Over the last two weeks or so there have been several developments that are bringing the business of fantasy sports into question. For those not familiar with fantasy sports, it is a form of gaming in which performance statistics from athletes in professional sporting events are used as the competitve measure.
One example of fantasy sports involves friends and family members create a fantasy league, where they each select athletes from a real professional sports league, such at the National Football League (NFL), to form their own team. Teams then compete in season-long, head-to-head matches and the winner is determined based on athletes' sports performance statistics in a real professsional event (e.g., NFL game). Many of these leagues are so-called “cash leagues,” where participation requires paying a fee to play and at the end of the season the top winners earn money. While fantasy started as a friends-and-family activity, it has now grown into a big-time business with major brands, such as ESPN and Yahoo, offering products to help fantasy players and to assist with league management.
However, the questions that have been raised recently about fantasy sports are not about friends-and-family leagues, which often have less than 20 players. Rather, this is about daily-fantasy games, where people compete against thousands of competitors and payout to winners can top over $1 million in a single day. Daily-fantasy games are dominated by two companies, DraftKings and FanDuel, who earn money from entry fees charged to participants.
The concerns being expressed about fantasy sports, in general, and these two companies, in particular, relates to whether money is being won based on games of skill or games of chance. If the latter, then it may be considered a form of gambling and, thus, faces potential governmental regulation. Of course, fantasy companies believe they are presenting games of skill and, consequently, their customers are not gambling.
From a marketing perspective, there are several interesting factors that come into play with fantasy sports. For instance, the question of whether or not it is gambling is really about the product decisions made by these companies. Also, how this grew to become a legal issue is about market size and number of customers. As discussed in this Wall Street Journal story, fantasy sports is projected to bring in nearly $4 billion in entry fees this year with that number forecasted to grow significantly over the next few years. A major reason for this growth can be attributed to highly targeted marketing and, more importantly, enormous advertising. For instance, the story reports that DraftKings spent $81 million on advertising between August 1 and early September, just as the NFL season was getting underway. More interesting, a key investor in DraftKings, Fox Networks, not only invested $150 million in the fantasy firm but also cut an advertising deal whereby DraftKings will spend $250 million in advertising on Fox’s sports channel over a three year period.
It is not known how long it will take before the skill vs. chance question will be answered, but for now the marketing angle is certainly an interesting one.