Daily play fuels surge in fantasy sports investments

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Posted: Sunday, January 12, 2014 12:00 am

Drew Dinkmeyer spent seven years as a senior investment analyst in Tampa, Fla., before deciding to pursue fantasy sports professionally.

Dinkmeyer, 31, said he earns about as much from competing in daily fantasy sports leagues as he did when he was researching international equities and domestic small- and midcap stocks at CapTrust Financial Advisers.

Dinkmeyer is part of the fastest-growing segment in fantasy sports, which in 2012 had participants spend $3.38 billion on products, services and entry fees, according to the Fantasy Sports Trade Association. Daily play continues to grow while traditional seasonlong leagues have ended with the start of the National Football League playoffs.

“It’s exploded in the last couple of years,” association President Paul Charchian said. “It’s growing so fast, by the time we get the research back, it’s already out of date. It’s gotten more investment in the past two years than in the history of fantasy sports combined.”

DraftKings Inc., the Boston-based organizer of daily fantasy play in baseball, football, basketball and hockey, in November completed an additional $24 million round of funding led by Redpoint Ventures to help it expand. Comcast Ventures, the venture capital affiliate of NBC network parent company Comcast Corp., early in 2013 was part of a group that invested $11 million in FanDuel Inc., which is now averaging more than $6 million in weekly payouts.

The last few weeks of the NFL’s regular season, with the majority of seasonlong fantasy participants out of contention unless they reached their league’s playoffs or championship round, further boosted the popularity of daily-play websites for cash. They remain popular in the postseason and as the National Basketball Association approaches the midway point of its regular season, offering head-to-head competition, leagues ranging in size from three to 20 or more participants or tournaments with thousands of entries.

Fantasy sports, in which participants draft teams of players whose success is determined by the statistics they generate, dates to the 1980s. More than 33.5 million people now play fantasy sports in the United States, according to the trade association, with leagues based on the NFL far outpacing Major League Baseball as the most popular. Fantasy sports are gaining popularity outside the U.S. also, with leagues for soccer and cricket.

DraftKings’ revenue increased 10-fold in the past year, Chief Executive Officer Jason Robins said. Last month, the company awarded a $1 million prize in its fantasy football grand final. Participants could gain entry by winning a qualifying tournament with an entry fee as low as $2.

Also last month, FanDuel held its premier fantasy football event in Las Vegas, where Travis Spieth, a sales manager for a CBS and Fox television affiliate in Sioux City, Iowa, won $1 million from an initial first-time investment of $10. Spieth won the top prize thanks to a touchdown run by Denver Broncos running back Montee Ball and field goal by Nick Novak of the San Diego Chargers that vaulted him from eighth place.

“It was a surreal experience,” said Spieth, 37, who added that he has played in seasonlong fantasy sports leagues with friends for about 15 years. “I like the regular fantasy leagues, but if your team has an injury, it might cost you your season. With the daily play, there’s more strategy.”

Average fantasy sports players are in their mid-40s, according to FanDuel Chief Executive Nigel Eccles, who said he hadn’t seen much innovation in the industry when he helped start the company in 2009. Eccles said that when sports fans in their 20s were asked why they didn’t play fantasy sports, the most common response was that it took too long — with baseball season stretching seven months to determine a winner.

“We thought, ‘OK, great market, lack of innovation and also really weird that this younger group is not coming in. Why don’t we take something that people love and make it faster?’” Eccles, 39, said. “That was really the genesis of the idea, which is: How do we make every day draft day? Everybody says the best day of the year is draft day. That really was the product.”

According to FanDuel, 57 percent of its participants range from 21 to 35. A banner on the company’s wall in a chrome and wood space in downtown Manhattan features a timeline of FanDuel’s rapid growth and highlights that $150 million in prizes were awarded in 2013, up from $50 million in 2012.

DraftStreet, DraftDay and FanEx are among other daily fantasy sports websites in the market that Robins, the DraftKings CEO, said caters to the large segment of society that seeks instant gratification.

“It wasn’t like we were coming in to try to displace an existing market,” Robins, 33, said. “We were coming in and trying to convince people who were already passionate about this to participate in a different way from their seasonlong leagues.”

Daily fantasy sports websites are legal, considered games of skill rather than illegal games of chance, according to operators.

Dinkmeyer, who in June left his position with CapTrust, an institutional investment consulting firm, said his job in fantasy sports can be difficult to explain to people he meets at dinner parties.

“The first question is, ‘Oh, so you’re a professional gambler?’” Dinkmeyer said. “I try to draw the distinction because in our industry we’re very sensitive about daily fantasy sports being completely legal where online poker right now isn’t in most places. It’s very similar to anybody doing day trading in that any single day can be really bad, but over the long term you enhance the sample sizes and if you do have skill, it usually will show up.”

Dinkmeyer espouses the value of smart money management and shares advice on that and other fantasy sports topics at websites such as Rotoexperts.com and MyFantasyFix as well as on a Sirius XM Fantasy Radio show he hosts. Dinkmeyer said he changed his approach after initially losing money while betting his entire bankroll every day.

“Over time, I just kept having success, the results became more significant,” he said. “Then you look down and at the end of the year you say this money is somewhat equivalent to what I made in my finance job. Then you do that two years in a row and you say, ‘Maybe this is sustainable.’”

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