Undiscountable Trends: Live Event Interaction

brett-favre

Brett Favre 1991 Draft

There’s a reason companies are paying record breaking amounts for broadcast rights to live sporting events. Tune into Twitter during any big game and the stream is dominated by a virtual play-by-play. It was just reported that ESPN, with a new high company valuation of $50bn, has bid for a wild card NFL wildcard playoff game after committing over $15bn over eight years. Big numbers.

These record values have been paid for the rights to sporting events for two main reasons. First, live sports represent one of the last entertainment venues unaffected by piracy — there’s really no reason to bittorrent a game and watch it over and over again (this happens, but it hasn’t eaten into revenue the same way as others like the music industry). And second, they have an engaged fan base who talk about sports all day in social media, buy premium sports channels, buy tickets to games, and buy products associated with their sport.

An engaged user base means fans are looking for more ways to participate and feel like they’re in the action. Sports betting is massive in the United States. Some studies estimate that around 17% of Americans gamble on sports via some sort of bookmaker (basically a binary option). This is a highly regulated business and most of the action is takes place outside the regulated industry. Young men represent the largest segment of sports fans and are also the most interested in gambling. High income households account for a bigger percentage of gambling on sports than low income households do; College graduates are more likely than non graduates to gamble on a game.

The other big way to engage with your sport is in Fantasy Sports leagues. Around 32 million people aged 12 and older in the US and Canada played fantasy sports in 2010. Participation increased 60% in the four years prior to that survey. Fantasy sports have been around for decades, but the structure we see today traces it’s roots back to the days of Rotisserie League Baseball in the early 1980s. Season long and tournament fantasy leagues are huge business. Quicken and Warren Buffet recently sponsored a $1bn prize for a perfect March Madness bracket.

Now, it seems that entrepreneurs have discovered a way to fuse fan desire to show off their fantasy player picking skills with the impulse to “keep things interesting” by having a monetary stake in the action.

It’s called Daily Fantasy Sports.

In traditional fantasy sports, games participants pick athletes into a team and make contests against other participants based on statistics generated by the athletes during the games. This usually lasts all season for the duration of the season in one of the major sports, such as basketball, football, hockey, and golf. Daily fantasy sports follow the rules and legality of traditional fantasy sports. However, daily fantasy sport games turn over faster and match the expectations of fans better than season long games. Daily fantasy sports games only last for one day or a weekend. Instead of playing against an oddsmaker and relying on the total number of other bettors for the winnings, the prizes are determined by the competition itself and played against those who enter. The idea is that you pay money to enter the contest in order to test your skill against the other players and prizes are distributed among the winners. The company that hosts the competition gets to take a management fee for facilitating the game. The process is completely legal in the United States and Canada. Also, with daily fantasy sports, participants can establish a position before the game, and sometimes have the ability to manager position during the game. Because of the short-term aspect, daily fantasy sports drive engagement and attract big numbers to their platforms.

Live sports have differentiated themselves substantially from other entertainment verticals. They have not been forced to reinvent their business models like the television and music industries. One can argue that we may be in the midst of “peak NFL” but in the long sample, sports will be able to command a premium for some time to come. Therefore, any business that can mobilize and engage sports fans around that coveted “live” moment of engagement is going to be a big deal. Daily fantasy sports is one of the first business models to capture this engaged moment. It doesn’t hurt that they also have a demographic with a natural inclination to want to put their money where their mouth is. Even Twitter understands how important it is to capture the feeling and reactions that go along with a live broadcast. They’ve publicly stated they are working on a DVR mode for tweets during live events. I think we are in the early innings of a trend and will be seeing lots of innovation in interactive participatory platforms.

In short: keep an eye on any products that drive interaction around live events. Sports are best because they command a premium based on demographics and the nature of the medium. Daily Fantasy is one of the first successful models to really capitalize on it. If they play their cards right, daily fantasy will be bigger than online poker.

How do you play the trend from an investor standpoint? Most of these companies are private and already profitable or at various stages of VC financings. Fan Duel and Draft Kings are leaders in users, prizes, and in raising money in private markets. As far as public investments go, Draft Team is the only one I could find It trades on the pinksheets under $DTFSF. Companies listed on the OTC and venture exchanges are always extremely speculative and you should always be prepared to lose your entire investment in those markets.


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