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The Unstoppable Rise of Fantasy Sports

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It’s a bit of an understatement to say Las Vegas is jealous of the success of fantasy sports. Flabbergasted might be the right word (as it so often is). With Daily Fantasy Sports (DFS) acting like high octane rocket fuel, this industry is taking America by storm.

Sure, we’re used to hearing about Silicon Valley startups disrupting existing industries and making billions, but even they can rarely match fantasy sports. In terms of pace and intensity, the rise of this industry is almost without parallel.

How did they do it? Fancy technology? New business models? There’s a bit of each involved, but neither is really the driving factor.

In recent years, the rise of fantasy sports has been mostly propelled by DFS, a segment of fantasy sports born from a legal loophole. It turns out the same 2006 law that banned most online gambling in the US cut out a special exemption making it legal to bet on fantasy sports (a tiny industry at the time) because it was considered to be based on the “the relative knowledge and skill of the participants.”

This opened the door for DFS, a version of fantasy sports played on a daily basis instead of a season-long scale. This massively increased the amount a single person could play as well as the total amount of money involved.

Put another way, lawmakers decided that fantasy sports was a game of skill and not of chance. With the sudden rise of a multi-billion dollar DFS industry within fantasy sports, they’re reconsidering their decision. And by reconsidering, I mean the FBI is investigating and states are banning DFS sites.

How did it all come to this?

An Industry That Grew by 15 Million Users Last Year

The idea of fantasy sports is over 50 years old. For decades, it was a niche hobby practiced by close-knit clubs and groups of friends. But the DFS juggernaut has pushed the industry to new heights. Here’s what that rise looks like.

The meteoritic rise of fantasy sports

In 2014, 16% of all American adults were playing fantasy sports of some kind. A year later, that number is now 22%. The industry managed to attract 6% of the adult population of the US in a single year. That’s 15 million new users. Where did all of these new users come from?

In short, from the two biggest companies in the DFS world, FanDuel (founded in 2009) and DraftKings (founded in 2012). By leaning heavily on advertising and big money prizes, these two companies have pushed that growth curve nearly vertical, with annual growth reaching 41% in 2015.

Prior to that, there was a steady rise through the late 90s and early 2000s. Despite a downtick in the mid-2000s, the passage of the 2006 law legalizing the industry in more and more states triggered a slow renewed interest in fantasy sports which culminated in the arrival of DFS.

Of course, this growth can’t go on forever (as hard as it may be to believe, the US does have a finite number of sports fans), but it’s still got a ways to go. Plus, there are other ways to grow without increasing your customer base. DFS companies in particular are always pushing existing players to put increasingly large amounts on the line through huge advertising spending.

In the process, they’ve each made a killing. How much are we talking?

The Imbalance Between Fantasy Sports and Real Sports

DFS has propelled fantasy sports into a force politicians and other industries can’t ignore. How? By making an ungodly amount of money very, very quickly.

Fantasy sports make more money than real sports

Just in case you missed it, that little yellow sliver up top is the total revenue brought in by the NFL.

The shocking truth here is that in just a few years, the fantasy sports industry has managed to make more money than the actual sports they’re based on. They’re even catching up with the enormous legal gambling industry.

And keep in mind that the data above is all from 2013. As we saw, the industry has grown massively since then, so this same chart for 2015 (if the data were available) would look even more absurd.

Sure, it’s hard to pin down exact numbers (estimates for the total revenue of fantasy sports range from $40-70 billion), but either way, these figures show just how much money is on the line. And all of this from what basically amounted to a footnote in a 2006 gambling law.

What Does Fantasy Sports Without DFS Look Like?

If you take DFS sites like DraftKings and FanDuel out of the equation, the industry suddenly looks quite different, both in terms of size and who’s on top.

Who dominates the fantasy sports market

Yahoo is still benefiting from their early entry into this market, as shown by their domination in fantasy sports app downloads. Still though, the difference between these numbers and the estimated 1 million users both FanDuel and DraftKings each have shows just how removed regular fantasy sports have become from the world of DFS.

Overall, the app download numbers are much smaller than you’d imagine. Even Yahoo’s app has only managed just under 180,000 downloads. Compare that to the 50 million+ of fantasy sports players out there and it’s clear that apps are still far from the preferred way to play. The vast majority of players still use browser-based applications.

Fantasy Sports Players Are Surprisingly… Average

If you imagined fantasy sports players as the American everyman, well, you’re right. But that also masks some of the hidden truths behind the DFS side of the industry. Let’s break it down:

The average age of a fantasy sports player (37 years old) is almost exactly the same as the average age of an American today (36.8 years old). If you imagine the average sports fan in their mid-30s, they were born around 1978 and may have just found a way to blow their mid-life crisis fund (more on how much people are spending in the next section).

Also, perhaps unsurprisingly, that person is most likely a guy. Men, it appears, are a bit more competitive and are more likely to play fantasy sports than women. While women make up 34% of fantasy sports players, when it comes to the NFL, they make up 45% of all fans.  You can insert your own theories as to why more women are into real-life sports than fantasy sports, I’ll leave that up to you.

