“The Deals That Made Daily Fantasy Take Off,” by Matthew Futterman and Sharon Terlep. The Wall Street Journal, 10/17/2015. “Understanding Fantasy Football,” this blog, posted on September 21, 2015.
When events seem to explode out of nowhere, it is usually because we were not aware of their long development. Fantasy football is no different.
FanDuel started slowly in 2009 but by 2013 was able to raise $11 million in financing . Only one year later, they raised $70 million. DraftKings was founded in 2012, but immediately adopted aggressive fundraising and marketing that quickly brought them to rival FanDuel. From August 1 to mid-September this year, DraftKings spent $81 million on advertising, four times FanDuel’s spending of $20 million. That’s a lot of money and explains why the ads seem to be everywhere on TV now.
The recent advertising boom was fueled by the round of financing in July where DraftKings raised $300 million and FanDuel $275 million. The money came from media companies who wanted a piece of the action, like Comcast and Time-Warner and sports leagues like MLB, NHL, and Madison Square Garden. Up until now, it has been a good investment. Fox Networks, an early investor, collected a 66% return on its investment within three years. They also got a promise of future advertising. FanDuel has been the more conservative player, expecting digital media to outpace television in the coming years. Daily fantasy games are expected to generate $370 million in revenue this year, but $1.77 billion in 2020.
As we said in high school, “Money talks (while BS walks).”
Recently, gaming regulators in Nevada ordered both sites to cease operations in their state. State governments, like the mafia, do not take kindly to outsiders horning in on their sweet money-makers. This week, the U. S. Justice Department opened investigations into their business model that claims they are not gambling sites. Of course they are, and this is obvious to everyone. Even little Delaware is jumping on the bandwagon with its own investigation, and the same can be expected from any state that depends on tax revenue from their own sanctioned gambling.
Now there is the question of employees at one site playing on the rival site—and winning big. Are they just lucky, or are they using insider information? That, too, is being investigated. Investigations tend to produce regulations, and new regulations could soon pull the rug out from fantasy sports, leaving only the fantasy.