U.S. markets close in 2 hours 24 minutes
  • S&P 500

    -54.62 (-1.28%)
  • Dow 30

    -260.42 (-0.77%)
  • Nasdaq

    -275.89 (-2.13%)
  • Russell 2000

    -40.25 (-2.01%)
  • Crude Oil

    +0.51 (+0.56%)
  • Gold

    -8.20 (-0.46%)
  • Silver

    -0.40 (-2.08%)

    -0.0052 (-0.51%)
  • 10-Yr Bond

    +0.0960 (+3.33%)

    -0.0112 (-0.94%)

    +1.0320 (+0.76%)

    -1,917.84 (-8.20%)
  • CMC Crypto 200

    -30.87 (-5.70%)
  • FTSE 100

    +8.52 (+0.11%)
  • Nikkei 225

    -11.77 (-0.04%)

The fantasy sports business has changed drastically in just 1 year

On September 10 of last year, I stood in the DraftKings corporate suite at Gillette Stadium and watched the New England Patriots play in the 2015 NFL season opener. DraftKings, one of two private tech startups leading a new “daily” subset of fantasy sports, occupied the largest suite Gillette offers. I was there for a magazine profile I was writing on DraftKings CEO Jason Robins.

DraftKings would end up acquiring more than 200,000 new users on that one day alone. That was 10 times more users than the company, which launched in 2012, had ever gained in a single day. Robins spent most of the game looking down at his phone, in awe and delight, watching new users join in real-time.

One year later, it is staggering how much the landscape has changed for DraftKings, its rival company FanDuel, and for every other company that offers daily fantasy sports, and even for “season-long” fantasy sports providers like CBS and ESPN.

In the first week of this 2016 NFL season, both DraftKings and FanDuel had some “overlay” in their biggest guaranteed-prize-pool (GPP) contest, meaning money lost because the contests did not fill up. (The prize payouts in such contests are guaranteed, no matter how many people enter.) For DraftKings, that was despite lowering the entry fee in its $5 million Millionaire Maker from $20 to $3. Some in the industry have suggested that big GPPs no longer make sense anyway.

A recent ESPN Outside the Lines special report delved into the “implosion” and “collapse” of the daily fantasy sports (DFS) industry. The story grossly mischaracterized what has happened. “Sorry ESPN, but DraftKings and FanDuel didn’t implode,” wrote Fortune. Yet it is true that everything about fantasy sports, as a business, has changed—in many ways for the better, depending on your particular vantage point and financial interest.

Legal regulation came to daily fantasy sports

The Robins profile ran online on September 24, 2015 Just three days later, all hell broke loose: a DraftKings employee, Ethan Haskell, accidentally posted ownership data for a large, guaranteed-prize-pool DraftKings contest at a public blog. That same week, the employee won $350,000 in a FanDuel contest.

In “daily” fantasy (which FanDuel, launched in 2009 in Scotland, is usually credited with starting), you win by divvying up your imaginary budget on the smartest combination of obvious stars and under-the-radar picks that end up having big days on the field. The reason for concern was clear: Did seeing the data on how many DraftKings users had drafted each NFL player help Haskell game the system on FanDuel?

DraftKings said Haskell hadn’t seen the data before setting his lineup in the FanDuel contest. But it was too late. The New York Times ran a big report on the “scandal” in an “unregulated” industry, and deemed the story so major that it sent a mobile news alert to all Times readers. One week later, ESPN, which was running frequent ads for both companies across all its platforms, temporarily yanked DraftKings- and FanDuel-sponsored segments; it would quickly restore them, but in February of this year, as Yahoo Finance first reported, ESPN exited an exclusive marketing partnership with DraftKings that had just begun in January.

Either due to the Haskell/data-leak scandal, or due to the onslaught of advertising in the opening days of the NFL season (DraftKings and FanDuel spent more than $200 million on marketing in just two weeks), lawmakers suddenly took note of daily fantasy sports contests, and many decided that the contests constituted illegal gambling. After all: users pay an entry fee and select a lineup of players they hope will play well in real life; they have no control over how those players do. Gambling laws vary state by state, but typically rest on the combination of chance or skill in any contest with an entry fee and a prize; the central debate became whether daily fantasy sports contests involve more chance or more skill.

The first state to take a stance was New York Attorney General Eric Schneiderman, who sent the companies a cease-and-desist letter ordering them to stop taking paid entries in New York. Other states, including Alabama, Texas, and Nevada, would soon do the same, though in different forms. In Alabama and Texas, the attorneys general followed Schneiderman’s course and declared their opinion that DFS is gambling; in Nevada, the local Gaming Control Board told the companies they could continue doing business if they applied for gambling licenses, but otherwise they had to pack up and leave.

When all of this began, there were only five states in which DraftKings and FanDuel didn’t do business: Arizona, Iowa, Louisiana, Montana, and Washington. One year later, DraftKings steers clear of 10 states, and FanDuel 11: Alabama; Arizona; Delaware; Hawaii; Idaho; Iowa; Louisiana; Montana; Nevada; Texas (just FanDuel) and Washington.

