Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=205473
Story Retrieval Date: 5/23/2013 6:27:26 AM CST
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Kyle Clapham/MEDILL
A quick look at a local magazine stand illustrates the prevalence of fantasy sports.
Fantasy sports becoming big business as popularity continues to rise
by Kyle Clapham
May 14, 2012
Kyle Clapham/MEDILL
Fantasy football still reigns supreme, but other sports are gaining ground, FSTA data shows. CLICK CHART TO ENLARGE.
CBSSports.com/Kyle Clapham/MEDILL
The open fantasy games platform on CBSSports.com allows third-party developers to profit from sales of their apps.
DraftDay co-founder Andrew Wiggins discusses the company's inception and goals.
Seeing an opportunity to invest in an industry generating close to a billion dollars annually, the 28-year-old online entrepreneur pushed a bulky stack of chips toward the center of the table and created DraftDay.com, an alternative to traditional season-long fantasy sports competition that allows users to wager up to $200 on daily drafts and leagues.
“The casual sports fans who maybe don’t want to watch a game every single night or [aren’t] interested in managing a team for an entire season, fantasy sports really aren’t for them at this point,” Caby says.
DraftDay is just one of hundreds of online startups trying to bring more consumers to the fantasy sports conversation and, ultimately, the marketplace. The Chicago-based gaming website, launched last September three weeks into the National Football League season, now hosts more than 10,000 users.
Fantasy sports participation surged more than 60 percent since 2007, and more than 32 million people aged 12 and older play in the United States and Canada, research conducted by Ipsos Public Affairs for the Fantasy Sports Trade Association in the past year showed.
The pastime has become a lucrative pop-culture preoccupation since an estimated 2 million people competed before the Internet went mainstream, says Paul Charcian, who has served as FSTA president for three years.
“A lot of the growth has been driven by the Internet and the simplification that the Internet offers to fantasy play,” he says.
Online revolution
A worldwide network of computers made it possible to automatically aggregate sports statistics and instantaneously distribute them around the globe. The Internet had finally eliminated the frustration players such as Michael Grages encountered on a regular basis. Michael and some of his Londonderry, N.H., high school buddies began running a fantasy hockey league in 1997.
“We would have to get together every Sunday night and spend hours pouring over all the box scores and everything in USA TODAY from the whole week, so that we could update every team’s stats and try to keep up with it,” says Michael, 32, who works in financial services in Manchester, N.H., and avidly follows the Boston Bruins. “Looking back at that it seems ridiculous that we went through all that, because now all you need to do is just go online and [set] your roster and everything’s done for you.”
The convenience of an online platform finally helped Michael convince his wife and high school sweetheart, Kristin, a technology publicist and fellow Bruins enthusiast, to join one of his 10-team fantasy hockey leagues two years ago. “For me, it was a way to deal with the fact that hockey is always on my TV. My husband will literally watch any game that’s on TV,” says Kristin, 30, who was surprised by the intuitiveness of the fantasy sports tools on Yahoo.com, the host for their league. “If I was going to be forced to watch hockey almost everyday during the hockey season, I wanted to at least have some fake vested interest in the game,” she says.
After becoming so frustrated with her fantasy team’s lackluster production she gave up about halfway through the season last year, Kristin was holding down the sixth and final playoff spot this season while Michael, who says he usually finishes in the top four, was in third place.
Yahoo is one of three fantasy sports hosts that dominate the industry in terms of number of users; and although hosts do not disclose the number of people who play on their websites, Yahoo is widely believed to have the most traffic, more than CBSSports.com and ESPN.com.
With so few operators carrying such a disproportionately large share of users, gaining access to meaningful audiences can be challenging for online software developers such as Ziguana.com. The website tailors automated analyses of online rosters to each fantasy league’s custom settings, saving time spent creating spreadsheets and browsing third-party player rankings.
“I think that’s the hardest part of any young company or developer, is trying to get noticed and trying to reach the market,” says Cassidy Morris, who created the company in 2006 with the help of his brother and two college friends. The team has redesigned its product in the last few years to try to take advantage of more business opportunities with league operators, Morris says.
Fantasy sports hosts must decide whether to share data about their operating environments and expose their application program interfaces, or APIs, to outside software developers such as Ziguana. Program designers who have access to a website’s API can create apps compatible with the host’s operating environment, ensuring optimal performance.
