The Reality of Fantasy Sports
An inside look at the entrepreneurial all-stars behind a $1 billion business phenomenon.
By Jason Ankeny
Entrepreneur Magazine – September 2009
For millions of fantasy gamers, Sept. 7, 2008, is a day that will live in infamy. Less than eight minutes into the New England Patriots’ season opener against the Kansas City Chiefs, the Pats’ superstar quarterback Tom Brady–the reigning National Football League most valuable player, coming off a record-setting 50 touchdown passes in the 2007 campaign–crumpled to the turf in agony, the victim of a low hit by Chiefs safety Bernard Pollard. As the Patriots’ medical staff dashed from the sideline, Brady writhed at midfield, clutching his left knee. The diagnosis: torn anterior cruciate and medial collateral ligaments. Brady’s season was over almost before it began.
The moment he went down, all those fantasy football players who selected Brady in their league drafts knew their seasons were in serious trouble.
In the aftermath of Brady’s injury, CNBC.com reported that roughly half of fantasy gamers who drafted the quarterback the year before won their respective leagues. In fantasy sports, participants assemble teams of real professional athletes to go head-to-head with other league members based on the statistical performance of those players, and the kind of stratospheric passing numbers posted by Brady can be more than enough to swing the balance of power to the team owner prescient or lucky enough to select him. CNBC speculated that in his absence, the shift in fantasy league winnings from those gamers who had Brady to those who didn’t could total as much as $150 million of the estimated $500 million up for grabs.
Some Brady owners no doubt threw in the towel upon losing their franchise player. But for most, the fun was just beginning.
“The one thing that unites all fantasy gamers is their passion to win,” says Chris Russo, chairman and CEO of Fantasy Sports Ventures, an integrated marketing and media firm that aggregates more than 250 fantasy websites and related digital properties. “When you lose a big player, you start scrambling for a substitute, looking at different options and considering trades. In many ways it mimics what happens in the major leagues–if one of your players is injured, you have to come up with alternatives. The reason fantasy is so exciting is because the user becomes the general manager–it puts the power of the GM in the hands of the fan. You play to show off your knowledge and to share in a community with your friends. It’s more about bragging rights than anything else.”
Before founding Fantasy Sports Ventures in 2006, Russo served six years as the NFL’s senior vice president of new media and publishing. He estimates that in 2000, the year he persuaded commissioner Paul Tagliabue to launch the league’s first official fantasy football competition, there were about 2 million fans playing fantasy football across the U.S. Now an estimated 27 million American adults play fantasy sports, translating to annual revenue between $800 million and $1 billion, according to the Fantasy Sports Trade Association, an industry organization that represents more than 110 companies. About 85 percent of gamers play fantasy football, and 40 percent participate in fantasy baseball. The average player is male, between the ages of 18 and 49 and boasts above-average income and education levels–in other words, a marketer’s dream.
Even as rising prices for tickets, merchandise and concessions conspire to keep fans away from the ballpark–the average ticket to Yankee Stadium in New York City costs $72.97, notes sports business analyst firm Team Marketing Report–fantasy gaming remains relatively affordable and accessible. Research sponsored by the Fantasy Sports Trade Association indicates that most players spend $150 per year to compete. While a chunk of that money is dedicated to league dues and buy-ins, many gamers also invest in the growing legions of premium websites, books and magazines promising expert analyses and insider information on which players to draft, which players to start and which players to sit.
“Fantasy sports is here to stay,” says David Dodds, co-founder of Footballguys.com, an information and analysis site closing in on 40,000 paid subscribers. “The NCAA basketball tournament bracket pool is never going away–it’s too enjoyable. The same thing with fantasy football. There are too many people that enjoy playing. Even in a recession, last year was our best year ever. People think, ‘This is my fun. Maybe I can’t afford Disneyland, but I can afford this.’”
Fantasy sports entrepreneurs like Russo and Dodds are not so different from the gaming community their firms serve–most everyone in the industry started as a fantasy player, then parlayed their expertise and rabid enthusiasm into a full-fledged career. “I’m a big proponent of marrying your passion with something you can make money on–it’s not really work anymore if you’re passionate about it,” says Kelly Perdew, CEO of RotoHog.com, a digital platform developer that designs, implements and markets fantasy services for media and advertising partners.
Perdew’s own career is a peculiar mix of fantasy and reality. After graduating from West Point and serving three years as an Army military intelligence officer, Perdew earned a law degree from UCLA and a measure of pop-culture stardom by winning the 2004 season of Donald Trump’s NBC television reality series The Apprentice. His prize: Supervising construction of the Manhattan apartment complex Trump Place, then becoming executive vice president for the Trump Ice bottled water brand.
