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

 

Author’s Note:  This series is based on my experience in fantasy sports. It includes everything that I learned along the way. If there is anything that I missed, it's because I wasn't involved or didn't have enough knowledge about it. Please feel free to send your feedback to rick@fullmoonws.com or post it on LinkedIn so that we can start a dialogue.

When UIGEA was passed in October 2006, Rick Cordella immediately understood that DFS was now legal on a federal level.  In 2004, he had convinced me and the owners of Allstar Stats to buy an early company doing daily fantasy sports, Instant Fantasy Sports, owned by Chris Fargas. We rewrote the software to fit into our systems, and SnapDraft was born. We never launched it because our lawyers said it was clearly not legal. 

The SnapDraft name and software were part of NBC Sports Group. NBC was in its first year with NFL rights to Sunday Night Football, now a national phenomenon. Our fantasy sports division knew what we had. We needed to show GE, the parent company of NBC Universal, that it was legal and then unlock the power of the NBC Universal promotional engine.

Easy right? WRONG!

As I had learned from the 1990s leading SportsLine’s contest/fantasy sports division, contest and sweepstakes laws were different in each state, and a predominance of skill was a critical component.  We now had a federal law that cleared the way for SnapDraft.  We needed approval from GE to launch our DFS game and, more importantly, to ignite the NBC Universal promotional engine behind it.  

WE WENT TO WORK!

Each day that went by, we focused more and more on NBC Sports & NBC Olympics.  It was exhilarating. SNF made so much money that we could not divert resources to focus on fantasy sports. My mentor at NBC Sports was Kevin Monaghan.  He fought hard for what was best for NBC Sports Group. He knew how to build consensus behind things and get it done!  He didn’t win every battle. When he did, he ALWAYS deflected the credit.  I didn’t understand politics.  Kevin knew how to focus on the people AND the company simultaneously.  I always thought the two things were mutually exclusive.  I have modeled myself on those principles ever since.  You can win for the people and the company or, in my case, the industry.

In 2008, Rick Cordella and I got more involved with NBC Sports and NBC Olympics, mostly because of the behind the scenes work of Kevin Monaghan to advocate for us. Rick’s career moved super fast. I could not have been prouder! NBC saw his brilliance and competitiveness and had him lead NBCSports.com and NBCOlympics.com by mid-2009.  He pushed the envelope, building consensus around the value of the digital user.  He added the highlights machine and a video monetization strategy that changed big media events going forward at all media companies.  I never really fit in at NBC Sports Group, but to this day, they were the best people I ever worked with.

To sum up what finally happened,  Comcast made an offer to buy NBC Universal, and GE lawyers were deflected to that closing.  We got our legal approval in 2009.  We had no operational infrastructure.  We made a deal to outsource SnapDraft operations to a third-party company.  It was week 9 in 2009 when SnapDraft finally launched with too little promotion, as NBC Sports had many other important priorities.  

SnapDraft never had more than 30,000 or so users and closed down around the time I left in 2011.

TRADITIONAL FANTASY SPORTS EXPLODES 

In February of 2007, a big moment happened. ESPN, who has been running a fantasy sports division with media and games for over a decade, purchased TalentedMrRoto.com and made Matthew Berry Senior Director of Fantasy Games.  It was not the purchase of the site and the talent that comes with it.  It is the change in culture that was forced by the group led by Matthew Berry.  Networks are focused on making money through rights agreements and live broadcasting.  The seismic shift to having fantasy sports integrated into ESPN broadcasts that happened over the next ten years trickles through all major media. I would argue that the DFS explosion and massive growth in traditional fantasy sports would have been impossible without ESPN going all-in.  

Photo from this article on 888Casino.com

In 2007, the FSTA reported that the number of fantasy players had exceeded 19 million Americans. In 2008, the FSTA repeated the research and found that fantasy sports had grown by 50% to almost 30 million players. Exponential growth would continue through 2015. Fantasy sports would see 15-20% growth yearly for about five years to break 50 million players by 2015.

DFS STARTS SLOWLY

There were a handful of DFS companies in the marketplace, all trying to garner customers, but none getting any real traction, given the massive growth in traditional fantasy sports.

In 2009, I was Chairman of the Fantasy Sports Association (FSA), a sister organization of the FSTA created by the NFLPA in reaction to the CBC v MLBAM case discussed earlier. The FSA’s charge was to drive sponsorship into fantasy sports, especially for the NFLPA licensees, who were all the major media companies: NBC, CBS, Yahoo!, ESPN, Sporting News, etc. The FSA was the title sponsor of the Sports Business Journal Sports Media & Technology Conference for four years in a row.  

