By Barry Janoff
September 30, 2015: From Aug.1 - Sept. 15, daily fantasy sports companies DraftKings and FanDuel spent a combined $100 million on advertising in September, about half of that during national NFL games, the rest across networks and high-profile broadcasting. DraftKings spent some $80 million, FanDuel about $20 million, according to iSpot, which tracks paid TV media.
Boston-based DraftKings, which launched in 2012, said it would pay out "more than $1 billion guaranteed in 2015" in winnings. It has official alliances that include the NFL, MLB, NHL, MLS, Nascar, UFC, ESPN, and teams in the NBA, NHL and MLB.
FanDuel, based in New York and founded in 2009, said it would pay out "$2 billion in real cash prizes this year." It has official alliances that include the NBA and numerous NBA and NFL teams and has received investments from such companies as Google Capital, Time Warner/Turner Sports, NBC Sports Ventures and Comcast Ventures.
Even with the burgeoning presence of DraftKings, FanDuel and other companies, there is plenty of demand to satisfy. In 2015, nearly 57 million people in the U.S. and Canada will play fantasy sports, according to the Fantasy Sports Trade Assn. That is up from 15 million in 2003, 36 million in 2011 and 41.5 million in 2014, the 16 million increase from last year driven largely by DFS.
Fantasy sports is in the neighborhood of being a $4 billion industry, and is still growing, per FSTA.
Even with that, what does a start-up DFS company run by a guy and two friends who under other circumstances would still be attending school at New York's Columbia University, with a limited marketing budget and no official league or team alliances, do to get investors, users and national attention?
Differentiate. Innovate. Create a platform that is more user-friendly with less restrictions more options and than the competition, including offering eSports. And raise more than $2 million in investments to support user acquisition and expansion.
Joey Levy spent two years at Columbia before taking a leave of absence to launch and build Draftpot along with friends and fellow students Joshua Hughes and Jessica Vandebon. Levy, 20, said he is not a novice in the fantasy sports category. At ten, he began playing fantasy sports with his dad. But his fantasy roots go back even farther. "As my Mom was in labor giving birth to me, my Dad was on the phone at the hospital working on his fantasy baseball league," said Levy.
Draftpot did alpha- and beta-testing for much of 2015 before launching its current site in September to coincide with the start of the NFL season. Early numbers are promising, including a user-base that had 5,000 users in August had has grown by more than 20% each week since its NFL games started, paying out more than $250,000 for Week 3 of the NFL.
Draftpot said it has a lower rake than its competitors (10% or less on all contests), allowing users to keep more of their entry fees
NYSportsJournalism spoke with Levy about the challenges of starting and growing Draftpot, going against DraftKings and FanDuel and the future of DFS.
NYSportsJournalism.com: How did you get into this venture? What motivated you?
Joey Levy: I've been playing fantasy sports since I was ten. High-stakes fantasy baseball with my Dad. So it's in my blood. I am a passionate player. When DFS started to take off, I was a player on FanDuel and DraftKings. But I realized there was a tremendous opportunity for a business in the category. I felt there wasn't really a product out there that catered to the everyday casual sports fan. A lot of people would go to those sites and not know how to use them. My uncle was one of those people. He called me after going to FanDuel and not really knowing his to use the site. Also, it is really just transactional salary-cap formats on the existing sites. So I decided to pursue Draftpot and develop a DFS platform that catered both to hardcore avid fans as well as everyday casual fans.
NYSJ: How did Draftpot come together financially and logistically?
JL: The biggest key was figuring out how to develop the software. I developed this while I was a student at Columbia University. Fortunately, being in that environment, you are surrounded by very talented software developers. Two of them, Joshua Hughes and Jessica Vandebon were my friends. I pitched them my idea for Draftpot and they were immediately on-board and became my co-developers. (Hughes is also CTO, Vandebon lead developer.) Because of our knowledge and the way in which the site is built, we can develop tech very quickly and develop products in weeks where the other sites may take months.
NYSJ: What was your next step after that?
JL: My responsibility then was to go out and raise the capital needed to finance this. And then use our acquisitions so that we could actually have a good business where we have customers on our site on a daily basis. That's what happened, We finished raising our seed round where we raised a little over $2.2 million. Now, on the product side, we developed a new site along with an iOS app. We launched an Alpha site in April and a Beta site in June. Now we are gearing up our user-acquisition initiatives. We have some good digital partners, some radio partners.
NYSJ: What has been the early reaction?
