Failure to Launch
Why are so many daily fantasy sites closing if the industry has such big potential?
What do the following websites have in common?
– Profanity Sports
– Draft Zone
– Daily Joust
– Cantor Fantasy Sports
– Fantazzle
– FantasySportsLive
– BuzzDraft
– Win Place Show sports
– Fan Saloon
– SnapDraft
– Frafty
– Fantasy 365
– RotoDraft
– Double Up
Each site was part of the “can’t miss” daily fantasy sports industry but all failed miserably.
These entities aren’t alone; the list will easily grow by another 3 or 4 sites by the end of the 2014 fantasy football season.
SO WHAT WENT WRONG?
Did the sites simply not raise enough money? Is the daily fantasy sports industry not growing as anticipated? I can tell you that one of the failed sites listed above squandered almost $2 million dollars of funding. Many of the failed DFS sites jumped into the industry completely oblivious to the obstacles that awaited them. Some investors lacked insight, convinced that the DFS industry was going to grow so rapidly that customers would find their way to each site and spread around the wealth.
It amazes me that small or new DFS sites continue to waste money on advertising. What are you thinking? Your marketing efforts are only introducing customers to the industry as a whole. New DFS sites lack volume, they can only offer small prize pools and almost zero head to head contests. Rather quickly, the new customer that they just acquired, figures out that the established DFS sites offer much more in terms of player experience and opportunity to win large cash prizes. Now, a top DFS site will gain a new, somewhat educated customer, for virtually no cost. Add in the high overhead costs of a 24-7 web developer, customer support, stat feed contracts that are only offered in terms of multiple years, a low margin revenue model, horrendous marketing, and you quickly see the struggle these sites have to actually succeed.
To bring this full circle, almost all of the failed DFS sites did exactly what I described in the previous paragraph. They felt pressure to advertise, in order to show growth metrics to investors and forgot about the most important aspect of running a business, product development and user experience. If you can not retain the players you acquire, then you have NO business model. Investors have obviously recognized the scenario I just described and are now keeping their distance from the “current” daily fantasy sports industry. “Current” being the 1-day salary cap format of contests. Investors are looking at new formats that the “average joe” can easily participate in. A good example is ScoreStreak.com. Their daily games do not involve salary cap, rather selecting 9 MLB players to meet or beat 1 stat goal for the day.
Like most sports bettors, I saw the DFS industry as a potential way to legally bet online. Believe me, these sites were convinced that bettors would love the concept. Here is the issue,
when sports bettors or the average fantasy sports fan visits a DFS site, they need to be educated on the pure basics of the game:
– What is a 50/50 contest?
– What is a GPP?
– What is a freeroll?
– What is a satellite or qualifier contest?
– My contest did not run because it was not guaranteed?
– What is the difference between a league and contest?
– Great, I can get a 100% deposit bonus….with a 4% drip rate?
– Why am I seeing the same set of customers winning everyday?
just to name a few……
Granted, many customers have leaped these barriers to entry and easily participate on a daily basis. Industry leaders FanDuel and DraftKings have placed a major focus on user education and overall customer experience and that is why they will continue to grow.
With roughly 36 million people playing fantasy sports in North America, it is estimated that 1 million have participated in the DAILY fantasy sports space since its inception over 4 years ago. Some projections call for the DFS industry to have 5 million cash players by 2016. I do not believe the current salary cap games format will be able to support that growth target. In fact, I believe the daily fantasy sports industry (salary cap format) will consist of only 3 sites (FanDuel, DraftKings, DraftStreet), when the 2015 fantasy football season kicks-off 15 months from now.
