2024 Business Of Fantasy Sports Series: Education & Politics | How It Started | Mainstream Explosion | CBC v MLBAM | UIGEA | The Rise of DFS | The Fall of DFS | The Repeal of PASPA | Sports Betting Crossover | Fantasy Sports Feeds Sports Betting

 

By 2018, most states clarified laws surrounding paid fantasy sports. DraftKings and FanDuel dominated DFS with over 87% of the market. The industry innovated and pushed High-Stakes Fantasy, Best Ball, Inventive DFS games, and pick-ems as more fun ways to play fantasy sports.

 

 

 

Sports Betting Operators Understand The Crossover & Attract Fantasy Sports Players With Player Bets

On May 18, 2018, when PASPA was repealed, Fantasy Alarm announced that WagerAlarm.com would launch on July 1st, 2018. We planned to make Wager Alarm huge by creating SmartWager, a tool that synced your betting outlets and, through machine learning (AI and Neural Networks), would politely recommend better bets. We could not remove the technology people from the current tasks, so that would wait until 2019.

We offered long-time friend and sports media stalwart Ed Bunnell a chance to lead Wager Alarm while helping us to sharpen processes and product development to get ready to sell the company. His leadership, experience, and name would be critical to the sale of the company in 2021. 

The leadership decided we needed a business-to-business (B2B) division to balance revenues and become more attractive to potential suitors. We started a projections division called FANjections. We converted all our products to software as a service (SaaS). We tightened development on LeagueSync and our Lineup Generator. We created a game engine for simple-to-play games to be created by our content creators and not tech personnel.

We targeted fantasy sports and media companies with the technology we had created for FantasyAlarm.com and showcased it on the flagship site. I also reached out to all my old contacts to create business opportunities. It started slow.

We spoke to media companies about a myriad of opportunities. We started with NBC surrounding horse racing for the Triple Crown in June 2018. They liked it but could not see the big picture versus doing what had worked for a decade or more. 

In December 2018, we had the first substantial conversations as they planned to redesign NBCSports and Rotoworld to put them on the same technology. The plan ran out of resources to convert the complicated Premium products, Draft Guides, and In-Season Tools.

As I had mentioned before, it took a long time to build consensus in NBC. Kevin Monaghan believed in us! Ed Williams and Mark Ruzomberka worked under Kevin’s direction to create the business plan that could get the new leadership’s buy-in. 

On June 1, 2019, we signed the contract. On June 26th, we launched. A complete system that did all that was in the Fantasy Football Draft Guide, plus porting the entire user management system for authentication and login. It was a herculean effort for my son Matt and his team. 

Matt was amazingly skillful, fast, and crisp in the face of the pressure of a network partnership and heavy bureaucracy. My understanding of the product, personnel, and process was helpful. The product was the same one Rich Pike and I built in 2003. 

We had a hilarious full-circle moment when my son started porting the Rotoworld databases. The user information that flowed through were emails like rick@rotoworld.com, rick@allstarstats.com, rick@sandbox.com, rick.wolf@abc.com, etc. The team at NBC Sports thought something was broken. The data was the initial testing of the premium products from sixteen years earlier (2003). HILARIOUS! 

The B2B division was now legit. 

& What Of The FTSA?

The FSTA was hemorrhaging money. Spending heavily on lobbying and keeping the organization together. We changed management groups to get more formal accounting and watch the pennies closer. We had lost 100+ members but could see a path back to profitability. The Board of Directors decided to rename the organization to the Fantasy Sports & Gaming Association. I was 100% on board. We welcomed those in sports betting, igaming, and video gaming. It was a bold move, but we all believed it was possible with the right effort.

It saved the organization by allowing large sponsors to come to our conferences before the pandemic and stabilized our finances. Since that time, the FSGA has tried to be inclusive and kind, as almost all the leaders are, but there is always politics. We are still seeing that from two powerhouse daily fantasy sports companies, who now lead sports betting in the US. The mainstream sports betting companies don’t see us as their voice.