Perdew took over RotoHog.com in 2008 after a stint as president of ProElite.com, a social networking site serving the mixed martial arts community. “I had played fantasy football for nine years with two brothers and nine buddies in a 12-man keeper league, so I didn’t need anyone to explain the appeal or nuances,” he says. “I wanted to do something very large, and to capitalize on the factors impacting the growth of fantasy sports.”
Perdew is one of millions who came to the hobby around the turn of the millennium, when the internet transformed fantasy sports from a cult obsession into a mainstream phenomenon. The internet made it easy for fantasy leagues to quickly compile player performance and league results (no more spreadsheets culled from newspaper box scores), and it unleashed a deluge of new statistical data and analytical insight. Websites like Commissioner.com, launched in 1997, offered real-time stats, league message boards, daily updated box scores and other features for $300 per league. The sports news and media site SportsLine.com acquired Commissioner.com in late 1999 for $31 million in cash and stock, a deal many cite as the line of demarcation in fantasy gaming’s evolution from pastime to industry. (Viacom then acquired SportsLine.com for roughly $46.4 million in 2004, and Commissioner.com’s platform now serves as the engine powering CBSSports.com’s fantasy efforts.)
Perdew took over RotoHog.com in 2008 after a stint as president of ProElite.com, a social networking site serving the mixed martial arts community. “I had played fantasy football for nine years with two brothers and nine buddies in a 12-man keeper league, so I didn’t need anyone to explain the appeal or nuances,” he says. “I wanted to do something very large, and to capitalize on the factors impacting the growth of fantasy sports.”
Perdew is one of millions who came to the hobby around the turn of the millennium, when the internet transformed fantasy sports from a cult obsession into a mainstream phenomenon. The internet made it easy for fantasy leagues to quickly compile player performance and league results (no more spreadsheets culled from newspaper box scores), and it unleashed a deluge of new statistical data and analytical insight. Websites like Commissioner.com, launched in 1997, offered real-time stats, league message boards, daily updated box scores and other features for $300 per league. The sports news and media site SportsLine.com acquired Commissioner.com in late 1999 for $31 million in cash and stock, a deal many cite as the line of demarcation in fantasy gaming’s evolution from pastime to industry. (Viacom then acquired SportsLine.com for roughly $46.4 million in 2004, and Commissioner.com’s platform now serves as the engine powering CBSSports.com’s fantasy efforts.)
RotoNews.com is another watershed site. Introduced the same month as Commissioner.com, it is regarded as the first fantasy sports information site to track player information beyond their on-field numbers–trades, injuries, benchings and related news–and evaluate that data’s impact on their fantasy value, all in real time and available via searchable database. Within two years of RotoNews.com’s launch, ComScore Media Metrix ranked it among the top 10 most-trafficked sports destinations on the web, outpacing even official league sites like NBA.com. In 1999, founders Peter Schoenke, Herb Ilk and Jeff Erickson sold RotoNews.com to Broadband Sports, which went bankrupt two years later. But the RotoNews.com team soon resurfaced under the RotoWire.com brand and today targets football and baseball as well as professional basketball, hockey and auto racing.
The impact of websites like Commissioner.com and RotoNews.com was not lost on new media giants like Yahoo!, which acquired premium fantasy league provider Sportasy in December 1998 and launched its free Yahoo! Sports Fantasy Baseball service the following spring.
“As of 1999, fantasy gaming was still heavily offline,” says Jeff Thomas, CEO of World Fantasy Games, which creates fantasy sports games and websites for corporate clients, and a former president of the FSTA. “It wasn’t until 2000 or 2001 that you had more players online than offline. It was a much different world at that time.”
And the new world isn’t one regulated by online gambling rules. Fantasy sports was declared separate from gambling under terms of the Unlawful Internet Gambling Enforcement Act of 2006, which also exempted educational games or any online contest that “has an outcome that reflects the relative knowledge of the participants, or their skill at physical reaction or physical manipulation (but not chance).”
Not all the pioneers of the online sports information revolution look fondly on the fantasy juggernaut.
“[Fantasy] baseball is evil. It is a complete and utter waste of time, and a horrible distortion of real baseball,” says Gary Huckabay, who in 1995 founded Baseball Prospectus, a digital think tank dedicated to sabermetrics, the form of statistical analysis made famous by Bill James, a writer, historian and statistician. James is a key figure in the Michael Lewis bestseller Moneyball and is now the senior advisor on baseball operations for the Boston Red Sox, who won their first World Series title in 86 years in 2004, the season after James joined the club’s front office.
In addition to operating a website hosting a wealth of articles, statistical reports and fantasy baseball tools, Baseball Prospectus also publishes an annual book considered the heir to James’ influential Baseball Abstract series. Although many fantasy baseball players rely on Baseball Prospectus to help field their teams, Huckabay–who divested his interest in Baseball Prospectus and currently works in the financial services industry–contends these gamers’ efforts distort sabermetric principles.
