Fantasy sports. Have you heard about it? You might have, given its popularity. Millions of people play it every day. Though popular, there is always someone in your room or circle of friends who has no idea what it is or how it works.
But what is it exactly?
If you feel that it is an extension of real sporting events, then you are correct. More specifically, it goes somewhere along the lines of selecting virtual players, forming a team, participating in games, and then judging those players on how they are performing, both in the virtual arena and the real one.
It started off as a simple game that friends played among themselves to pass the time. Now, it has transformed into a business that has an average net worth of a billion dollars or more. The sponsors and corporate partners of real-world sports have also taken an interest in the business. In 2015, corporate giants, Google and Time Warner, both had their investments in Fan Duel, a major fantasy sports company.
Advertisements for fantasy sports are pretty common as well. If you have ever been to a sports game, there is no doubt that you have seen advertisements for daily fantasy sports companies like DraftKings and FanDuel.
No industry in the sports world has grown this significantly since the release of cable TV, probably. And with the recent merger of the two companies, it is pretty clear that fantasy companies are not simply the “cool” trend in the market.
As a whole, this industry is pretty new. DraftKings hasn’t even been around for that long of a time. However, the two companies have managed to raise a combined total of over $1 billion in VC funding. It is because of these companies that fantasy sports have become a household name.
The aim of this article is to help you fully understand the world of fantasy sports. So let us begin.
To understand the concept of fantasy sports, it is important to first understand plain-old fantasy sports, because they have been around for a longer time.
A fantasy sport is a game where the participants assemble imaginary teams (it could be on paper, or using baseball or basketball cards) using real players from a different professional sports team. So, for a fantasy English Premier League team (soccer), you could have one defender from Aston Villa, a goalkeeper from Manchester United, and a mid-fielder from Liverpool FC, etc.
Everyone else in your league does exactly the same thing, and then your teams compete against each other. So, how do you decide who wins? Well, there is a scoring system based on points for certain actions. For example, a goalie stopping a goal is 5 points, and a midfielder throwing a pass is 4 points. Whichever team has the highest score at the end of the game, wins.
In the virtual playfield, there is a player selection process, also referred to as a draft, in which you create a virtual team from the players that you think are good. The statistics from the real game are then compared and compiled. For example, in the real world, after the end of the week’s play, 5 players from 5 different teams performed the best. In the virtual world, you had those 5 players in your fantasy team. Put two and two together, and you have had a wonderful time at the weekend’s play!
Through apps and websites, you can track statistics of your players, and keep a check on their performance. There are usually two types of leagues in fantasy sports: one in which you can compete against friends and people you know, and the other in which you compete against strangers (Public Leagues).
That is just the front-end of things. At the backend, you have powerful daily fantasy algorithm software that is either built by the owners of the site or purchased as a white label (made someone else’s produce their own by customizing). Several free white label software is available on the internet which you can use to create your own version of a fantasy site. But that is a discussion for the tech-savvy.
In North America alone, a total of 56 million are involved in the game. 18% of those players are teenagers. Adult men playing fantasy sports account for about 19% and 9% are women.
Players are based on income levels. Players that earn more than $50,000 account for 16% of the players, while only 10% of players with lesser incomes participate in the game.
The point being is that fantasy sports get people going.
Real life or traditional sports usually occur over an entire season. For example, if you and your friends draft teams in September, then you would not be able to find out who won until the season is over in January. This also means that you are stuck for the whole season, with the same players that you drafted at the beginning of the season unless there is a chance for a trade.
Daily fantasy sports, like the name suggests, is different. It does not last a whole season. It simply lasts a day. The daily fantasy football draft software helps you pick your players in the morning, and by the time the games are over in the afternoon or evening, you will know who has won.
Another difference between the two is that, while regular fantasy sports are focused on a year-after-year league basis, daily fantasy sports is played online with random competitors that you matched with.
There is also a factor of money. Sports league sites like DraftKings can comprise of hundreds of thousands of competitors, each paying a few dollars to enter. The result is that the winner can end up winning millions of dollars in prizes.
With all the glitz and glamour of this online sport, there is bound to be some criticism. The next section will debunk some of the misconceptions regarding fantasy sports.
The fantasy sports industry is not short on cash, raking an annual revenue of $1.5 billion. Advertising is a major source of that revenue. It makes sense because advertising helps attract an audience. Collectively, both DraftKings and FanDuel spent 90% of their prize money just to attract players to the game.
But players are not the only thing Fantasy Sports companies have got going on for them. Media outlets like Disney, Google, ESPN, and CBS are major corporate partners in the leagues.
