Fantasy sports, especially fantasy American football, is no newcomer to the world entertainment stage. But the already wildly successful fan-participation games now stand at the precipice of the greatest global expansion in their reach and influence in their more than 40-year history.
Just since late August, daily and weekly iterations of simulated professional sports games have extended audience reach by millions in the United States – and now plan to aim their strategy at the rest of the world.
The two biggest fantasy-competition purveyors, FanDuel and DraftKings, are drawing so many new participants – along with buckets of new cash – that not even their most optimistic supporters would have predicted such success at the start of 2015. A similar international boom seems right on the horizon.
This intricate entertainment model has dramatically evolved since its modest beginnings in the 1970s. The traditional fantasy sports leagues, once known as “rotisserie leagues,” have been inviting gamers to create and manage imaginary teams in virtually any sport. They pick real-life pro athletes based on their published statistical performance, then compete for a season against other gamers’ imaginary teams.
What these fantasy players engage in is as much a business simulation as a sporting endeavor. They have to budget for sky-high athletes’ wages while staying below salary caps, just as actual pro teams do. And their human resources evaluations must be as thorough as those of a Fortune-500 company.
Yet, however many challenges millions of gamers confront in running imaginary teams, the real genius in this new take on sports is how the two giants in what is known as “daily fantasy sports” (DFS), have crafted their business model. It shakes out that not only can both enterprises claim victory, but so can individual sports teams and their professional leagues.
Even sports media enterprises, including TV networks and magazine publishers, can advance their financial success, building profits.
Profiting from fans’ ego and taste for gambling
In fantasy sports’ up-to-the-minute versions, computers running elaborate algorithms interpret each team’s and real-life pro athlete’s successes and failures right up to game day and score competitions with mathematical precision. A formula assigns points to teams in accordance with how each athlete plays in a game. The world’s fans eat it up.
The latest wrinkle is that last summer the two big DFS companies launched vast TV ad blitzes to establish themselves as the alpha dog of weekly and daily fantasy sports. To give real go-power to their ads, both are also offering prizes, big-time payouts to team managers (all paying customers of the fantasy leagues) with the highest daily and weekly scores.
So FanDuel and DraftKings have been paying millions a day for commercials to lure new blood into the online activity of virtual sports-team management. At the same time, both employ another winning strategy for building subscriber bases. They announced they would pay out a total of more than $1 billion each this year to their winning customers.
That move grabbed fans’ attention in a big way. The Fantasy Sports Trade Association boasts that fantasy football ballooned in recent weeks to 57 million participants in the U.S. and Canada. The commercial blitz and prize bonanza will continue through the spectacle of Super Bowl 50 on Feb. 7, 2016.
Already, the chance at a $1 million payout is a big part of DraftKings’ allure, CNBC reports. Last August, Peter Jennings, a former stock trader from Fort Collins, Colorado, took home a $1 million prize after a five-day fantasy baseball event. Last November, brothers Dave and Rob Gomes split $1 million in a fantasy football tournament on the site, after splitting the $27 entry fee. Three single players had each become instant millionaires in the weeks before that, CNBC reported.
How can these two competitors, neither yet profitable, afford these expenses? (Neither has made a profit because of heavy ad spending to draw in customers, The Wall Street Journal reports.) The answer is that big financial backers with an eye on the future have invested $575 million into FanDuel and DraftKings. TV networks ESPN and Fox comprise one major source of investment. Their executives know that the more fans embrace fantasy teams, the more eyeballs will be trained on TVs on game day. Higher ratings mean higher ad revenues for networks.
The world’s super-rich sports leagues and even individual teams are investing in DFS too. Ratings are key to their success, as well, and also key to their selling more of their profitable licensed jerseys, ball caps and coffee cups. Sports Illustrated, too, has become both a huge supporter of fantasy sports and the beneficiary of its golden glow. Its 2015 SI Fantasy Football special edition was a huge money maker.
But it all comes down to individuals deciding to pay up and play. This new way to engage in big-time sports allows anyone, by self-proclamation and a fee from small change to thousands, to run one’s own powerful sports team, employing the best-paid athletes in any sporting competition in the world. Plus, they could score all kinds of financial rewards.
At bottom, that’s sports gambling, right?
Gambling, or not?
That depends. DraftKings expanded recently into the U.K., receiving its license from the gambling commission there only this summer. In most parts of the U.S. and in Canada, the prevailing legal interpretations have been that what the big daily fantasy sports conglomerates are doing is not gambling. But the issue is under review in many places.
Yes, the organized daily fantasy gaming companies offer participants, who pay for the opportunity to compete using athletes they draft, a chance to win big money. But the U.S. government, clearly influenced by industry lobbyists, determined in 2006 that DFS represents games of skill, not of chance. For now, that means it’s not gambling in the U.S., and that’s true in many other countries.
