Wednesday, September 03, 2014

9/3 Wednesday Quickie

(Republished from my new email newsletter. Get this first by subscribing here, or just come here to see the repub.)

After the lead item: Schefter, Sam, Mo'ne Mania, Crux, "Buzzfeed's X-factor," Kliff Kingsbury, Robin Roberts, AOL's new media honcho, "old person hoops leagues" and more. But first...

: A company with no more than 400,000 paying customers just brought in $70 million in funding because it prints cash in a category that has both historical traction and gobsmacking upside.

OK, let's unpack that, because it had me up last night thinking about it, so I spent some late-night hours organizing some thoughts (if you don't care about the topic, just zip down the email to the other entries - I won't be offended!):

In the past two weeks, $110 million in VC money has been invested into the "daily fantasy" category, which market leader FanDuel - which picked up $70M yesterday - calls "one-day fantasy."

Here's how it works: You put some money in an account. You pick players you think will do well on a given day (or week) and enter them in a league, which costs various amounts to join and presents various parameters for success. If your picks are better than other people's picks in your league, you win more money.

- FanDuel says it has 65% of the daily fantasy market. It also says that it projects to have 500,000 users in 2014. That pegs the total daily fantasy market right now at roughly 800,000 players.

- The total market of current fantasy players -- the vast majority playing in your typical season-long head-to-head or roto-style leagues -- is just north of 40 million.

- While traditional fantasy appears to have reached a saturation point, daily fantasy participation rates could compound at 50% annually for the next five years and still barely scratch the surface of its potential market.

- Why? The superficial hook of daily fantasy is "new games every day," rather than "stuck in a long/lost season." The real hook is that you get to bet (and win) money, based on your ability to project sports outcomes better than other people.

- This is all on the up-and-up -- there is a longer explanation of why/how, but let's just stipulate that. FanDuel's founder offers the most convincing analogue: He says it's just like paying to enter a golf tournament.

- And 80% of FanDuel's participants are paying. FanDuel says it will pay out $400 million this year. Now consider that the losers subsidize the winners, but - like the golf tournament - the platform makes money facilitating everyone's transactions.

Traditional fantasy juggernauts - focused on market share and with a price to play set at "free" -- are largely limited to sponsorship revenue, with (very) modest subscription income for expert advice.

That is a lot of money left on the table. It shouldn't surprise you that the leading mainstream sports media company without a traditional fantasy-game platform -- NBC Sports -- is an investor and partner in FanDuel. (It helps that NBC Sports' digital arm acquired Rotoworld - a subscription-based fantasy-intel site - years ago and installed its forward-looking founder, Rick Cordella, as NBC Sports Digital's top executive.)

- There is too much potential here for the category not to accelerate. It is a matter of time before ESPN, Yahoo, CBS and - yes - the NFL leverage their existing fantasy user bases to create games. (Disclosure: USA TODAY Sports Media Group launched our own daily fantasy game last month.)

- This is where it can get interesting: There can be an "everyone wins" outcome if big players partner with start-ups like FanDuel, DraftKings (which secured $41M last week) or RT Sports (USA TODAY Sports' partner). MLB is involved with DraftKings as its "mini-games" partner (which was presumably a highlighted slide on DraftKings' investor pitch deck).

- On the other hand, the most valuable thing that a company like FanDuel has going for it is that it owns the relationship with the player -- the connection to the bank account. Do big players want to hand that over?

(To be sure, customer acquisition costs are THE costs in the business. Yes, FanDuel and the others have to upgrade their mobile product offerings, but the money is really to subsidize/pay partners and fund marketing.)

- Let's recap: At even modest adoption rates, platform valuations in the space will ultimately combine to nearly a billion dollars, and that's before Disney or Viacom or Yahoo or Fox or the leagues really get involved. Total money in play will quickly combine upwards of billions a year.

The two most glaring opportunities here, beyond the growth of FanDuel and its direct competitors:

(1) Big players build (or buy) their own daily fantasy platforms, leverage their existing user bases and directly own the relationships (as Starwave/ESPN, Commissioner/CBS and Yahoo did in the mid-1990s).