As far as investors go, they have the National Hockey League (NHL), the National Football League (NFL), and Major League Baseball (MLB), who has invested about $300 million into both DraftKings and FanDuel, making their valuation go up to billions.
According to the Unlawful Internet Gambling Enforcement Act of 2006, Congress specifically allowed fantasy sports to operate under federal law because they come under the category of games of skill rather than chance. The only caveat to this act is that players may not bet on the outcome of a single game or the performance of a single player.
But fantasy sports are prohibited in five American states, which includes Arizona, Iowa, Louisiana, Montana, and Washington. However, the Fantasy Sports Trade Association is lobbying to change the laws in those states.
Traditional fantasy sports are legal under the Internet Gambling Prohibition and Enforcement Act of 2006. The Act contained a carve-out which specifically differentiated fantasy sports from online gambling or sports betting.
The rationale behind fantasy sports was always about playing with your friends, not to wager money. Even if wagering money was the case, you would not know whether you lost or won the wager until the end of the season (which is six-months). In gambling, whether it is traditional or online, you tend to lose money in a matter of hours or minutes.
Moreover, there was not much luck involved with fantasy sports because the results were spread out over a season. While a player might have one unlucky game, they could always bounce back the next week to make up for it.
The law of large number states that over a particular period of time, like a 162-game MLB season, the elements of luck get averaged out. With that in mind, fantasy sports were thought of like a game of skills, because at the end, it was not about luck, it was about whom you drafted.
Later on, with the release of daily fantasy sports, it only took a few hours of time for participants to win or lose money. The results were seemingly based more on luck than traditional fantasy sports.
The federal government is yet to pass ruling on daily fantasy sports. Therefore, it is entirely up to the states to decide how they wish to regulate it.
While states are the final authority, they do not know how to regulate it. Obviously, daily fantasy sports are a lot less like gambling but more close to full-on sports betting, which is legal only in Las Vegas. But it is a lot more like gambling than traditional betting, particularly because of the luck factor.
So what steps should the state take? For a while, they did not do anything. But in October 2015, things changed. The U.S. Justice Department and the FBI started an investigation into FanDuel and DraftKings to determine whether daily fantasy sports are actually gambling, which would be a violation under federal law. The companies responded by lawyering-up, and hiring lobbyists. They also prepared for a battle towards legalization. Their future depended on the investigation.
The state of New York and Nevada took the side of the FBI and banned the sport, making it out as a form of illegal gambling. However, other states like Illinois stepped forward to legalize fantasy sports.
The tide eventually turned and a few months later, New York passed a law legalizing daily fantasy sports. While it is not legal in all the 50 states, it does seem that the companies are progressing.
Currently, there is not much government intervention overseeing fantasy sports in the way gambling regulators are overseeing sports betting in the state of Nevada.
However, the scandal involvingDraftKings and FanDuel is a wakeup call for the government, who are now planning to oversee the industry instead of banning it outright.
The result of such lobbying efforts towards congress has resulted in DraftKings and FanDuel spending hundreds of millions of dollars just to keep operating.
While these companies were back on the path of expansion and profitability, somewhere along the way, they realized that it was pointless to compete against one another. They were already spending hundreds of millions of dollars advertising their products to Television media advertisements.
Multiply the spending on a yearly basis and you will have a substantial amount spent just trying to survive. So why not join forces? They will save costs on advertising so that they could focus entirely on their troubles with Congress.
Thus the merger came along.
The details regarding the merger are still vague, and there is no new determined company structure (or even a new company name). They are, however, two powerful sports companies fused into an even powerful merger.
What did this merger mean for the industry? Well, even though DraftKings and FanDuel are two household names associated with daily fantasy sports, there are other players as well. These small time providers might find it hard to compete against the ad-space and influence occupied by the DraftKings-FanDuel company.
Moreover, daily fantasy sports are not legal everywhere. There are still about 10 states that ban it and about five places where the legislation is not clear yet. The lobbying work is not over yet.
Daily fantasy sports are a phenomenon that has taken the internet sporting industry by storm. The whole operation is just expanding considerably. Even though pressure from the Governmental authorities is an issue, the sport itself does not seem to lose popularity. Moreover, Social Media is also contributing extensively to providing popularity to the sport.
You might think that the companies advertising on social media are responsible for the rise, but that is not the case. Advertisements are a part of the process, but the real game changer is word of mouth promotions by fantasy gamers online, who help promote the brand even further. All in all, there is not downhill in sight for these companies.