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Fantasy sports join the big league in US

A fast-paced daily version of traditional sports pools is making billions in the US, with some participants going professional

PUBLISHED : Tuesday, 07 January, 2014, 2:25am
UPDATED : Tuesday, 07 January, 2014, 2:08pm

Drew Dinkmeyer spent seven years as a senior investment analyst in Tampa, Florida, before deciding to pursue fantasy sports professionally.

Dinkmeyer, who's 31 and got married last year, said he earned about as much from competing in daily fantasy sports leagues as he did when he was researching equities at CapTrust Financial Advisers.

A former tennis player at Dartmouth College, Dinkmeyer is part of the fastest-growing segment in fantasy sports, which in 2012 had participants spend US$3.38 billion on products, services and entry fees, according to the Fantasy Sports Trade Association. Daily play continues to grow while traditional season-long leagues have ended with the start of the National Football League play-offs.

How do we make every day draft day? That really was the product
FANDUEL CEO NIGEL ECCLES

"It's exploded in the last couple of years," association president Paul Charchian said from Minneapolis. "It's growing so fast that by the time we get the research back, it's already out of date. It's got more investment in the past two years than in the history of fantasy sports combined."

DraftKings, the Boston-based organiser of daily fantasy play in baseball, football, basketball and hockey, in November completed a US$24 million round of funding led by Redpoint Ventures to help it expand. Comcast Ventures, the venture-capital affiliate of NBC network parent company Comcast, early last year was part of a group that invested US$11 million in FanDuel, which is now averaging more than US$6 million in weekly payouts.

The last few weeks of the NFL's regular season, with the majority of season-long fantasy participants out of contention unless they reached their league's play-off round, further boosted the popularity of daily-play websites for cash. They remain popular in the post season as the National Basketball Association approaches the middle of its regular season, offering head-to-head competition and leagues ranging from three to 20-or-more participants or tournaments with thousands of entries.

Fantasy sports, in which participants draft teams of players whose success is determined by the statistics they generate, dates to the 1980s. More than 33.5 million people now play fantasy sports in the US, according to the trade association, with leagues based on the NFL far outpacing Major League Baseball as the most popular. Fantasy sports are also popular outside the US, with leagues for soccer and cricket.

DraftKings' revenue increased 10-fold in the past year, CEO Jason Robins said. Two weeks ago, the company awarded a US$1 million prize in its fantasy football grand final. Participants could gain entry by winning a qualifying tournament with an entry fee as low as US$2.

Three weeks ago, FanDuel held its premier fantasy football event in Las Vegas, where Travis Spieth, a sales manager for a CBS affiliate in Sioux City, Iowa, won US$1 million from an initial first-time investment of US$10. Spieth won the top prize thanks to a touchdown by Denver Broncos running back Montee Ball and a field goal by Nick Novak of the San Diego Chargers that vaulted him from eighth place.

"It was a surreal experience," said Spieth, 37, adding that he's played in season-long fantasy sports leagues with friends for about 15 years. "I like the regular fantasy leagues, but if your team has an injury, it might cost you your season. With the daily play, there's more strategy."

Average fantasy sports players are in their mid-40s, according to FanDuel CEO Nigel Eccles, who said he hadn't seen much innovation in the industry when he helped start the company in 2009. Eccles said when sports fans in their 20s were asked why they didn't play fantasy sports, the most common response was that it took too long - with baseball season stretching seven months to determine a winner.

"We thought: OK, great market, lack of innovation and also really weird that this younger group is not coming in. Why don't we take something that people love and make it faster?" Eccles, 39, said in an interview from his New York office. "That was really the genesis of the idea, which is: How do we make every day draft day? Everybody says the best day of the year is draft day. That really was the product."

According to FanDuel, 57 per cent of its participants range from 21 to 35. A banner on the company's wall in downtown Manhattan features a timeline of FanDuel's rapid growth and highlights that US$150 million in prizes were awarded in 2013, up from US$50 million in 2012.

DraftStreet, DraftDay and FanEx are among other fantasy-sports websites which Robins, the DraftKings CEO, says cater to the large segment of society that seeks instant gratification.

Daily fantasy-sports websites are legal, considered games of skill rather than illegal games of chance, according to operators.

Dinkmeyer, who in June left his position with CapTrust, an institutional investment consulting firm, says his job in fantasy sports can be difficult to explain to people he meets at dinner parties.

"The first question is: 'Oh, so you're a professional gambler?'" Dinkmeyer said. "I try to draw the distinction because in our industry we're very sensitive about daily fantasy sports being completely legal, where online poker right now isn't in most places.

"It's very similar to anybody doing day-trading, in that any single day can be really bad, but over the long term you enhance the sample sizes and if you do have skill, it usually will show up."

Dinkmeyer promotes smart money management and shares advice on that and other fantasy sports topics at websites such as Rotoexperts.com and MyFantasyFix as well as on a Sirius XM Fantasy Radio show he hosts. Dinkmeyer said he changed his approach after initially losing money while betting his entire bankroll every day.

"Over time, I just kept having success, the results became more significant," he said. "Then you look down and at the end of the year you say this money is somewhat equivalent to what I made in my finance job. Then you do that two years in a row and you say: 'Maybe this is sustainable'."

He wouldn't say how much he makes from fantasy. A senior investment analyst with seven years of experience working in the Tampa area would get total yearly compensation - not including equity or benefits - of about US$85,600, according to PayScale.com

Daily fantasy sites are now in "land grab" mode, said the trade association's Charchian, investing heavily in marketing and commercials aimed at gaining new users. Sports websites such as ESPN.com Yahoo.com and CBSSports.com - among the biggest names in traditional fantasy sports - have so far stayed out of paid daily-play market, where FanDuel estimates that it currently has about 70 per cent of users.

"It certainly is in a very high growth period; it's also a very competitive market," FanDuel's Eccles said. "We used to have a spreadsheet of our competitors and gave up at 40. There have been so many people who have tried to innovate on fantasy sports, and this is the one innovation that has really stuck and taken off."


How it works

Instead of cheering from the gallery, fantasy games give sports fans the chance to manage a virtual team of their own. Players can compose a team to compete against friends and strangers.

Each participant is given a virtual budget with which to buy players. The total value of the squad must not exceed this budget, so these virtual managers cannot afford to simply cherry pick all the best and most expensive players.

Players compete in an overall league, and the manager with the most points at the end of the season wins.

Players are also able to set up mini leagues with friends and colleagues. Such leagues can ensure that interest remains high right through the season, even if players are well off the pace in the overall race.

Sports websites now offer online versions, with both paid and free subscriptions available. The sites also generate income from advertising.

In most games there is a prize for the manager who finishes on top at the end of the season. The prize varies according to entry fee.

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