StarStreet was founded in May 2009 by Jeremy Levine. He was fresh out of Syracuse University with a degree in Entrepreneurship. I didn’t know that was a thing!  I met Jeremy at the 2009 conference, where I represented the title sponsor.  He pitched me on StarStreet. At the time it was a marketplace for athletes.  The concept of trading athletes, like the stock market, was a common startup idea and still is.  We have seen many startups try this, starting with Wallstreetsports.com.  He was different, though.  He had energy, intelligence, and a real understanding of products and what sports fans wanted.  His zeal was infectious.  I explained the pitfalls and failures before him.  My advice at the time was simple, “You will be a huge winner.  This idea will not be a huge winner.”  In 2010, StarStreet pivoted to a straight DFS platform. StarStreet became a popular DFS site until it sold to DraftKings in 2014. 

DraftStreet (or LeftTackle) was founded in 2009 by Brian Schwartz, Jeremy Elbaum, and Mark Nerenberg.  Although they did not receive seed funding until May 2010, I believe the New York-based company began DFS competitions in 2009.  They took the industry lead with the best product (IMHO) in daily fantasy sports.  I gravitated toward companies like this when I left NBC Sports in late 2011.  In February 2013, Full Moon began consulting with DraftStreet to create partnerships. NBC Sports was interested.  We spent a long time getting close to a term sheet. However, there were two MAJOR hurdles: (1) the venture company of NBC’s parent company, Comcast Ventures, was already invested in FanDuel and planned a deeper investment in the next round; (2) DraftStreet took investment from IAC, the largest internet company in the world, at that time run by Barry Diller.  IAC was in a dispute with Comcast as to who owned the airwaves. Basically, could transmissions from Comcast in the air be legally intercepted by anyone and broadcast on other channels.  DraftStreet was slowed down by decision-making at IAC. Innovation slowed, which led to their sale to DraftKings in 2014.

THE DFS WAR BEGINS 

Hubdub started in 2008 also with “markets” in mind.  It was a prediction market where users could use virtual money to predict future events such as sports and politics.  In 2008, both parties were picking new candidates, so there were many things to predict.  Eventually, Barack Obama and John McCain became their parties’ candidates.  In 2009, Hubdub spun off Fanduel to make fantasy sports games with Nigel Eccles leading.  FanDuel is well-funded.  

In January 2013, FanDuel secured $11 million in a Series C funding round. Although this amount may seem trivial compared to subsequent raises and capitalization to compete with DraftKings, it's essential to note that Bullpen Capital, a reputable early-stage venture capital firm led by Paul Martino, and Comcast Ventures, led by Andrew Cleeland, were both involved.  They would bring others in as well and carry the flag for FanDuel. Kevin Monaghan introduced me to Andrew and I met with him several times trying to convince him that DraftStreet was in a better position as NBC Sports Group could own it outright and dominate the space. I knew that the DraftStreet product was superior. My friends at NBC Sports were listening to me, but we couldn't get over the two things mentioned above. NBC Sports Ventures then invested in two of the next four rounds for amounts rumored to be as much as $150M. FanDuel utilized some of the capital they raised to make strategic acquisitions. One of the most significant purchases was that of a content and data company called numberFire, as well as an app development company. This gave them the necessary tools to keep up with the rapidly-evolving industry and remain competitive with their peers.

In 2012, DraftKings hit the scene like a firebomb.  Leaving VistaPrint, Jason Robins, Matt Kalish, Paul Liberman set out to make the best experience in fantasy sports.  Of all the companies in the DFS landscape, I had very little direct involvement with them.  My direct involvement with DraftKings was more as a board member and leader of the FSTA.  We will discuss that in depth in the next article.

So, much of what I will write here is not from the inside but from an outsider who saw their impact. I remember using the word “disrupt” as it was a term coined by Steve Jobs for technology companies that wanted to fundamentally change an industry.  Their technology and marketing prowess led them to the top quickly.  The parallels with FanDuel are so interesting. In 2013, DraftKings received investment from mainstream sports. However, the real game changer for them was when Major League Baseball invested in daily fantasy sports. This marked a significant shift in the industry. Like FanDuel, in 2014, DraftKings also acquired companies to fuel growth, but they did so by taking competitors out. Specifically, they purchased the third and fourth most popular DFS sites, DraftStreet and StarStreet.