 

 

 

New Focus Away From Salary Cap DFS

In Episode 7, we discussed bum hunting, scripting, and mass multi-entry issues, making it harder for educated sports fans to win. The top five percent of all DFS salary cap players win a large percentage of the winnings. 

As paid fantasy sports clarified in most states and the two powerhouses focused on sports betting, we saw smart innovation come forward with increased popularity. Mostly, these were created to adhere to UIGEA and as games of skill to adhere to the clarifying fantasy sports laws in most states. Most games enhance the ideas that existed before their time. 

High Stakes Fantasy Contests 

Many media companies had paid for fantasy sports, but it was mostly in leagues where one or two out of each twelve would win a prize, and the entry fees were small. In 2002, Emil Kadlec and Lenny Pappano created The World Championship of Fantasy Football (WCOFF) to revolutionize fantasy football with a new genre: High-Stakes Fantasy Sports. 

High Stakes Fantasy Sports are contests that have large cash prizes for season-long fantasy football competitions, with both league-style play and playoff format, to determine the ultimate winner. Entry fees are as low as $20 and as high as $10,000. WCOFF awarded their winner $300,000 cash that year. 

The National Fantasy Football Championship (NFFC), The Fantasy Football Players Championship, and Real-Time Fantasy Sports all have a ton of paid fantasy sports contests that allow skilled fantasy football players to compete in season-long contests for larger prizes.

Best Ball Contests

Anecdotally, this is the fastest-growing segment of fantasy football play. CDM Sports originated this in 1997 with their Draft & Play series for newspapers and the Internet. People drafted players and did nothing else but watch the games to see how they were doing. It was draft, score, and win. 

The draft is the best part of fantasy football, and with this game type, people get to draft literally dozens of times. Draft & Play didn’t take off until it was renamed “best ball” by MyFantasyLeague.com. This is in reference to a golf format where partners select the best ball on each shot, and then both shoot from there. In this format, lineups were set automatically from a participant’s roster. 

It really exploded during the pandemic, as Real-Time Fantasy Sports renamed their draft and play contests to “best ball,” and the newer fantasy sports companies made the “best ball format” a huge part of their core businesses, specifically Underdog Fantasy and Sleeper.

Pick Ems

Circa 2017, DraftDay introduced several contests with different formats, but the one that got early traction was called “Rapid Fire.” Rapid Fire is what is now called “Pick Ems.” Pick Ems are contests where participants select multiple player cards in multiple real-world games that have a statistical metric, and users select “more or less” for that statistic. 

When Draft Day could not compete with the big DFS companies, they sold their software, and this powered a company created for a scene from the Simpsons, Monkey Knife Fight. MKF shook things up with a new delinquent monkey as its mascot, Furious George. At the peak of intensity around the legalization of sports betting, they exited to Bally Sports.

In 2015, I met a young entrepreneur, Adam Wexler, who had a company called SidePrize. It was such a good concept that he won the Elevator Pitch contest at the FSTA conference. The concept would pivot several times and end up with a singular focus on Pick Em games. Now named PrizePicks, their company has become one of the fastest-growing fantasy companies in the history of fantasy sports. 

Like SportsLine’s pivot from sports betting to mainstream news and fantasy sports in 1996 or Jeremy Levine’s pivot from a stock market game for StarStreet, you need to know when to pivot, and PrizePicks has made smart decisions.

Underdog Fantasy Sports was focused on “best ball” contests but pivoted here to lean into this new concept and sports betting. They have a strong business in all areas. 

Sleeper began creating the ultimate league management site and mobile app about a decade ago. Their application is widely considered to be the best product for managing leagues. Smartly, they added pick-em products to augment the free league manager and drive huge revenues.

This area is fast growing. As I said previously, as long as the contests involve multiple athletes in multiple real-world games and the participants are playing a game of skill based on real-world performance, it is fantasy sports.

Non-Salary Cap DFS

Many other companies began to ideate different ways to fit within the confines of skill-based, player-oriented games. We could talk about all of them here, but it's more important to recognize the four main differentiators. 