“[League operators] can either close it off and try to do all the development themselves, which puts a lot of pressure on their internal development teams to continue to advance the ball, or they can open it up and try to foster innovation and then leverage their position as kind of the gate keeper, so to speak, of the audience and take a toll or collect a fee,” says Scott Frederick, COO of StatSheet.com, an automated online fantasy sports publishing network. “People realize if they expose their data via APIs that they can help foster innovation, and that helps their own ecosystem,” he says.
Yahoo opened its domain to external app developers in 2008 as part of its Yahoo Open Strategy. But it’s free to manage fantasy sports leagues on Yahoo and use many of the website’s features, meaning developers don’t profit much from sharing their tools and games on the company’s fantasy platform.
Monetizing content
“The Internet has helped everyone get more information. It’s also made it tough for people to build applications because there’s an expectation for them to be free,” says Bo Moon, who in 2010 co-founded Bloomberg Sports, a division of financial-information giant Bloomberg LP, and now serves as head of the group’s product sales and business.
Moon had been creating programs to help customers make informed financial decisions when he realized an opportunity for Bloomberg to leverage its analytics in sports as he languished in the cellar of his fantasy basketball league. “I was the commissioner of the league and being in last place for two years in a row was becoming too embarrassing. I was bemoaning the fact that we didn’t have tools to help me play better, and yet everyday I was working on tools to help people trade better,” he says.
Bloomberg Sports now assists 24 of 30 Major League Baseball clubs with personnel evaluation and game preparation, Moon says. The same technology the company uses to serve MLB clubs also powers Bloomberg Sports Front Office 2012, a comprehensive fantasy baseball app that advises players as they draft and manage their teams.
“Our understanding of the market is that people do have an expectation for free [content],” Moon says, “but if they see value in the tool, they definitely will pay for a more complete experience.” The software sells for $19.99 in App Central on the CBS online fantasy games platform, which CBS opened to third-party developers in January and which is being heralded as a “brilliant” way to serve the interests of fantasy games operators, their users and outside developers in a rapidly evolving business.
“What it’s going to do is offer ample opportunity for people to be able to change the industry and create a lot of innovation that ultimately will benefit the users of fantasy games and products,” says Danielle MacLean, CBSSports.com director of fantasy products. “We’ve created a full, robust ecosystem.”
External software developers can create league-specific apps and market them to the company’s relatively affluent audience. Sixty percent of fantasy users pay to play on its website, CBS says. “We really offer customization options that go well beyond some of the standard items that are available from the free providers,” MacLean says.
The open CBS online fantasy platform gives everyone who has an original idea the means to access millions of users and the potential to profit from it along with CBS, says FSTA’s Charcian. “It’s brilliant for CBS because they’ll monetize the apps and start building a very strong fantasy platform,” he says. “I think CBS is extremely shrewd to do this first, and if I were running Yahoo or ESPN, I would be working very hard on developing a similar platform.”
Outside program developers share revenues made from their apps’ sales with CBS on a 70/30 split, the same divvies carved out for Apple and its partners in the iTunes store.
CBS launched its online fantasy platform with six companies—Advanced Sports Media, Bloomberg Sports, MLB.com, RotoWire.com, StatSheet and Ziguana. The league operator now has more than 500 developers signed up, which is as easy as registering for the website, MacLean says. “We purposely made that a really low barrier to entry because we want everyone to have an opportunity to get in and bring all of their innovative ideas and products to bear,” she says.
Baseball Boyfriend, a fantasy baseball app CBS has offered on its fantasy sports website for $2.99 since early February, is an apt illustration. Created by the husband and wife team of Frank and Missy Panko, the game allows users to draft an MLB player as their “boyfriend” and “date” him for as long as they wish during the season. The “girlfriend” who has the most total points at the end wins.
The product inspired online scrutiny. Henry Schulman of the San Francisco Chronicle wrote a blog post titled, “A fantasy baseball game for girls who happen to live in the 1950s.” But the quirky yet creative app gained popularity quickly, a testament to the power of an open API policy.
Each initial partner with CBS developed fantasy baseball products for its new platform.
