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The fantasy sports industry is booming, but here's why it’s broken

Photo Credit: Digitaltrends.com

Photo Credit: Digitaltrends.com

Any discussion of Fantasy Sports should naturally begin with statistics. Nearly one in four men in North America play. The average player shells out $111 annually on the game. Since 2012 the user base has grown nearly 13 percent to 41 million.

Simply put, the numbers are as in your face obvious as Jacksonville’s new jumbotrons: Fantasy Sports is one of the leading growth industries in the United States.

Yet an upward trend does not mean all is well in boomtown. Upon analyzing the structural elements of Fantasy Football (the most popular of all Fantasy Sports games) one discovers flaws in user experience and revenue streams, flaws that seem widely overlooked by the leaders in the field.

This shouldn’t be held against Yahoo, ESPN, Fanduel, Draftkings and their ilk. They’ve already perfected their versions of the game and are turning a handsome profit. There is little incentive for them to tinker with the current model.

However, there is massive incentive for a plucky startup to disrupt the $3.6B industry. If a company could build fixes for these flaws there is the potential for them to carve out a lucrative niche.

Game Flaws

Fantasy Football is somewhat akin to a child experiencing Christmas morning: the anticipation is often far more enjoyable than the event itself.

Players spend weeks if not months preparing for the draft. They convene their friends, talk smack, and for a glorious hour they get to play GM.

From there their experience is largely downhill.

Injuries, suspensions and other strokes of bum luck are inescapable. It can happen at any time, and if fate is cruel enough the entire season becomes a lost cause.

Around the halfway point the league pecking order becomes clear. Players with weak rosters scramble to improve, and when that fails, they lose all hope for winning and reduce effort. In round robin Head-to-Head leagues this ruins the experience not just for themselves, but for their opponents. It takes only one bad egg to ruin a dozen teams.

Lastly, when the NFL excitement peaks in the playoffs the fantasy season is long over. Millions of Americans tune into the games with nothing to play themselves.

All of these pitfalls manifest as reduced engagement. The longer the season wears on the fewer players are actively enjoying the game. From a business perspective, traditional Fantasy Football becomes less valuable the more real football is played.

And this is only addressing the NFL. Nearly eight million men aged 18-24 attend college, have mobile supercomputers in their pocket (alongside expendable income), and are a coveted demographic for marketers, yet they have no top-notch fantasy game with which to embrace their college sports fanaticism.

American sports fans deserve a better game. The question is, can one be built?

Monetization Flaws

The monetization flaws extend beyond those derived from the game setup.

It is no coincidence that the most popular free Fantasy Football site is offered by Yahoo, the fourth most popular website in the world. It is a multi-billion dollar mega corporation that can funnel millions of users towards their game, generating ad-click marketing dollars every step of the way.

This is wonderful for Yahoo. This is bad for CBS.com.

CBS.com has long embraced a premium “pay for services” model. They’ve also bet heavily on the “play for cash” model where teams buy-in and first and second place receive a payout. The problem with these business plans is of course, the Internet.

The Internet is capitalism stuck on fast forward. Web companies innovate far more rapidly than traditional brick and mortar establishments. This means that the services that CBS makes you pay for one year will be copied and offered for free by their competitors the next.

Web companies also undercut each other’s price points at far greater rates than is seen with physical goods. For their “play for cash” leagues CBS offers payouts between 41.7 percent and 58.3 percent depending on the buy-in. Newcomers such as Fanduel and Draftkings have payouts ranging from 80 – 90 percent of total buy-in pool.

This doesn’t mean that Fanduel and Draftstreet are wholly out of the woods themselves. Their “same day payout” model rests upon the foundation of the Unlawful Internet Enforcement Gambling Act of 2006. The UIEGA specified that wagering on Fantasy Sports was legal because they are games of skill, not luck, as opposed to traditional sports gambling or online poker.

Clearly, this is a dubious designation at best. Lawsuits against paid fantasy sites have been filed in Illinois and New Jersey and while those cases lost, an entire business model built upon a foundation that goes against the spirit of the law is cause for concern.

What is clear is that players want as many features for free as possible and want as large payouts as possible when they’re buying in. In time, this will reduce margins and likely eliminate all but the largest of fantasy sports sites.

Fantasy Sports companies need a game that delivers a more reliable source of profit. The question is, can one be built?

The Solution

Step 1) Eliminate the roster. Step 2) Replace it with a Fantasy Sportsbook.

Never again will injuries, suspensions or bad luck derail a season. You can play the playoffs because you don’t need a roster to have action. You can offer fantasy games using any event that a sportsbook has on their board, from college football to UFC.

Profits couldn’t be derived from a payout model of course – that would be gambling plain and simple – but could be derived from in-game monetization: if you want to move a betting line, use a credit.

With the credit approach it would be crucial to cap their usage at a level high enough to increase the number of player wager victories, but not so high that it turns into a “Sports Farmville” where victory is purchased instead of earned.

Offer these credits at such a low price point that it becomes silly not to use them when competing against a friend, especially if there are side stakes up for grabs.

If weekly purchases were capped at $2 it would take only 29,411 players playing with credits over the 17 week regular season to generate revenues of $1 million. That number (29,411) is less than .07 percent of the 41 million who play fantasy sports in North America.

If all of these steps were taken, the end result would be a game of true sports skill, one where the best player wins their matchup every week, and engagement increases as the season progresses.

The end result will also hopefully be a game that pays off for its creators.

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Brendan Joyce is currently the CEO and Co-Founder of LeagueHeads.com, the #1 Fantasy Sportsbook Game.  Mr. Joyce formerly worked at TVG.com, the #1 Horse Wagering Website and horse racing television network in the USA.

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