  • Draft DFS – Many of the most popular DFS sites allow groups to draft teams in a traditional season-long fashion and play for just that day or week’s games within that sport. This combines immediate gratification with the social aspects and fun of drafting.
  • DFS Variances – Companies like SuperDraft have found ways to create variance without a salary cap. Their system uses a “Multiplier” for each player. It creates a simpler game of skill as it groups sets of players for participants to use their skills to choose between.
  • Stock Market games – we had talked about this several times in previous writings. This concept has never worked. We see right now well-funded companies like Jock Mkt smartly pivot to “Pick Em” games.
  • Card packs or NFT fantasy games like ReignMaker from DraftKings. Several of these crop up, and a smaller subset of sports fans LOVE them. 

There are many more, but the point here is not to be complete but to show that fantasy sports come in many forms. 

The Crossover Of Fantasy Sports & Sports Betting

Many know a lot of these statistics. Understanding why the sportsbook attacked the fantasy sports market with such vigor is important. Also, understanding the long-term plan that FanDuel and DraftKings started from their inception. Here are some research tidbits from the FSGA:

  • 32% of Americans played a fantasy or bet in the last 12 mo
  • In 2007, only 6% of Americans played fantasy sports
  • 21% Played fantasy; 25% made a bet in the last 12 mo
  • 84.6m Americans played fantasy or bet in the last 12 mo
  • In 1988, only 500,000 Americans played fantasy sports
  • By 2005, 12.5m Americans played fantasy sports
  • In 2023, 55.7m played fantasy sports, 64.4m bet on sports
  • 42% are crossover players who play both fantasy sports & bet on sports in the last 12 months
  • 24% are exclusively fantasy players
  • 34% are exclusively sports bettors

The numbers are growing for both categories. New sports bettors have a lower crossover than the first adopters, and fantasy players are super valuable to the sportsbooks.

Sports Betting Embraces Fantasy Sports With Player Bets (Prop Bets)

The definition of a “proposition bet” or “prop bet” is a type of side bet on something in the game or match that has nothing to do with the final outcome. It can be the coin flip, who scores first, etc. The single-player bet is when the item is based on a single player and his performance in a single matchup or game. For example, LeBron James will have more than 30 points tonight. 

Fantasy sports players, especially daily fantasy sports players, pride themselves on analyzing every game to determine the exact performance of every player regardless of the outcome. For generations, fantasy sports players have been inventing games to use this knowledge as games of skill.

The main reason fantasy sports received the UIGEA safe harbor is that requiring multiple athletes from multiple real-world games minimizes the chance that someone could corrupt the sport. 

Let’s talk more about this. In 1986, for the Super Bowl, Las Vegas operators posted a prop bet on whether William “Refrigerator” Perry would score a touchdown. It opened at 20-1. By game time, it was 2-1. Late in the third quarter, with the score 37-3, the “Fridge” got the call and scored.

All bettors in Las Vegas were happy. Everyone was happy. Except for Walter Payton. He was one of the greatest running backs of all time, coming to the end of an illustrious career, and he was shut out in his only Super Bowl. Was it the influence of the excitement about the bets on the Fridge? Or was it just good play-calling? Hmmm.

In the late 1990s and early 2000s, prop bets started popping up on offshore sportsbooks with entertaining bets like the length of the National Anthem and “Heads or Tails” for the coin flip. The year after, many sportsbooks began offering single-player props for big games. The fantasy sports players loved it. With the smart marketing of BoDog and MVP Sportsbook, the fantasy world pumped potential customers to the offshore powerhouses. This created the crossover that still exists today.

With the legalization of sports betting in the US, DraftKings and FanDuel already had millions of fantasy sports players to tap into and immediately focused on player futures bets and single-player bets. A player futures bet is where a bettor selects a player to perform under or over certain statistical metrics over the course of the upcoming season. 

Thanks for going down memory lane with me again this week. The history of prop bets and understanding what the safe harbor in UIGEA says for safe play is important to protecting fantasy sports players and bettors.

The finale is next week! Final legal notes and how to get along better to protect fantasy sports players and bettors alike.