Tuesday, December 28, 2010

Life-Changing Payouts From Fantasy Sports

Many people's only involvement with fantasy sports is with free games or low stakes entry fee games. However, don't think that there isn't big money to be won playing fantasy sports. This is true even though fantasy sports is not gambling. Yes, NOT gambling. People can bet on sports but playing in a fantasy sports contest is not gambling.

What makes fantasy sports different from typical sports betting is how fantasy sports contests operate. In a nutshell, fantasy sports games operate as contests. These contests can either be free or pay-to-play. We'll discuss the pay-to-play as one of the generally accepted elements for gambling isn't met - consideration.

To be gambling, typically an activity needs all three elements - prize, consideration and chance. For the free to play games, if there is no cost to enter, then there isn't any consideration and therefore it's not gambling. So, isn't pay-to-play then gambling because there's consideration? Not necessarily because of the element of chance. Fantasy sports generally is viewed as a skill game. Generally, because states can have different interpretations of what constitutes chance. Overall, in about 41 of the 50 states, fantasy sports are viewed as a game of skill rather than chance.

In the UIGEA, fantasy sports contests are defined as a game of skill and exempt from internet gambling restrictions if they operate within certain guidelines. Basically, you can't have a fantasy team be 100% of a real team, you have to explicitly state your prize structure and levels and not have them vary with the number of game participants, and the real-world games used as basis of games should be more than just a single game.

As stated at the beginning of the post, most people only deal with free games or games with low stakes and prizes. But there are some life-changing payouts out there playing fantasy sports, even in a contest format.

From the Fantasy Sports Business blog, they list a few of the high-stakes fantasy sports contests and top payout levels:

World Championship of Fantasy Football - $300,000
RapidDraft.com - $100,000
Footballguys Players Championship - $100,000
Fantasy Football Players Championship - $100,000
National Fantasy Football Championship - $100,000

So, the top prizes for these five non-gambling fantasy football contests total $700,000. Life changing payouts for playing fantasy football and getting to watch LOTS of NFL games! How cool is that?

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Tuesday, December 14, 2010

Fantasy Sports Business Potpourri - December 2010

FantasySportsBusiness.com has an excellent post (Compete.com Reports Fantasy Reach for September) which you should read if you have an interest in the popularity of fantasy sports and which sites attract the most hits. Continuing their unique visitor dominance (based on my recollection) are Yahoo, ESPN, CBS Sports, with a newcomer - the NFL. These players are definitely the big hitters. Not to say that the next tier of fantasy sites aren't big, but the next 15 sites not affiliated with the Big 4 above you would need to aggregate to match the just the NFL's fantasy site unique visitor numbers. Of the Big 4, CBS Sports is the only site that has a big selection of the pay-to-play games. Fantasy sites can break down between games, information, prediction and support.

Game sites can break down between pay-to-play (entry fee) of various buy-ins and free-to-play games. If you are a game-heavy site that is relying on free games, you better have high traffic (e.g. Yahoo).

Information sites also break down between free and pay (premium). These sites that are relying on premium content may face difficulties going forward in my opinion as sites like Yahoo, CBS Sports and Fox's free fantasy information content is pretty good and the differential between free information and premium information may be very small.

Prediction sites may be of dubious value. I personally am not convinced. If interested, read my recent post on the accuracy of one particular website's picks for the 2010 NFL season. If a prediction site has got a really good track record, I can see folks paying for that knowledge, particularly if the fantasy sports player partakes in pay-to-play games. Really good accuracy on a consistent basis would be the key.

Support sites are sites that provide ancillary goods and services to the fantasy sports industry like trophies, draft boards and news blogs (like this one). This blog doesn't get high traffic, but those who like the content patronize the site and this site isn't geared to earn a living for anyone. For other support sites, they're selling their goods and services, so they are evaluated like a typical online storefront.

Lots of unique visitors is the likely cause of the death of a smaller pay-to-play fantasy game website, Sandbox.com. The affiliated story is here. The story relates that their unique visitor totals were in the 20,000 per month range. As a comparison, Yahoo's fantasy sports site had over 6,000,000 unique visitors in September 2010.

Let's take a swag at what Sandbox was facing economically. Taking their unique visitor number and saying all of those were customers that were on their $10/month subscription plan ($120/year revenue), that puts their fee revenue at $2.4 million. For the sake of argument, we'll assume the site has no other significant revenue streams. Since current pay-to-play fantasy games are contests where a decent portion of the entry fees are paid out in prizes, we'll assume that 80% of the entry fees are paid out to players in prizes, leaving 20% as gross profit. This puts their gross profit at $480,000. From that money, costs such as technical development (games and web development), hosting, information services (e.g. statistics feeds), personnel, marketing, taxes, etc., need to be paid. That may be a difficult budget to manage, so without really unique games (hard to come by in the current fantasy sports genre), getting by on just 20,000 unique visitors per month may not have been enough to keep the doors open.

The article finds it interesting that Sandbox is referring players to CBS rather than NBC, since that company is part of the NBC Sports umbrella. It does make sense because Sandbox operates pay-to-play games, which CBS Sports is the big player in that segment.

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