So, ante up, draft players – right up to game day – and field your team against another gamer’s team. The arbiter is the computer program. If you pick the right players on the right day (against the right opponent), you win bragging rights as a team owner – and maybe a bit of cash. Whether that’s gambling remains under discussion.
Meanwhile, FanDuel and DraftKings pulled in $800 million in 2008 and $1,67 billion in 2012. Projected for 2015: $2.6 billion. And that’s on NFL fantasy sports alone, never mind FIFA football, hockey, tennis, NASCAR and all the rest, according to Eilers Research, a California consultant to the gaming industry.
A rapidly growing, lucrative ‘club’
The big prizes, up to $1 million for the gamer with the most points, do seem like a mighty generous reward for a day’s work, but IBISWorld, an economic research company in Australia, is another to point out that fantasy sports has quietly become a multibillion-dollar industry since its primitive inception. And the Fantasy Sports Trade Association projects revenue growth to continue in double digits for the foreseeable future.
This year’s performance likely will represent a milestone. With TV commercials influencing hundreds of thousands to sign up, pay dues and assume their fantasy roles as managers and team owners, 2015 is already setting records. A top global sports team owner made this prediction: “This year will go down in business history as when fantasy sports exploded in public awareness throughout the world.”
Indeed, British and European leagues are advertising and growing like crazy too, and Latin American and Caribbean fans are jumping on the bandwagon with the same fervor as they cheer their home teams.
But what does fantasy sports league do for a fan? A participant like Joe Maschino, who lives in Florida, is happy to talk about that. He is a lifelong sports fan and pari-mutuel gambling enthusiast: “I love organized sports, but this fantasy competition thing brings games to life in a way I never imagined, especially games I might not ordinarily be interested in.”
He has worked in pari-mutuel gambling for years, handling “just about every job you can imagine” for a greyhound racing track in a large metropolitan area. At the track, Maschino consorted with kennel owners, knew horse-racing tycoons and chatted regularly with bookies and other high rollers. Yet in recent years he has been getting his sports kicks by being an imaginary team owner.
“My friends told me a few years ago I should try it out,” Maschino said. “I was reluctant at first because it sounded so much like gambling, which, at the time, I was getting tired of.” He said he “made some money, yeah, betting on dog races and horses and on football games, but all that did nothing for my personality.” When he was gambling, he said, he was always “working on the angles. i didn’t really have a social life.”
The opposite has been true since he took up fantasy sports. “I can go to almost any bar now and start conversations with 50 people who are into fantasy sports,” he said. “They’re trading tips on players, talking up their victories, confessing their mistakes. To have your own fantasy league team is like being part of a huge club.”
In the fall, Sunday is football at Maschino’s home. He watches a couple of morning TV shows that focus on the day’s games and one, in particular on ESPN-2, that is exclusively for fantasy gamers. “They’ll talk about who’s injured and won’t play and who’s on the uptick.” He sits in front of two or three TV sets, watching his players, relishing victories, regretting mistakes.
With DFS he has until kickoff to change his lineup. By the end of the day, he knows how his team did, how many points he racked up.
“What a great way to put yourself into a role you could never fill in real life,” says Jeffrey Shirkey, an Indiana sports fan and college instructor. Fantasy sports, in effect, pumps participants up in so many ways: “It’s about having power you’ll never have; it’s about predicting the future. It’s about using what you think might be special insights only you have.”
Popular with all
The business realities of this ascending industry show that a staggering proportion of people of all ages, all demographics, are interested in the vicarious thrill of sports. An ESPN survey found that 38 percent of the U.S. population had participated in sports gambling. DFS takes out the legal risks. A growing proportion of women find fantasy sports safe, fun and intriguing, too – another growth stream.
The genesis of fantasy sports goes back decades, when extreme fans sought to find ways to compete on the bases of players’ records of performance. Baseball, a game in which statistics are an intimate component, led the way.
The process grew slowly as imaginative thinkers found new ways to use the details of past performance to “predict the future,” as Shirkey said, in the 1970s and early ‘80s, when the Rotisserie League became a national phenomenon in the U.S.
Later came the Internet and ways to connect people from all over, along with enough computing power even in desktop devices so someone with more than a slide rule could work the numbers on the world’s sports statistics.
With the new millennium came the technological basis for fantasy sports to become something like what it is today.
“Now I can’t see any end to it,” Maschino said. “Fantasy sports opens up so many new dimensions that lots of people will never go back to just passively watching the way they used to.”
The geniuses behind FanDuel, DraftKings and their wide affiliation of media and sports interests are all hoping, for the sake of their growing wealth, that Maschino and other like-minded fantasy participants are right about that.