Fantasy Feud’s popular Salary Cap game. (Fantasy Feud)
More home runs are hit at Coors Field in Denver, Colorado than at any any other ballpark in Major League Baseball. This bit of trivia about the Colorado Rockies’ home stadium may seem arcane to most, but it’s the kind of fact that Justin Shulman’s customers must be able to recall.
Shulman is co-founder and president of Fantasy Feud, which runs five daily fantasy sports games, and the company is placing a bet of its own: that fantasy sports is not only going to get bigger—it’s going to get faster.
Over 40 million people in North America play fantasy sports: games in which players choose teams of professional athletes and win points based on the performance of those athletes over the course of a sporting season. They’re competing for stakes ranging from office bragging rights (in your workplace pool) to million-dollar prizes (like that offered by the NFL’s officially-sanctioned fantasy football game).
Daily fantasy has a significantly smaller user base—just under 1.5 million unique users. But the shorter-duration variant is growing rapidly because it combines the aspects of fantasy sports that players love the most. “Everyone’s favourite parts of being in a fantasy pool are picking players on draft day, and winning,” says Shulman. But those two things are usually separated by the entire duration of a season, during which players must continue to pay attention to their fantasy teams, swapping out injured or under-performing players. “The first month everyone’s into it, and then as players start to fall off or get injured, they lose interest,” Shulman says.“By the end, of the 12 guys who started, there are two or three that still really care about it.” Daily fantasy reacts to that that attrition by compressing the play time into a single day, or less.
Fantasy sports arrived on the Canadian public markets by a roundabout route: it was recently amalgamated into Gaming Nation Inc., which was listed on the TSX Venture Exchange (TSXV: FAN) on June 15. A product of the reverse takeover of Oceanside Capital Corp., Gaming Nation also rolled up electronic raffle operator 5050 Central, fantasy information site FantasyGuru.com, and handicapping site Pick Nation.
Nine-tenths of Fantasy Feud’s users are from the United States, where fantasy sports enjoy a specific carve-out in the Unlawful Internet Gambling Enforcement Act (UIGEA). Under the Criminal Code of Canada, betting or gaming is illegal unless it is conducted, managed or licensed by a province. To fall afoul of this legislation, a contest must meet the three criteria for a game of chance: payment as a requirement of entry, prize and randomness or chance.
No province has yet issued fantasy sports licenses, and no Canadian court has yet ruled on its legality, cautions Chad Finkelstein, a gaming lawyer and partner in the Corporate Commercial group at Dale & Lessmann LLP. Still, while no court has confirmed this position, daily fantasy games may be better positioned legally than their full-season counterparts. “Despite all the skill in the world in selecting your team and the free agents you can find and trades you can pull off, injuries, trades, suspensions and freakish weather accidents happen in real life,” Finkelstein notes of the season-long variety. “There’s an arguable position that a daily fantasy site may be offering a game of pure skill. In a daily league, I can make changes to my roster right up till the second the game starts to compensate for those elements of luck and randomness.”
Scott Secord, incoming president and CEO of Gaming Nation—and formerly CEO of Pointstreak Technologies, which developed 5050 Central—says daily fantasy as a whole did about $84 million in revenue in 2014, and is expected to bring in $225–250 million this year. Revenue comes from the cut (Shulman calls it a “site fee”) that a platform takes from the entry fee players pay. Fantasy Feud’s per-user revenue mirrors the broader daily fantasy trend: for example, the average cash player of its baseball games provided $35 in revenue for the 2014 MLB season, while for the current season it’s $60.
Two American companies—FanDuel and DraftKings—control 96% of the daily fantasy market between them. They’ve distributed hundreds of millions in prizes (FanDuel plans to hit $1.5 billion this year, according to The New Yorker) and spent more than that on advertising. Established gaming players like Yahoo! Sports and the Canadian firm Amaya are also reportedly eyeing the daily fantasy market.
“These guys are spending exorbitant amounts of money on customer acquisition, which in my opinion is not sustainable over the long haul,” Shulman says. “Let these other guys educate the market.” Instead of the traditional advertising approach, Gaming Nation’s will combine several complementary companies and cross-market to existing users.
The sports information portals provide a natural entry point to the company’s gaming platform for potential players—Secord says over 90% of daily fantasy players utilize third-party (i.e., non-team and non-league) sources when making their picks. Fantasy Feud players could receive a discount on their information subscriptions, for example. Meanwhile, 5050 Central’s raffle system is used by more than half of North American professional sports teams that run such promotions. “If you’re buying a 50/50 ticket at a sporting event, you’re probably a sports fan and you’re prone to playing a game of chance,’ observes Secord. “Those are the types of players or individuals who are really playing daily fantasy sports.”
Gaming Nation’s immediate goal is realizing the cross-marketing potential of its portfolio. Secord also says the company’s daily fantasy offerings must expand beyond the traditional fantasy sports. “We recently launched a NASCAR game, which was our entrance into the motor-racing sport world for fantasy,” he says, also name-checking a new golf game.
FanDuel and DraftKings have yet to turn a profit and are privately held. Both have received substantial VC money, and the NBA has an equity stake in the former. Going the reverse takeover route in Canada to become the first publicly-traded player allowed Gaming Nation to benefit from investor interest piqued by the growth of the space. The rollup was managed by Cannacord Genuity Corp. (which also brokered Amaya’s reverse takeover of PokerStars) and Clarus Securities. HC2 Holdings, the investment vehicle of U.S. billionaire money manager Philip Falcone, is Gaming Nation’s largest shareholder with a 23% stake, according to Secord.
Shulman believes that the growth of daily fantasy will provide plenty of opportunity for smaller competitors. “Our goal is to grow and become that top-of-mind third company in the industry,” he says.
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