Daily Fantasy Football Sites

FanDuel is an innovative new company that offers online, weekly fantasy football games; offering you the opportunity to play weekly fantasy football for real money, with the opportunity to win hundreds of thousands of dollars each weekend.  Sound like gambling?  It might be, but because it is viewed as a game of skill, those investing in FanDuel believe that it is a legal and safe investment.  Here’s how it works:

1.        An individual signs into the website, deposits from a credit card or checking account, and goes to their lobby.

2.       Once inside their lobby there are hundreds of potential tournaments ranging in cost from “Free” to hundreds of dollars.  Once you register for a tournament you are brought to a new screen where you pick your fantasy football team for the week.  Each player has a dollar amount attached to them, and you are given a $60,000 salary cap with which to fill your team.

3.       Once everyone has signed up for the tournament, the winner is decided based upon the points scored by the individuals you picked for your team in their respective real life Football games that weekend.

4.       Example of one tourney:  There are 80,459 individuals who each pay $25 for the tournament.  The top 14,530 players win money back, with smallest prize equaling $50 and the top prize equaling $175,000.  FanDuel keeps around 10% of the entry fee  (meaning they make over $250,000 on each of these weekly tourneys).

 In order to launch an online business there are many questions you need to answer:

1.       Customer Value Proposition: What is the customer’s job to be done?

2.       Mobilization: how do I get customers onto my platform?

3.       Regulatory Risk: Is the product offering legal?

4.       Lifetime Customer Value: How do I turn one time customers into repeat customers, and turn a potential one time experience into a successful enterprise?

For FanDuel, some of these questions were easier to answer than others.

The Job to be done:

When evaluating a business through these lenses it helps to have a product that meets the job that millions of Americans are looking to do: wager on their ability to prove to the world that they know more about football than anyone else.  FanDuel also meets this need through their user friendly website and mobile phone app that allows you to participate in their games with great ease.

Mobilization:

Fantasy football is a huge industry in the US—it is alleged that 10% of the male population in the US plays fantasy football for money each year.  But the weekly/daily fantasy game is a new twist on a decades old practice.  By allowing individuals to wager on their chances of winning tournament style fantasy football games—with first place prizes awarding as much as $175,000 dollars—you are able to tap into many aspects of the American Dream; the idea that with superior knowledge and extra research you can be successful and win millions.

However, in order to turn this promise into an actual business you need to get people to use your site. Establishing trust so that people will be willing to use your site is crucial to mobilization.  For FanDuel trust comes through several forms:

1.       Fast pay outs:  You need to pay people once they’ve won their tournaments—and use word of mouth to show that you are trustworthy.

2.       Investors:  It helps to have legitimate investors in your company who add weight to your contention that you are a real business. Fanduel began with $1.2 million in venture capital funding from Pentech Ventures in 2009—and later raised an $11 million Series C round with Comcast Ventures among others joining in the funding.  Today, its investors include KKR, Comcast Ventures, NBC Sports Ventures, and several others.

3.       Advertising: by advertising on ESPN, Yahoo and Syrius XM Radio, they got the word out to sports fans through trusted channels that fanduel was a legitimate business.

2.       Affiliates: By partnering with smart online fantasy websites that make recommendations on which players to pick each week, they again created relationships within the industry through trusted channels to send individuals to their website.

3.       The company’s success is evident in the annual payouts by year.  While in 2011 they were able to pay out $10 million in prizes, there total payouts increase by 2-5X each subsequent year; $50 million in 2012, $150 million in 2013 and an estimated $400 million this year.

Regulatory Risk:

When looking at why in 2009 this type of website didn’t exist, one potential explanation is regulatory risk.  While Fantasy sports has been a long time staple in the Football world—confidence in the legality of Daily Fantasy sports is a new phenomenon.  For years ESPN and Yahoo have offered Fantasy Football—but they’ve never dealt with the “pooling money” aspect.  If we learned anything from online Poker when it went through a similar period from 2003-2008, it was that you can think that something is legal, and then suddenly through the passage of an unrelated bill (it was a port security bill for Online Poker) Congress can pass legislation to make it illegal.  As an espoused game of skill FanDuel believes that they have skirted around this law—and its investors seem to agree.  But the regulatory risk still exists, leaving them with the question:  do we work with regulatory bodies to ensure that this remains legal or try to play under the radar and make as much money as possible before they catch on?

My contention is that as a game of skill you can fit this business into the letter and intent of the law, but you need to ensure that the right policy makers understand the nature of your business.

Lifetime Customer Value:

FanDuel has a great customer proposition, and through loyalty programs and the excitement of having new action every week they will keep individuals coming back to play new games.  But they have to continue to focus on ease of use, fairness, and ensuring that the technology doesn’t falter.

With other competitors like DraftKings chomping at their heels, one question is whether the network effect of playing on the biggest site with the biggest prizes creates a winner take all environment.  In online poker there were several large sites where numerous people played—and the same could be true for same day fantasy football.  But encouraging people to use your site and not that of others will come down to the size of the prizes and the user experience.  So far FanDuel is leading the way on both.

http://www.businessweek.com/articles/2014-09-02/fanduel-draft-kings-win-investors-as-daily-fantasy-sports-grows

http://www.forbes.com/sites/marcedelman/2013/10/09/fanduel-secures-an-important-victory-in-daily-fantasy-sports-lawsuit-however-plaintiff-plans-to-appeal/

http://www.nytimes.com/2013/03/12/sports/web-sites-blur-line-between-fantasy-sports-and-gambling.html?pagewanted=all&_r=0

http://dailyfantasysportsreviews.info/fanduel-scam-legit/

http://techcrunch.com/2012/04/04/fanduel-raises-another-round-for-its-clever-side-step-of-gaming-laws/

http://www.crunchbase.com/organization/fanduel