Ziguana Auto-Pilot ($9.99) automatically manages daily fantasy baseball lineups based on a detailed statistical analysis of the day’s matchups, ensuring savvy rosters are set everyday. The company’s Forecaster app ($9.99) projects a fantasy baseball team’s stats for the entire season based on its current roster, and recommends players who improve the team’s odds of winning. “I think we were a good fit [with CBS] because we have a product that we’ve proven has a dedicated fan base and offers something I think a lot of people find valuable,” co-founder Morris says.
StatSmack by Statsheet ($1.99) makes “trash talk quantitative” by providing “the numbers to back it up” in a “fun, snarky, interactive way,” says COO Frederick. “It’s a great application because most fantasy players are playing against people they know very well. They love to trash talk and they love to have statistics to back it up,” he says.
RotoWire.com Fantasy Player News ($9.99) offers the website’s award-winning fantasy baseball news to CBS players. RotoWire Player Outlooks ($1.99) provides in-depth analysis on more than 1,800 baseball players with details about skills, injury history and expected team roles. The company benefits from having been around years before many of its peers and, as a result, already partners with the three big hosts as well as NFL.com, says Peter Schoenke, RotoWire president.
“One of the hardest parts of the business, especially for new companies, is getting access to customers and marketing, and [the CBS open fantasy platform] is a great way to do it. You can build an app from day one and get exposure to millions of customers,” he says.
Schoenke launched the company as RotoNews.com in 1997 but sold it in 1999 to a dot-com darling, Broadband Sports, who promised riches once the company went public. After that bubble burst when Broadband Sports declared bankruptcy in 2001, Schoenke reacquired the company and changed the name to RotoWire.com, where success allowed him to quit his “day job” as a commodities reporter for Dow Jones.
“Most of the people got into the industry because they like playing fantasy sports as opposed to trying to make money--although people want to make money,” Schoenke says. “That usually makes it easier to do deals. The best products usually win out, and the bigger companies are happy to figure out ways to do business with them,” he says.
Legal challenges
The industry beloved by its entrepreneurs as much as the fans who spend countless hours playing its games and using its tools was nearly crippled before it could stand. Major professional sports leagues weren’t sure what to make of fantasy sports 15 years ago and, as a result, belittled or condemned the pastime.
“Then about 10 years ago the NFL did some studies and figured out that fantasy fans were actually their best consumers,” Schoenke says. The league’s research revealed fantasy participants attended more games, watched more television and purchased more merchandise, he says.
FSTA research has reached similar conclusions, says Charcian, the group’s president. “Fantasy players are generally open to spending money. The vast majority of them don’t play in just free-only leagues,” he says. “We’ve done a number of studies that show fantasy players are big spenders.”
The industry’s use of free player profiles and statistics for profit was examined in federal court when St. Louis-based CBC Distribution and Marketing Inc. filed a lawsuit against MLB Advanced Media, the league’s Internet wing, after the MLB Players Association denied CBC a new licensing agreement.
CBC, like many other online fantasy sports leagues, had a licensing deal with the MLBPA from 1995 through the 2004 season and paid 9 percent gross royalties to the association. But when MLB began making exclusive licensing agreements on player profiles and statistics in the fantasy sports marketplace after its own $50 million with the MLBPA, CBC and other smaller online fantasy sports businesses were cut out of the deals.
The ruling by the U.S. District Court in St. Louis gave fantasy leagues and app developers the right to use player names and statistics without licensing agreements because the information can be found in everyday news media and, thus, is not the intellectual property of MLB. “Once that cleared out, that really opened up the flood gates for people and companies to get involved,” RotoWire’s Schoenke says.
Had the ruling gone in favor of the MLBPA, people who wanted to play fantasy sports online would have had their options limited to the major sports leagues’ websites, FSTA’s Charcian says.
“It would’ve completely destroyed innovation in our industry and it would’ve monopolized our entire industry around the leagues,” he says. “The entire way that we enjoy fantasy sports now could have very likely been undermined almost entirely, had the rulings in that case not at least gone in favor of the fantasy sports industry.”
Charcian and his colleagues didn’t have much time to celebrate, though. Another legal hurdle sprung up during the summer of 2006, when a New Jersey plaintiff claimed online league registration fees paid by some fantasy sports participants constituted wagers or bets, and should be reimbursed pursuant to the state’s gambling loss-recovery statutes.
