Yahoo to enter fantasy sports market

Even as legalised gambling has spread across the US to include lotteries, casinos and just about every imaginable type of slot machine, the notion of betting on sports has remained, outside of Las Vegas, largely in the shadows.

But on recently, Yahoo took the boldest step yet to bring what amounts to legalised betting on sports to the mainstream. The Silicon Valley company, which has been broadening its range of sports content, said it would host daily and one-week fantasy sports games played for money, starting with Major League Baseball and expanding to other professional sports as their seasons begin.

As any viewer of ESPN would know, the fantasy sports industry has been growing rapidly, with ubiquitous ads proclaiming that hundreds of thousands of dollars can be won on sites like DraftKings and FanDuel. But none of those companies, all start-ups, have the vast reach of Yahoo and the ability to entice tens of millions of young men – a coveted audience – to bet on the performance of their favourite players.

Yahoo’s move further legitimises a pastime that closely resembles gambling, particularly with the daily fantasy games. Players can bet against a single opponent or within a small group, and the quick results can simulate the adrenaline rush and financial stakes of traditional sports betting.

Fantasy sports operate under an exemption to the Unlawful Internet Gambling Enforcement Act of 2006, which outlawed online poker and sports betting. Lobbyists from the National Football League, as well as from other professional leagues, successfully pushed to have fantasy sports deemed a “game of skill.” Most states permit the games, but the betting is illegal in five: Arizona, Montana, Louisiana, Iowa and Washington.

Ken Fuchs, Yahoo’s vice president for publisher products, said that fantasy sports were different from gambling because they relied on the skills of the player. Yahoo already runs cash leagues for fantasy sports that last the length of a season, and the daily games are no different. “We stay very close to the laws,” Fuchs said. “We certainly encourage people to play responsibly.”

Playing fantasy sports is one of the most popular pastimes for Internet users, with an estimated 57 million people in the United States and Canada participating this year, according to research conducted by Ipsos for the Fantasy Sports Trade Association.
Fans assemble rosters of real football, baseball or basketball players to create dream sports teams, then earn points based on how well those players perform in real games. Participants tend to be avid, spending an average of $465 a year on contest fees and materials, according to the Ipsos research.

The NFL, National Basketball Association and Major League Baseball – traditionally ferocious opponents of betting on their sports – were the first to embrace gambling on fantasy sports, aware that the passion for it is crucial to their bottom lines. ESPN, CBS and Yahoo, am-ong others, have since built season-long fantasy sports into a major business by hosting leagues, with contests that stretch out over months.

Different flavours of fantasy sports have sprouted up, with daily fantasy sports growing rapidly over the last two years, fuelled partly by the instant gratification they provide players who can win money daily. Entry fees for contests range from 25 cents to $1,000, and total prize pools range from $54 to $100,000, with some tournaments offering pots of $1 million or more.

Eilers Research, which studies the industry, estimates that daily games will generate around $2.6 billion in entry fees this year and grow 41 per cent annually, reaching $14.4 billion in 2020. Like other companies in the industry, Yahoo will keep about 10 per cent of the fees as revenue and distribute the rest as winnings.

If Yahoo got just a slice of that, its profits could mount quickly. Yahoo said tens of millions of people already play Yahoo Fantasy Sports, spending an average of 500 minutes a month at the site, and many of those people have been playing daily games elsewhere. In addition to revenue from entry fees, Yahoo might sell sponsorships or ads around the contests.

Yahoo has been hosting fantasy sports for over 16 years, and it operates a leading sports news site. Last month, Yahoo said it had struck an exclusive deal with the NFL to host the first free, live global webcast of a regular season game, between the Buffalo Bills and Jacksonville Jaguars in October. For now, Yahoo is offering the daily fantasy games only in the United States. Players can play on desktop computers, a mobile website or an iPhone app.

The company is initially offering $6,500 cash prizes in some games that are free to enter. It is also guaranteeing to pay prizes in some games, even if too few players pay the entry fee to cover the pot. Kathy Savitt, Yahoo’s chief marketing officer, said that adding daily fantasy games was a logical extension of the company’s longstanding commitment to serving sports fans.

“We try to use the sports fans as a compass,” she said. “We’re focused on what do sports fans want and how do we delight them.” Marissa Mayer, Yahoo’s chief executive, had hinted in April that she was planning an expansion into daily play. “We believe this is an area where Yahoo can and should compete,” Mayer told investors in a conference call regarding the financial results of the company, which is based in Sunnyvale, California.

Huge investments
FanDuel and DraftKings, which dominate  daily sports niche, have drawn the interest of big investors. FanDuel, the market leader, has raised $88 million from investors like Comcast, NBC, KKR and Shamrock Ventures. DraftKings has raised about $76 million from investors like Atlas Venture and Redpoint Ventures.

The NBA has a stake in FanDuel, and the site has signed exclusive multiyear deals with 13 basketball teams and CBS Sports. Major League Baseball has thrown in with DraftKings, which now has an exclusive deal with ESPN. Both companies have been valued at $1 billion, though neither has turned a profit. And both have pursued high-profile sponsorships: Floyd Mayweather wore a FanDuel logo on his trunks in May when he defeated Manny Pacquiao.

Last month, DraftKings sponsored the Belmont Stakes, where American Pharoah became the first Triple Crown winner in 37 years. “Last year, the two combined to spend $100 million,” said Adam Krejcik, a managing director at Eilers Research. “This year, each will spend that amount on marketing and advertising. They are spending absolutely crazy.”
Michael Rathburn, who tracks the industry for Rotowire.com, said Yahoo’s entry into daily games would attract new players to the market. “Its existing base is massive, and Yahoo is making it easy for them to play daily,” he said. “It isn’t like people are going to abandon DraftKings and FanDuel. They just have another outlet.”

Fantasy sports place a premium on data, and technological and statistical advances have made a nearly infinite amount of information available instantly and for sale.

“The leagues are poised to profit from daily fantasy in so many ways,” said Daniel L. Wallach, a sports and gambling lawyer at Becker & Poliakoff in Fort Lauderdale, Fla. “They can sell their data to fans, sell more advertising and signage in and out of their arenas and command more for television rights.”