But the legal scrutiny has brought more regulation, and more protections for users. In Massachusetts and New York, the companies will obey rules like age limits and entry-fee limits, and clearly label veteran players (“sharks” or “grinders”) to protect newbies. DraftKings and FanDuel both banned the use of automated scripting software, which helps manipulators enter multiple contests at once in an effort to win money. Yahoo, which has offered season-long fantasy sports since 1999 and added daily-fantasy sports last year, followed suit with the trend and launched Fair Play, a series of changes to its platform that protects new entrants.

“I’ve said for a long time this industry will become regulated, needs to become regulated, and within three years we will be regulated in over 40 states,” FanDuel CEO Nigel Eccles told Yahoo Finance last month. “We’re not there yet, but… I’m very comfortable that in the next two to three years we get to 40 states.”

DraftKings and FanDuel changed their marketing

These companies heard sports fans loud and clear: everyone was annoyed by the volume of ads. There’s no point in them pretending otherwise. DraftKings’ new CMO, Janet Holian, acknowledged to Yahoo Finance, “We could have reduced the ads a bit.”

They could have reduced them by a lot more than “a bit,” and so for this new NFL season, they have. Neither company would say by exactly how much they have cut down the volume of ads, but in terms of ad spend, an AdAge reporter says DraftKings spent just $400,000 on Labor Day this year compared to $1.37 million last year, and FanDuel spent just $3,475 compared to $454,000 last year. Zero ads ran for either company during the NFL opener last Thursday. Consider that at one point last football season, DraftKings and FanDuel ads were frequently running back-to-back on ESPN.

Because of the reduced advertising, Jason Robins told Yahoo Finance before the new season started that he didn’t expect the same flood of new user signups in week one as DraftKings saw last year. “Probably we’ll see customer acquisition be a little bit lower,” he said. And indeed, DraftKings and FanDuel both declined to share the number of new user signups they got in week one of this season.

Both DraftKings and FanDuel say their marketing will now focus on “fun” and the spirit of the game, especially the social element. Both have moved away from showing “regular guys” getting excited about winning money.

Sydney Maler plugged DraftKings on Instagram and Twitter this month, but has since deleted her posts.
Sydney Maler plugged DraftKings on Instagram and Twitter, but has since deleted her posts.

DraftKings is focusing on its official player “ambassadors,” Rob Gronkowski, DeAndre Hopkins, and Odell Beckham Jr., though it is also paying social media “influencers” like Instagram model Sydney Maler and YouTube star Philip DeFranco.

FanDuel created five new TV spots using “Ray Donovan” actor Pooch Hall (plus ambassadors Joe Montana and Jerry Ferrara from “Entourage”). FanDuel’s new tagline, as part of an entire rebrand, is “sportsrich,” which it says isn’t meant to be about money.

The marketing sea change is better for sports viewers and for avid users of these platforms, since it casts the games in a friendlier light; whether it is better for the companies as a tool for attracting new users remains to be seen.

All forms of fantasy sports are converging

Another change from DraftKings, FanDuel, and Yahoo came just days before the new NFL season started: all three have launched new features that appropriate “daily” fantasy into a recurring, season-long format. DraftKings launched Leagues and FanDuel launched Friends Mode; both features help users set up recurring leagues with friends that last all season, but allow you to re-draft new teams each week. It is a clear effort to mimic the properties of the more traditional fantasy football that has far more users and has been around for decades. Yahoo launched the Yahoo Cup, a season-long contest that lets you re-draft each week.

When you set your lineup in a season-long league in the Yahoo Fantasy Sports app now, you are given constant reminders of Yahoo Daily Fantasy, and encouraged to enter Yahoo Cup. DraftKings says it has seen a 3x spike in “social play” (friends creating closed leagues with friends, which was possible before but clunky), and a 3x spike in entry fees in closed friend-leagues. What daily fantasy operators clearly want is to eventually offer both daily and season-long fantasy sports, plus whatever other forms come along, as other forms surely will.

And the trend will almost surely move beyond sports: since daily fantasy became a billion-dollar industry in only a year and change, it’s easy to imagine some form of fantasy for entertainment beyond sports, such as for awards shows (Oscars, Emmys) or competition shows (The Bachelor, Dancing With The Stars). All of this will have an impact on Yahoo, CBS, and ESPN, the incumbent giants of fantasy football as most Americans still know it.

H. Fields, CEO of Draftpot, one of many smaller daily fantasy startups that launched after DraftKings and FanDuel exploded, predicts that for challengers to get a piece of the fantasy sports industry, they should, “Not just stay in DFS land.” If you read between the lines, he’s predicting that fantasy sports apps will soon extend to fantasy-everything.

It’s a wise prediction. Daily fantasy and season-long fantasy are converging, and the next step will be for fantasy sports, writ large, to converge with other business fantasies.

Disclaimer: Yahoo, the parent company of Yahoo Finance, offers a daily fantasy sports product.

Daniel Roberts is a writer at Yahoo Finance, covering sports business and technology. Follow him on Twitter at @readDanwrite. Sportsbook is our recurring sports business video series.

Read more:

Here’s where every state stands on daily fantasy sports legality

DraftKings launches a new live scoring app that competes with… everyone

FanDuel goes after ESPN and other season-long fantasy providers

DraftKings CEO shares what’s next after New York bill passes

FanDuel CEO: We are ‘getting closer’ to DraftKings