America's real-life kings of professional sports — its leagues, teams and media empires — are betting big on the make-believe of daily fantasy sports, which throw the traditional fantasy season into hyperdrive, add glitzy prizes and sidestep the country's online-betting bans.
Daily fantasy site DraftKings said this week it had received a $300 million investment from Fox Sports, Madison Square Garden and the national leagues of baseball, hockey and soccer. Its chief rival, FanDuel, pocketed $275 million earlier this month from NBC Sports, Time Warner's Turner Sports and other investors (including Google and Comcast).
It's the biggest outpouring yet for the young prize-dangling industry, which started as a sports nerd's online distraction and still remains a gambler's niche.
But for some of the sports world's biggest players, the business hides a surprising upside. The online games don't just make gobs of money — they can help hook sports junkies, and the next generation of fans, into paying up for the real thing.
“The more people play," Fox Sports president Eric Shanks told Re/code, "the more they consume our product on TV."
Fantasy sports, particularly fantasy football, have long been a part of the American mainstream, with its workplace leagues, online drafts and fantasy-roster specials on ESPN. More than 56 million people in North America will play fantasy sports this year, up from 12 million in 2005, Fantasy Sports Trade Association data show.
The traditional fantasy match demands a season-long commitment, and players often bow out early if their chances go bust. But with the daily model, a player can draft a team in the morning, stay glued to his or her phone in the afternoon, and suffer the result (or pocket the reward) by day's end, in time for the next match. If season-long fantasy is a long-term investment, daily fantasy is a slot machine.
On Monday, DraftKings' baseball bets ranged from a 60-player, high-stakes brawl — entry cost: $5,300; payout: $292,500 — to a $0.25 game promising $1,000 to the winner of its 2,500-player battle royale. The site also stages heavily hyped tournaments, complete with brackets and championship rounds: This week in the fantasy baseball Kings Cup, "CSURAM88" will take on "dinkpiece" for the $50,000 top prize.
The fantasy contests — in which a player's made-up team is scored on how well its athletes played in actual matches — are easy to play, hard to master and heavily dependent on luck. But astute players can get ahead by knowing the day's match-ups, and the sports world knows that means added devotion to their moneymakers and corporate brands.
FanDuel, which advertises the chance to "win cash, once-in-a-lifetime experiences or bragging rights, every night," says its more than a million paying players watch and read 40 percent more sports content after joining. Those fans may also be more likely to fork over cash for love of the game: Daily-fantasy players will spend an estimated $257 this year, compared to $162 for traditional fantasy leagues, Fantasy Sports Trade Association data show.
Launched in Boston in 2012, DraftKings says it now offers more than 12,000 open leagues — covering football, baseball, even golf and mixed martial arts — and paid out more than $300 million in prizes last year. As with rival FanDuel, founded in Scotland in 2009, newbies are spotted some free betting cash, then the sites take about a 10 percent cut on players' future bets.
FanDuel and DraftKings both expect more than $1 billion in payouts this year, which would net them about $100 million each in commission revenue. That could still be only a fraction of the potential daily-fantasy market: The broader fantasy-sports industry is expected to bring in $1.5 billion in revenue this year, data from market researcher IBISWorld show.
How has this digital empire survived in a country that explicitly forbids online sports betting? Daily-fantasy matches are classified as games of skill, not chance, and are thus exempted from the Unlawful Internet Gaming Enforcement Act, the 2006 law passed before the daily model was even born.
By speeding up play, sites like FanDuel were able to offer bettors a more tantalizing risk-reward payout, especially for those seeking the instant gratification of now-banned online-poker and sports-gambling sites. The daily games are also quicker to join than season leagues and available on phones and across the Web, making them virtually inescapable.
Once players are hooked, many become committed for life. "They’ve surveyed fantasy-sports players and asked, 'When do you expect to quit?'" Nigel Eccles, FanDuel's founder and chief executive, told Bloomberg News earlier this year. "And the average response is, 'Never.' "
The daily-fantasy model helped the startups escape the pull of massive media engines like CBS, ESPN and Yahoo, which dominate season-long fantasy leagues. DraftKings' chief executive, Jason Robins, said in March he expects his company could one day be worth more than $10 billion.
The sites have quickly become major forces in sports advertising. FanDuel, one of ESPN's biggest buyers of TV spots, had its logo on the shorts of Floyd Mayweather Jr. when the boxer beat Manny Pacquiao in May. DraftKings' logo has been emblazoned behind home plate at several baseball stadiums, and was on American Pharoah last month when the racehorse won the historic Triple Crown.
That helps explain why investing in the daily-fantasy business can seem like a win-win for media conglomerates. Fox Sports is investing $150 million into DraftKings' latest haul, but some of that cash may make a round trip, people close to the deal told Re/code, because the fantasy-sports scion agreed to buy $250 million in ads on the TV network over the next three years.
Either way, America's biggest sports leagues see lots to love in a new wave of fantasy-emboldened sports fanatics. Last year, the National Basketball Association signed a four-year deal with FanDuel and took a minor stake in the company. Major League Baseball, the National Hockey League and Major League Soccer boosted or made new investments in DraftKings' newest funding round.
Both sites have also signed multi-year, multi-million-dollar partnerships with dozens of football, basketball and baseball teams, locking in media rights that could boost their cachet among fans watching the games already.
The sports and media world sees daily fantasy sports as a quick in for a target market: Young, tech-happy sports fans with the cash and attention spans to support modern sports. They're often used to staring at their phones or computers while watching live games, anyway.
As Eccles, the FanDuel chief executive, told Forbes earlier this year, "If you take something people love and make it faster, it always works."