Cutting through all the numbers, what’s clear is that the average player is a middle-aged guy. But where does that guy live? The geographic growth in fantasy sports has been far from even. Some states have gotten nearly obsessive about fantasy sports, while others are still mostly on the sidelines.

Fantasy Sports Google search trend by state

Google search data tells us a lot here. First, it reveals that Minnesota is really into fantasy sports. Rivaling with Wisconsin for the #1 spot, Minnesota is the state with the most “fantasy sports” searches on Google. The top states list is largely dominated by Rust Belt and Midwest states (Minnesota, Wisconsin, Illinois), and Northeastern standbys like Massachusetts and New Jersey.

If none of that sounds terribly surprising, what really stands out is where fantasy sports aren’t popular. A clear pattern emerges when you notice what the lowest-ranked states in terms of search volume (Oregon, Alaska, Alabama, Mississippi, Idaho, Utah, etc.) have in common: none have a professional football team.

Search data for sport-specific terms show a similar trend. The states that search least for “fantasy football” are Oregon, Alaska, Alabama, Vermont, and New Mexico… and you guessed it: none of them have a professional football team. The same goes for “fantasy baseball,” where we have Oregon, Utah, New Mexico, Alaska and Oklahoma in the bottom 5 with no Major League teams to note. Here, Massachusetts, Rhode Island and Connecticut lead the pack, with New York coming in 4th.

“Fantasy basketball” searches enjoy high searches all around, but we still see the same pattern. The states with fewest searches (Wyoming, New Mexico, Alaska, Virginia, Mississippi) have no professional team and the most searches come from the homes of the Knicks, Nets, Clippers and Lakers – New York and California.

For “fantasy hockey” we see a whopping “0” search volume for Montana, Idaho, Wyoming, South Dakota, New Mexico, Arkansas, Mississippi, Alabama, and Hawaii. The states most interested in fantasy hockey are North Dakota and Pennsylvania, followed closely by New Hampshire and Massachusetts, signaling that when it comes to hockey in particular, college teams might be just as important in indicating fantasy sports interest as professional ones.

All of this tells us there’s a big correlation between interest in DFS and the presence of a professional team. The DFS industry should be pretty excited about any new teams entering the NFL, MLB, NBA and NHL.

They’re also lobbying hard because an incredible amount of money is on the line.

Fantasy Sports Can Be an Expensive Hobby

Sure, we’ve all got our hobbies, but how expensive are they? Fantasy sports is only getting pricier for most fans.

How much do Americans spend on fantasy sports

So the short answer to the question, “How much does the average fantasy sports player spend?” is “A lot.” We’re talking $465 a year for your average fantasy sports players, and $2,074 a year for DFS players. That’s only $4/day during the season for regular fantasy sports players, but $5/day all year long for DFS players.

The best DFS players out there will even put tens of thousands of dollars on the line every day. Others stick to the DFS equivalent of the quarter slots, but that limits their chances at winning big.

Of course, non-DFS players spend a lot less or even nothing. One of the emerging trends underlying everything we’ve shown here is the growing gap between DFS and the rest of fantasy sports. The two could hardly be more different in terms of the number of players, how much they’re spending, and how they’re interacting with fantasy sports as a whole.

Even with this diversity between DFS and other fantasy sports players, when you multiply that $465 by the total number of players (56.8 million) you get a total spending of $26.4 billion.

With numbers like that, the financial costs of this seemingly harmless game reach far beyond players’ wallets.

Fantasy Sports Are an Economic Body Slam for the US Economy

It’s all fun and games until you waste $16 billion in productivity.

The scourge of American workforce

I’ll give you a moment to read over this again. Yes, fantasy sports appear to be wasting $16 billion (with a capital “B”) in productivity annually. To paint a comparison, Mars One estimates the cost of a manned mission to Mars to be around $4 billion. That’s four manned missions to Mars every year.

Let’s agree not to tell NASA about this…

Entwined Industries Means We Shouldn’t Expect Change Soon

So if we take a look at the big picture, what is this crazy world of fantasy sports telling us?

In short, that Americans are experiencing sports in entirely new ways. The growing ubiquity of fantasy sports is marking a fundamental change in how the average fan interacts with the sports they love.

Sure, there’s always been betting on sports, and we’ve always cared which teams win. But now there’s more money than ever on the line and millions of fantasy players have one or more of their own teams they also want to win. Both the stakes and the incentives are evolving.

It’s also a marker of significant financial changes. The data above shows us that the fantasy sports industry has higher revenues than any actual sports league. With DFS companies spending millions on advertising, leagues and networks like ESPN have huge financial interests in keeping that industry legal and growing.

Lawmakers across the country, however, are dead set against that. The legal challenges to and abuse allegations against the DFS side of fantasy sports are heightening tensions between lawmakers, leagues, and fans.

However you cut it, with the rise of fantasy sports, and DFS in particular, sports in the US are never going to be the same.

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