The U.S. District Court in Newark ruled pay-to-play fantasy sports leagues are not illegal, confirming the activity’s exemption in the Unlawful Internet Gambling Enforcement Act, which regulates online gambling and became law in 2006.
The distinction between placing wagers in online games such as Texas Hold ‘em poker, for example, and paying entry fees for fantasy sports leagues remains contentious. The UIGEA says fantasy sports are different because they have outcomes that reflect the relative knowledge of participants, not chance. But any prizes won from fantasy games must be determined in advance of competition and can’t be influenced by fees or the number of players; otherwise, they’re considered gambling and illegal.
“Fantasy is clearly a game of skill,” Charcian says. “It would be virtually impossible to win a fantasy league if you didn’t watch the games, [and] you didn’t pay attention and you just randomly set your lineup.”
DraftDay’s Caby, who started playing online poker in his early 20s, isn’t so sure about the boundaries lawmakers regulating gambling have made among online gaming operations. “I’ve made a living for years playing poker, and it wasn’t by accident--it was because I was good at it,” he says. “It’s really the same in poker that it is in fantasy sports, it’s just that the laws at this point are favorable to fantasy sports.”
Some states, however, still don’t allow their residents to collect cash and other prizes won from participating in online fantasy sports despite federal impunity granted by the UIGEA.
In 2010, Louisiana State Rep. Thomas Carmody pushed a bill to exempt certain fantasy games from the state’s anti-gambling laws, but the measure failed, 73-16, in a vote in the state’s House of Representatives. Maryland delegate John Olszewski Jr. introduced legislation in January for a third time to try to exempt fantasy sports from the state’s gambling regulations.
“A lot of legislators, a lot of people at the state level, just don’t even really know what fantasy sports are. Every study shows it’s different from gambling,” says RotoWire’s Schoenke, who is chairman of the FSTA legal committee.
The FSTA launched a political action committee and hired a lobbyist in October to protect the financial interests of fantasy sports companies and to advocate on behalf of the industry in nine U.S. states that still haven’t differentiated the activity from gambling, he says.
“Our goal there is to make sure the same victories we’ve had showing that fantasy sports are legal apply to the state level because some states have murky laws about the legality of fantasy sports,” says Schoenke, who lauded the leadership of the FSTA in organizing a winning case in CBC Distribution v. MLB (2006), an effort that saved a thriving industry just now starting to tap the unlimited possibilities of technological innovation.
The future is mobile
“We’re at this point in time where the technology really hasn’t evolved much since it first became really popular on the Internet,” says Caby, who sees opportunities for DraftDay to address the industry’s shortcomings as the popularity of smartphones and tablets rises. “Most of the fantasy sites out there have either nonexistent or pretty weak mobile platforms, ourselves included at this point,” he says.
Fantasy sports websites have tried to take their traditional content and “cram” it down to a smaller screen instead of tailoring their products to each device, StatSheet’s Frederick says. “[People] inherently interact with those devices differently, so the experience should be different [on each one],” he says.
The mobile space isn’t “quite there” because even fantasy sports hosts don’t have worthwhile apps to change lineups let alone draft teams, says RotoWire’s Schoenke, who thinks the industry will “get there pretty quickly, though,” with the opening of the CBS online fantasy games platform. “We’re trying to be the company that’s the leader in the mobile space for fantasy sports information,” he says. RotoWire’s fantasy baseball draft kit for the iPhone and iPad platforms is one of the top-selling sports apps, he says.
The same factors driving consumer appetite for smartphones and tablets could transform the fantasy sports business.
“With mobile technology, there’s a transition toward shorter-form games. The whole nature of mobile is limited or short-term engagement,” says Bloomberg’s Moon, who thinks traditional season-long competition might be reaching a plateau. “I think people will transition to playing more short-term games, and when that happens, you will see growth,” he says.
Caby aims to cultivate the potentially strong demand for “niche” games and help DraftDay “bring fantasy sports into the more modern era of the Internet” by valuing player feedback and continually improving the company’s product.
“What I think you’re going to see over the next few years is sites that really focus on user experience and providing a great modernized platform will do well,” he says.
