The Reality of Fantasy Sports

An inside look at the entrepreneurial all-stars behind a $1 billion business phenomenon.

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“As of 1999, fantasy gaming was still heavily offline,” says Jeff Thomas, CEO of World Fantasy Games, which creates fantasy sports games and websites for corporate clients, and a former president of the FSTA. “It wasn’t until 2000 or 2001 that you had more players online than offline. It was a much different world at that time.”

And the new world isn’t one regulated by online gambling rules. Fantasy sports was declared separate from gambling under terms of the Unlawful Internet Gambling Enforcement Act of 2006, which also exempted educational games or any online contest that “has an outcome that reflects the relative knowledge of the participants, or their skill at physical reaction or physical manipulation (but not chance).”

Not all the pioneers of the online sports information revolution look fondly on the fantasy juggernaut.

“[Fantasy] baseball is evil. It is a complete and utter waste of time, and a horrible distortion of real baseball,” says Gary Huckabay, who in 1995 founded Baseball Prospectus, a digital think tank dedicated to sabermetrics, the form of statistical analysis made famous by Bill James, a writer, historian and statistician. James is a key figure in the Michael Lewis bestseller Moneyball and is now the senior advisor on baseball operations for the Boston Red Sox, who won their first World Series title in 86 years in 2004, the season after James joined the club’s front office.

In addition to operating a website hosting a wealth of articles, statistical reports and fantasy baseball tools, Baseball Prospectus also publishes an annual book considered the heir to James’ influential Baseball Abstract series. Although many fantasy baseball players rely on Baseball Prospectus to help field their teams, Huckabay—who divested his interest in Baseball Prospectus and currently works in the financial services industry—contends these gamers’ efforts distort sabermetric principles.

“The idea that people would give a rat’s ass about a player’s number of wins or number of steals goes against everything I find important about baseball,” Huckabay says. “The only games that are interesting to me are games that haven’t been played yet. I don’t care about what happened 25 years ago, except inasmuch as those statistics inform decisions that can be made today to win more baseball games.”

Firms like RotoHog.com and World Fantasy Games are at the vanguard of a growing segment of the fantasy industry focusing on the business-to-business sphere. While World Fantasy Games manages more traditional games for brands including Taco Bell, Miller Lite and Chicago Tribune, RotoHog.com collaborates with partners like the National Basketball Association, electronics giant LG, and web hosting firm GoDaddy.com to develop customized online contests, social networking applications and stock market-inspired competitions in which athlete values rise and fall according to their market demand. RotoHog is also expanding into the international market, teaming with Fox Sports en Español for a fantasy baseball game available to Latin American subscribers.

“These games lend themselves to sponsorship,” Perdew says. “Sponsors understand that gamers are highly engaged throughout the sports year—they’re online researching and talking smack, and that generates a lot of page views.”

While a significant share of fantasy information and resource sites rely on advertising revenue, most still depend on premium subscription fees to survive. “In general, there’s a big change every two years from free to pay-to-play back to free and back again to pay-to-play,” Thomas says. “With the economy changing, we’re seeing fewer dollars put into advertising, so website operators are moving back to pay-to-play. There’s no proven model to sustain this kind of business for more than a few years on ad dollars.”

Regardless of the revenue model, the quality and the quantity of the content must remain consistent throughout the season to keep gamers coming back for more. Media Metrix reports that the total number of unique visitors viewing Fantasy Sports Ventures network sites increased 4.6 million month-over-month between November and December of last year, coinciding with the period when most fantasy football leagues enter their annual playoff round.