DRIVING CUSTOMERS 

Mass Multi-Entry (MME) is when a user enters a lot of entries using a computer to get the maximum variance, thereby increasing the chances of winning the top prizes. Both DraftKings and FanDuel embraced this concept. The companies created import mechanisms for high-volume players to enter their lineups more easily. Many of these players came from two segments: former poker players and high-tech math-oriented fantasy sports players.

As I mentioned in the last article about UIGEA, I felt that I had to stop playing poker after UIGEA passed since I was working at a major media company.  Congratulations to those who continued to wager on BoDog and play Party Poker.  I could not risk my NBC job.  Since I kept track of contest and sweepstakes law, I had seen many white papers that suggested that poker was a game of skill.  Lawmakers could not get past the fact that everyone didn’t start with the same cards, so therefore there was luck involved.  It frustrated me as I loved poker.  I was not a great in-person player as my drama came out.  No one could see that through my computer.  

We quickly found out that poker players loved sports, too, especially playing games of skill for money. Over the years, I met dozens of poker players who wanted to be involved in our industry. Rotogrinders and one of their founders, Cal Spears, a former poker player who had taken PocketFives from startup to exit, accelerated the funnel for fantasy players into DFS.

In 2010, the platform to provide content and tools for DFS players was launched.  It set the stage and groundwork for what many others in the industry did, including Fantasy Alarm.  When I became the President of Fantasy Alarm in January 2014, I pitched to the founders, Rotoworld for DFS. Rotogrinders was so far ahead in the game of driving customers to the big two in exchange for bounties.  We saw the money to fund our vision and got on board.  We built a lineup generator, tools, content, and, most importantly, SiriusXM radio programming to drive signups for our premium products and the two big DFS companies. 

Rotogrinders did something really unique. It gave a scoreboard to the best DFS players, ranked right on the homepage. All DFS content and services companies before or after would see Rotogrinders as the model going forward until their sale to Bettor Collective, which started with buying a controlling interest in 2019 and completed in November 2021.

When the DOJ attacked the poker industry and made it clear that it was not legal, it is my firm belief that this turned many poker players into DFS players who were ready to get involved in MME play to gain an edge and play a game of skill for money.

THE PERFECT RECIPE FOR EXPLOSION

When you combine exceptionally intelligent poker players with highly analytical fantasy sports players and give them the freedom to create as many lineups as they want, all with a goal of winning $1M contests every day, you have the perfect formula for business to boom. To top it off, a 10% service fee is charged for playing in their games of skill. What a brilliant strategy!

Now, the two big companies spent money like water in 2014 and 2015 competing for market share.  Each company bought media, made deals with sports leagues and teams, and ran amazing affiliate programs to spend with every company in fantasy sports to acquire users.

It seemed to work.  Each week in 2014, the prize pools were huge, the number of players grew, and revenues skyrocketed.  And, each week, they made MILLIONAIRES! The two companies were on top of the sports world.  Most sports companies were getting paid to take sides or to drive customers to both highly successful companies.  TIME OF OUR LIVES! 

EVERYONE WANTS THEIR PIECE OF THE PIE

With the two big companies thriving.  With this much money, any industry has bad actors emerge to try to get their piece.  There were also a couple of epic failures to pay prizes for “paid fantasy” but not DFS companies.  We will not mention any of them by name because each circumstance is very different, and often, good people with bad luck.  When this started, we heard rumblings that the government was concerned. 

The FSTA took action. Board Members Nigel Eccles and Brian Schwartz authored a “paid fantasy charter” each FSTA member must sign.  The Board of Directors ratified that in June of 2014.  The FSTA worked with the former cabinet members of the Fantasy Sports Compliance Agency (FSCA) in 2014 and 2015. Yahoo! Sports would launch its daily fantasy sports products in July 2015.  We were creating mechanisms for compliance and rules for our members to help both the government and fantasy sports players.

With the marketing rolling out for the fall and FanDuel and DraftKings spending an estimated $500M on ads, DFS received a lot of attention.  Leading up to the 2015 NFL season, many of the ads looked like gambling ads with a person in a chair telling the true story of turning $20 into $1 Million.  The words “boatload” of money rubbed some politicians and legislators the wrong way…and honestly, they wanted their piece.

The marketing was everywhere. It was impossible to get away from it. When I visited Boston, I saw garbage cans covered with ads for the “Milly” Maker. The picture above is a hotdog stand in New York City from right before Week 1 in 2015. Everyone was talking about how hard it was to get away from the ads. It was a lot to process.  

The two fantasy sports powerhouses would not concede in the war against each other…or were they really against each other??

Next week, we answer this question and talk about a self-ingratiating politician in his quest to kill DFS.