“The idea that people would give a rat’s ass about a player’s number of wins or number of steals goes against everything I find important about baseball,” Huckabay says. “The only games that are interesting to me are games that haven’t been played yet. I don’t care about what happened 25 years ago, except inasmuch as those statistics inform decisions that can be made today to win more baseball games.”
Firms like RotoHog.com and World Fantasy Games are at the vanguard of a growing segment of the fantasy industry focusing on the business-to-business sphere. While World Fantasy Games manages more traditional games for brands including Taco Bell, Miller Lite and Chicago Tribune, RotoHog.com collaborates with partners like the National Basketball Association, electronics giant LG, and web hosting firm GoDaddy.com to develop customized online contests, social networking applications and stock market-inspired competitions in which athlete values rise and fall according to their market demand. RotoHog is also expanding into the international market, teaming with Fox Sports en Español for a fantasy baseball game available to Latin American subscribers.
“These games lend themselves to sponsorship,” Perdew says. “Sponsors understand that gamers are highly engaged throughout the sports year–they’re online researching and talking smack, and that generates a lot of page views.”
While a significant shareof fantasy information and resource sites rely on advertising revenue, most still depend on premium subscription fees to survive. “In general, there’s a big change every two years from free to pay-to-play back to free and back again to pay-to-play,” Thomas says. “With the economy changing, we’re seeing fewer dollars put into advertising, so website operators are moving back to pay-to-play. There’s no proven model to sustain this kind of business for more than a few years on ad dollars.”
Regardless of the revenue model, the quality and the quantity of the content must remain consistent throughout the season to keep gamers coming back for more. Media Metrix reports that the total number of unique visitors viewing Fantasy Sports Ventures network sites increased 4.6 million month-over-month between November and December of last year, coinciding with the period when most fantasy football leagues enter their annual playoff round.
Russo says there are two common denominators that stand out when Fantasy Sports Ventures evaluates sites for potential acquisition.
“Quality of content is huge,” he says. “Not only how much raw material is there in terms of analysis, statistical data and opinion, but also how good is it? Is it professionally written? Are the entrepreneurs behind the site talented and dedicated? We also look at the audience–not just its size, but also its level of engagement. Do people show up once a month, or are they there every day, absorbing dozens and dozens of page views every time they visit?”
One interesting wrinkle: Just because users visit a website once or twice a day doesn’t necessarily mean they’ll tell their friends. After all, those friends are likely their fantasy league rivals.
“Some people who find our site and have success with our information don’t tell anyone else about us–we’re their secret weapon,” says Jeff Christiansen, founder and general manager of fantasy football resource FFToolbox.com, which welcomed 3.9 million unique visitors in 2008. “It’s reverse word-of-mouth.”
The question looming in fantasy sports is how much bigger the hobby will grow. “It does seem like we’ve reached a point where everyone who wants to play is playing,” Christiansen says. “But I say that every year, and every year, our traffic goes up.”
Fantasy Sports Trade Association research notes that the industry has grown between 20 percent and 25 percent each of the last four years. Moreover, fan enthusiasm for the sports world as a whole remains strong: Despite the recession, average NFL attendance dropped just 0.7 percent during the 2008-09 season, and 10 of 32 teams saw increases at the turnstiles.
Nor is the fantasy sports industry resting on its laurels. With the 2009 NFL campaign on tap, World Fantasy Games is introducing RapidDraft, a new single-player fantasy football concept offering gamers the chance to enter a live draft against 11 online fantasy experts anytime 24/7/365, then compete against them for the entire season. Footballguys.com, meanwhile, is unveiling Rate My Team, a new application that lets subscribers upload their fantasy roster and league scoring system for a customized analysis of their strengths, weaknesses and playoff chances.
“If we don’t kick it up each year, the customer isn’t going to be loyal,” Dodds says. “You can’t take the customer for granted.”
Others are exploring social networking services like Facebook and Twitter, both as a platform for new gaming formats and as a new communication channel for fantasy gurus to deliver breaking news and analysis. Perdew expects fantasy sports will further integrate with the web, mobile phones and television, forging an interactive experience that extends across all three screens.
“The sports fan has a high sense of entitlement–they want exactly what they want, when they want it, wherever they are,” Perdew says. “Fantasy games need to be ubiquitous. That’s critical.”
And as long as fantasy sports continues to grow, there will be room for new innovations and new blood, Russo says.
“Every day, people are coming up with new ideas to help the fantasy player, whether it’s new content services, interactive TV services or new events,” he says. “Not all of them make it. But when you’re talking about an audience as big as the one we have, there is still plenty of room for new ideas and new entrepreneurship. There is an insatiable need among players for new information and new tools to stay connected.”