JL: We feel we had a great go-to-market strategy. And people have really liked our game play. We had about 5,000 users in August and paid out about $120,000. We feel we have a better product than the majority of what's out there in the DFS space. Our game-play is so much better and the site is so user-friendly and intuitive. Also, we don't have a salary-cap format used on other sites, which is not user-friendly for casual players who go to those sites. And we have eSports, which separates us from the others. We have very active players and we see quadrupling that over the course of the NFL season.
NYSJ: Is NFL what really drives DFS in the pecking order of sports?
JL: NFL is No. 1, without question. Fantasy football is king in this industry. NBA is also very big. MLB is pretty big. But what we are trying to do at Draftpot that will be very important not just for us but for the industry in general is mitigating the seasonality that currently exists in the landscape by pushing for other sports. We are also venturing into unchartered waters with eSports, launching a fantasy League of Legends product, which no other site had done. Meaning they haven't done daily fantasy eSports and traditional daily fantasy sports on the same platform. eSports is something that runs year-long so it would help to mitigate the seasonality. We also do PGA and Nascar, which most of our competitors don't do. PGA and Nascar are very active when NFL is not active. That will help make DFS exciting 12 months a year.
NYSJ: How did you get word out about Draftpot?
JL: Social media is a big driver, and we experience very low customer acquisition costs. You don't need to develop much of an infrastructure to get your name out on social media. We also rely on our digital partners to spread the word. RotoWire, for example, a leading fantasy sports content provider, has been very helpful not just in providing content but in blasting their 150,000 or so subscribers on their e-mail list. Other digital partners have also done that for us.
NYSJ: What else are you doing to reach potential users?
JL: Something that I think is very important that other sites have ignored is the college demographic. I'm approaching this as being a college student who loves fantasy sports and knows that there is a validated market out there of college students who love fantasy sports. So I established a campus-representative program that incentivizes individual college students to not only play on Draftpot but to also get their friends to play on Draftpot. That has been successful. Last spring, when we had our initial prototype up, to get the word out we used college students and we acquired users very quickly.
"The thing we've done really well at Draftpot is to fundamentally differentiate the product to give consumers reasons to play on our platform."
NYSJ: When you look at DraftKings and FanDuel, which have alliances with leagues, teams, players and media outlets, do you see Draftpot needing or wanting to go that route in order to grow?
JL: Eventually we would like to. Obviously, it takes a pretty substantial amount of resources to be able to engage in that. With that said, we don't need to do that right now. The way the Web and social media is set up, you don't need to spend absurd amounts of money to reach out to people. We're very confident that we can develop a very large, active user-base of active cash depositors without having to tell people that we are the official partner of a specific league or team.
NYSJ: What about marketing and the amount of money being spent by DraftKings and FanDuel?
JL: If you have the cash to do it, it's a good idea. There are good things that come out of those relationships. FanDuel and DrafKings, right now, have been so successful that they can focus not just on acquisition but on branding. And for branding efforts, it's important to align yourself with reputable partners. We are doing the same thing on a digital level. But we really are in acquisition mode now because not a lot of people at this point know about Draftpot. But because of the capital we've recently raised, and our strategy in general, a lot of people will know about Draftpot. So we don't necessarily have to spend hundreds of thousands of dollars on particular sponsorship or marketing deals.
NYSJ: What are your feelings about those who link DFS with gambling?
JL: (Laughs.) Most of the people who seem to bring it up are in the media. It is a very interesting question. The Unlawful Internet Gambling Enforcement Act (of 2006) specifically exempts fantasy sports from being prohibited because it is considered to be a game of skill. I feel that it's undoubtedly true. That may be a biased position because I'm a DFS operator. But it's very clear based on looking at particular users who consistently win because they have skill. Their skill level is just better than a lot of other players. Fantasy sports is like anything else: If you put in the time and effort and research everything, you can win a lot of money. It is a game of skill. In traditional sports betting, there are a lot of times where you are picking one team. But in fantasy sports, you have to pick ten players out of a pool of a thousand or so players on a given night, you need to consider all of those player match-ups, team match-ups, weather conditions and everything else that goes into that.
NYSJ: With the differentiation points you've talked about, even with what seems like a saturation in the DFS category, how confident are you that Draftpot will grow and become a major player?
JL: There are a lot of people who play fantasy sports and a lot more coming in. And there are a lot of companies trying to gain traction in the market. But the thing we've done really well at Draftpot is to fundamentally differentiate the product to give consumers reasons to play on our platform. We don't have a salary-cap format. We offer eSports. We are very user-friendly. Providing consumers with options is important. There are some 57 million people who play fantasy sports and that number is growing, so I definitely see Draftpot as growing and continuing to grow for a long time.
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