Is the world of professional sports becoming a “stock-like” investment for the common man? If you are talking about actually investing in a pro team, then probably not; if the table conversation centers on fantasy sports, then you might be onto something. In fact, fantasy sports mimics stock investing in several ways. There is some big money being made both by the participants and the start-ups in this new industry.
How is Fantasy Sports like Legitimate Investing?
First, there are many people who believe fantasy sports is legitimate. There is also a case to be made that it is just glorified legal online betting. It is legal, partly because it is termed a “game of skill.” As an investment, however, there are many similarities to stock market speculation. Money Ganda says that fantasy sports success depends upon diversification and depth. Teams have different players at different positions to “cover all the monetary bases.” It also relies on proven performers and adds some “wild card” players that can be traded. Most people build their stock portfolios on the same principle. Fantasy Sport success depends upon knowing your players and their histories. The same is true of choosing stocks.
Fantasy Sports Start-ups are Scoring Big
Another similarity is in the amounts of money that are floating through the two systems. The two big names are FanDuel and DraftKing. In a fast pitch of venture funding, FanDuel raised $275 million. In after-money value, which is the value of the company after the investment, that translates to $1.275 billion. DraftKing raised $126 million in their own gambit. The company is now raising “series D” funding. That is the fifth round of funding after the initial investments, and indicated investors have no qualms about taking the risk.
How Do the Startups make Money?
If that is your question, you evidently are not a “player.” One in three males over the age of 15 is, according to the Wall Street Journal. Some games are free to enter, and others may cost upwards of $5,000 to play. The average, however, is $7. Players build their teams based on pro sports organizations like the NFL odds of individual players’ success. The companies pay out winnings and still make tidy profits. In 2014 FanDuel had $57 in net profit. This year’s profit is expected to top that in spite of the company awarding an expected $2 billion in winnings. Fan Fuel’s investors include Google, Time Warner and several individual pro sports owners, among others. Through these investors the company raised $363 million. That translates to a lot of after-funding value. The pro sports organizations are interested in alliances; the number of participants in fantasy sports games points to building an ever-more-loyal fan base for the real teams, and revenues from ticket and merchandise sales. ESPN struck a deal with DraftKings to allow it exclusive advertising on the network in 2016; the company recently spent $20 million on advertising in just one week. The advertising evidently works; last year DraftKings said they added hundreds of new players every day after the regular NFL season started. The two biggest players in the fantasy sports industries are “dueling” to get those station exclusive ad contracts and endorsements. However, the fantasy sports corporations are becoming such big business that now networks are looking into advertising on the fantasy sites.
Fantasy sport startups are sprouting everywhere. The industry has grown 60 percent just since 2007. From inception to this point fantasy sports has made a whopping $4.5 billion impact on the American economy. That is more than NASCAR. Investment and business gurus are encouraging new businesses to jump into the water. The climate is right for new sports. It doesn’t take much to get a start-up running; you must have a good website and a thorough knowledge of your sport. With those things, and a little luck, fantasy sports entrepreneurs may put a few more fish into the deep investment waters where the big ones, like DraftKings & FanDuel already swim.
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I read that this past baseball season some ridiculous stat that 91% of the fantasy winnings went to 1% of the players entered…..so my answer would be that the professionals and algo’s are already deeply seeded into this fantasy sports world.