(2) Start-ups in the payment space like Venmo or Tilt (which had an interesting partnership with ESPN for this fantasy football season) or even a new start-up entirely dedicated to sports transactions (or, ahem, Apple) insert themselves into the most critical piece of the chain -- the financial transaction between a player's bank account and the game platform. Players can take their account to any game platform. Hard to believe a billion(s)-dollar industry can't beget a couple of million-dollar seed bets to play in the middle.

Again, the takeaway: A company with no more than 400,000 paying customers just brought in $70 million in funding because it prints cash in a category that has both historical traction and gobsmacking upside. Pay attention.

More Loves:

*Adam Schefter: The preeminent sports-news transactional reporter of the era.

Transactional news is a tough gig these days, because as fast as something is broken, it is a commodity. But you have to admire Schefter's ethic and his results; someone is going to be first, and, when it comes to NFL news, it is Schefter with an astonishing plurality. By every account, he is also a really good person, which makes it even easier to appreciate his success.

*Michael Sam on the Dallas Cowboys: Jerry Jones the GM loves the help on defense. Jerry Jones the Owner loves -- as Don Van Natta put it on Twitter -- Sam's ability to help "change the subject." (Haven't seen a piece of sportswriting this year get a wider, better reception than Van Natta's profile of Jones.)

*Mo'ne Davis: The Summer of Mo'ne continues, this time at Dodger Stadium, where she threw out the first pitch, signed an autograph for Yasiel Puig and met doppelganger Clayton Kershaw.

*Crux, the Boston Globe's stand-alone site dedicated to covering Catholicism. I am extremely bullish on hyper-topical news sites -- to the extent that a topic with a billion potential consumers qualifies as "hyper."

(Then again, it was five years ago that I launched, which was a hyper-topical site focused on Tim Tebow, who has a pretty big following of his own. In retrospect, there was a much bigger opportunity there that I missed -- enthusiasm for all things Tebow remains extremely high.)

The details in the Nieman coverage of the Globe's effort dovetails with my "starters vs. stars" theory, which is quickly developing into stars-as-starters.

*Dao Nguyen, Buzzfeed's "secret weapon," who heads up the company's all-important data group. I got to meet her at a conference earlier this year and see her in small-group settings as we got into the weeds -- I was blown away by how brilliant she is.

(And I didn't even know at the time that she was at Concrete Media during the same time I was at Bolt -- Concrete and Bolt were fixtures of "Silicon Alley" during the original Web bubble.)

Bolt was a proto-social network for teens whose IPO was scheduled for the week after the first big stock market nosedive in 2000, and that ended that.

It struck me yesterday that teens who were on Bolt back in 1999/2000 are now 30+(!)

*Kliff Kingsbury: I'm a sucker for all things Kingsbury -- last March, I produced a SXSW session featuring Kingsbury and my colleague George Schroeder, and the coach was awesome. Bruce Feldman debunks some of the Gosling-ification of Kingsbury here.

If you had your pick of any coach in the country to lead your college program for the next 8-10 years, your wish list would probably be (1) Chip Kelly, (2) Kevin Sumlin, (3) Kingsbury -- with (1) in the NFL for the foreseeable future and (2) headed there eventually. (And I wonder if Kingsbury - like Pat Fitzgerald at Northwestern - is entirely content with where he is, making him just as unattainable.)

*Robin Roberts, media impresario.

*AOL's Luke Beatty: Taking over the AOL Brands division from Susan Lyne, he is in charge of media brands in tech, autos and entertainment. I worked for Luke at Associated Content, and I have never met a more sincere person, who wanted to get the best out of me both for the company's benefit and my own. I really enjoyed working for him. AC's growth and exit, followed by Luke's work at Yahoo, with TechStars and, most recently, at AOL, is a testament to his talent and vision. And he's a huge sports fan, which is always a plus.

*Reinventing "Manny Being Manny" (via

*Spencer Hall's weekly college football recap: I'll read anything he writes, but this conceit is particularly terrific.

*That first game back after the summer in your weekly "old person" basketball game: That moment when you think you kept yourself in pretty good shape over the summer, only to find out it's not quite "old person basketball game" shape.

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