Saturday, May 31, 2008

Montana Plans to Offer Fantasy Football Wagering

Now this is cool. Coming soon to the state of Montana - pari-mutuel wagering on fantasy football! A law passed last year authorized this as an attempt to raise enough money to keep Montana's horse racing industry going. They've been having problems with stagnant wagering and increasing costs, slowly killing the sport in the state. The Helena Independent Record article has the full details. Horse racing in the US in general has issues, which you can learn more about by reading other posts in the blog.

The Board of Horse Racing was having problems launching the game working with private industry sources, so the Montana Lottery has come in and will develop and operate the game, taking the piece of the action that is authorized for that component. Fantasy football will be the first game, hopefully followed by other sports, such as baseball and NASCAR.

The fantasy sports industry has been historically leery of being confused with gambling, as some with a particular axe to grind have been prone to promote. This application, although based on fantasy sports, is not the same as typical fantasy sports games, which are contests. This game is being structured as a regulated, legal wagering game.

KFFL has a nice short article regarding fantasy sports and gambling which helps to highlight the differences and eliminate confusion. Now this is just going on in Montana. What if this expands to Vegas? If you don't think fantasy sports is hot, you haven't been paying attention!

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Friday, May 9, 2008

Fantasy Sports Attracting Investment

A good sign an industry is "hot" is when venture capital investment flows into it. The Fantasy Sports industry is one such industry. Fantasy Sports can be considered a subset of the Media and Entertainment industry. With over 15 million Americans participating in fantasy sports, and major players like Yahoo, CBS and the major sports leagues involved, the industry is hot - and venture capitalists are zooming in faster than cheetahs on motorcycles, and have been for a couple of years.

Venture deals involving fantasy startups such as Atomic Moguls, and Yardbarker attest to the attractiveness of the industry to venture capital firms. In addition to VC funding of fantasy sports sites, related sports-themed sites, such as PicksPal, NBX, FanIQ and PROTRADE also have obtained funding.

Knowing that the space is hot is a good thing, but VCs operate in a herd mentality, and what is hot and fundable can change in a heartbeat. As someone who back in 2000 founded a startup and received a $14+ million Series A from a Sand Hill Road VC, I know well the spectrum of emotions and machinations that take place when deciding, pursuing and obtaining venture funding. My startup got its funding right before the tech bubble burst. A couple months of delay and no funding would have been available.

If you decide to pursue venture funding, be aware that it will be very similar to applying for credit. The more you need it, the less available it will be and vice versa. The more you need it, the more expensive (i.e. more ownership percentage and control) you will need to turn over to the venture capitalist or angel investor. However, if you've done a good job, and your need for investment may in fact be better served by a loan, you will be in much better shape to negotiate a good venture capital deal, if you decide to go that route.

With my new startup, I am not looking at venture funding first. In fact, I'm not looking for it at all. So far, the progress to date has been done by bootstrapping. That's not to say that no money has been required. So far, easily $100K+ has been spent, similar to moving up to and through an initial Angel round. The more you can do on your own, you'll be in a better position.

There are some that take VC money because they need to ramp up fast to capture market share in their particular space. That may be a very legitimate approach. My personal bias is that if the industry niche being pursued has low barriers to entry and the winners may be determined more by marketing "carpet bombing" to reach critical mass quickly, I'd be looking for something else to pursue. All else being equal, VCs prefer companies that have sustainable competitive advantages. I agree with that perspective. In a gunfight, what do you prefer to have - a pistol or a tank?

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Friday, May 2, 2008

Michigan Horse Racing Industry Files Suit Against Michigan

In another lawsuit involving the horse racing industry, the Detroit News reports that several horse racing interests in Michigan have sued the state claiming that competition from the state lottery and casinos are killing their industry. In other words, other gambling businesses are bad for their gambling business. They also claim that restrictions passed into law by ballot initiative are not fair because it hurts them, but not casinos.

The horse racing industry has taken a big hit in wagering in the 10 years since casinos opened up in the state - from $474 million in 1997 to $261 million last year. With the closing of Great Lakes Downs last year, there isn't a thouroughbred race track operative in the state. However, there are plans for a new thoroughbred track in the Detroit metro area. There are still harness racing tracks operating.

To get new gaming approved, both a state and local referendum are required. Casinos apparently are exempt from these barriers to entry. The racing industry may have a point, but horse betting has been declining for years and the ballot initiative only passed in 2004. There are likely some structural competitive deficiencies or change in consumer gambling preferences that won't be cured by a successful lawsuit.

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