I recently had the privilege of representing Comcast Ventures on a panel hosted by Michael Frank of Net Service Ventures at the Twitter headquarters in San Francisco, titled “Innovations in Fantasy Sports and Sports Betting”. I was joined by Guy Lake, Product Lead at Yahoo Fantasy Sports; Gill Alexander, Host on Pregame.com; and Brandon Ramsey, Co-Founder and CEO of Fanhood Sports.
The sports gaming space is heating up, reflected in recent deal activity and the 400+ attendees in the crowd, including many folks in town for GiGse, the Global iGaming Summit and Expo. In the last year, landmark legislation has been passed in Nevada, New Jersey and Pennsylvania to allow real-money online gaming, including in some cases sports betting, on an intra-state basis. And this long-anticipated liberalization is contributing to an influx of capital into early stage venture-backed startups in related, unregulated gaming verticals, including social casino (free-to-play casino-themed social and mobile games), virtual currency betting games and real-money fantasy sports games. These include high-ARPU (average revenue per user), skill-based, entertainment-oriented products, which have the potential for downstream exits to commercial gaming operators, as the US market begins to open up. This regulatory anticipation was reflected in the questions from the crowd.
A quick recap of the last 12 months of funding activity in fantasy sports and social sports betting include Kwarter’s $4M raise from Deutsche Telekom/T-Venture for their P2P social betting product; Predictive Sports’ $4.7M raise led by Trilogy Equity Partners for their 2nd screen companion app for live events and P2P social betting, and Comcast Ventures’ investment in FanDuel’s $11M Series C led by my colleague Andrew Cleland. FanDuel is the leading Daily Fantasy Sports gaming platform.
Here’s a quick rundown of some of the questions the panel was asked, as well as my responses. I’d like to thank Michael Sroka, a former Zynga colleague, sports gaming expert and now VP of Mobile at Fanhood Sports, for helping to shape the thoughts below:
What is the impact of both mobile and social on both fantasy sports and Sports betting?
Sports is a huge market. There have been a lot of attempts to create mobile and social product, and not really that many big wins, yet. Bleacher Report’s $200M sale to Turner Broadcasting being one of the few material exits. Part of the reason for this is the complexity of licensing data, and procuring team and player likenesses to build a compelling user-facing product. However, social media is a great avenue for consuming sports content, and sports gaming content. Facebook’s open graph is designed and intended for media consumption and Facebook is beefing up the newsfeed over other viral channels to surface relevant, live content – and few content genres fit as well as sports. Sports gaming companies that can harness these changes on web and mobile can start to create a distribution advantage.
What ways do you see potential regulatory change effecting these industries and how are different participants (gaming companies, sports books, betters, investors) getting ready for these?
There are great businesses to be built regardless of changes in regulation – and not just in virtual currency betting products with no cash out. Fantasy sports and pari-mutuel betting are skill-based, real-money genres receiving increasing attention, and are specifically carved out of the UIGEA. They can be big businesses today without further deregulation. However, changes in regulations may enable higher LTV business models for sports games vs. other media or gaming products. Anyone who can aggregate and engage these audiences will be valuable down the road if regulatory changes continue on their current path.
How do both gaming companies and sports books think about the catering to casual users vs. hardcore users?
As Michael Frank, our moderator pointed out, approaches may be very different if you are a line setter vs. more of a marketplace. Leading sports gaming product managers think about market segmentation by type of user: Hardcore, Midcore and Casual. Hardcore players are people who participate in real money gaming (offshore or offline) and who manage pay-to-play fantasy leagues. Midcore players participate in fantasy leagues on a regular basis. Casual players watch ESPN SportsCenter a few times a week and are most underserved. There are 35M Fantasy players (85% Football) and 75M people who fill out at least one fantasy sports bracket a year. The opportunity in casual is also huge. It also requires a product that is lightweight, low-time commitment, low knowledge. In contrast, hardcore and midcore crowds seek a more involved experience.
What are the most exciting new products in both fantasy sports and sports betting?
We’re seeing lots of great ideas come to us for funding. Some of the more exciting ones include Short duration fantasy; Live betting (mobile is particularly well suited to engage in-game); and Sports simulation games (stats based games that are not real event driven. Top11 is killing it – I’m a big fan of the category, having grown up playing games like Championship Manager).
What are the attributes that make a sports gaming startup fundable?
1.) Market opportunity; 2.) A high-engagement, entertainment product that fits with the opportunity; 3.) Real competitive differentiation like first mover advantage in a market where liquidity matters; 4.) Compelling unit economics (CPA vs. LTV) ; 5.) The right team; and 6.) A fair valuation.
I’d like to express my appreciation to my fellow panelists Guy, Gill and Brandon for their insightful comments, to Michael Frank and Net Service Ventures for hosting and moderating, and to Twitter for the great venue.
We at Comcast Ventures look forward to more exciting innovations in fantasy sports and sports gaming. If you’re working on a startup in this area, we’d love to hear from you. You’ve picked a market that has some strong tailwinds behind it!