entry growth from last week were lesser-known players StarsDraft and PickChamps. SuperLobby named its Monday morning report “Back to Earth.”

David Copeland, the firm’s CEO, wrote that the industry, “experienced a reality check yesterday. For the first time this season, total entry numbers and total entry fees went into reverse… the DFS drama has a long way yet to run.” But in an interview with Fortune on Friday, Copeland acknowledged, “The average person walking down the street is probably unaware of these events. It’s the industry experts who really care.”

Indeed, people who don’t already play on these sites may be unaware of the industry drama. We don’t know whether the scandal has slowed new-user growth for DraftKings and FanDuel—the companies don’t share that data. Data on entry fees is instead a reflection on their existing customer bases, and a slowdown in fees may suggest that frequent fantasy players are fed up with the bad press about their hobby.

By the numbers, DraftKings entries fell from 4.14 million on October 11 to 3.76 million on October 18. FanDuel entries fell from 3.38 million to 3.27 million. It was DraftKings’ lowest weekend of the football season thus far, but it wasn’t FanDuel’s. Yahoo’s daily fantasy platform had a negative rake, just one week after its first positive rake. Yahoo (YHOO) also failed to fill its biggest contest of the day, the $700,000 Sunday Baller contest.

One caveat with the data: SuperLobby’s numbers only account for tournaments, not cash games (like head-to-head contests or 50/50 pools), and cash games comprise a significant portion of these companies’ revenue. SuperLobby’s numbers are also only for NFL contests, though fantasy football accounts for the lion’s share of activity on these sites.

It would have been difficult for daily fantasy sports companies to continue besting themselves every weekend. The October 11 numbers were record highs for DraftKings and FanDuel, so an industry correction may just be part of the regular ups and downs of startups. And DraftKings and FanDuel still had positive rakes, meaning they brought more money in, through entry fees, than they paid out in prizes. DraftKings posted a 7% effective rake, while FanDuel had a hefty 15% rake.

But a different fact is more troubling for the business: both DraftKings and FanDuel have already lowered their biggest guaranteed prize pool (“GPP,” in industry parlance) contest for next Sunday. DraftKings’ Millionaire Maker will drop from $7 million to $6 million, and FanDuel’s Sunday Millions contest (the one in which a DraftKings employee placed second overall a few weeks ago) drops from $5 million to $4 million. It raises the question of whether the companies are concerned they may get forced out of other states, after Nevada’s Gaming Control Board ruled that daily fantasy sports companies are gambling operators and cannot operate in the state anymore without a gambling license. (The total number of states where these companies operate is down to 44.)

Despite the scandal, ads for DraftKings, FanDuel, DraftOps, and now Yahoo’s platform, too, all continued to air on Sunday on networks like NBC. ESPN journalists tweeted about their DraftKings lineups. DraftKings signage glowed at Citi Field during Game 2 of the NLCS as the Mets played the Cubs. And DraftKings sent existing users promotional emails over the weekend with text like, “We haven’t seen you playing at DraftKings in a while… How could you not like beating your friends and pocketing the winnings?”

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