Posted on Thursday, Nov 12th 2015
According to an ESPN research, non-betting, yearly-based fantasy sports users are a fast growing demographic, reporting a 25% annual growth rate since 2011. The Fantasy Sports Trade Association estimates that there are nearly 51.8 million fantasy sports players in the US and Canada in 2015. Another research firm Eilers Research estimates the daily games to generate nearly $2.6 billion in entry fees in 2015 and grow 41% annually to $14.4 billion by the year 2020. The fast growing industry is also helping create Billion Dollar Unicorns. One such company is New York-based FanDuel.
FanDuel was founded in 2009 by Nigel Eccles, Tom Griffiths, and Lesley Eccles as a backyard Texas brainstorm. The company was set up at the 2009 SXSW Interactive festival when the founding members decided to focus their efforts on the fantasy sport industry. They wanted to simplify the season-long games and increase the winnings for their players. They figured the solution in the form of a new way to play fantasy where winners are announced almost every day instead of winning once a year.
While gambling may be banned in many states, FanDuel operates legally in 45 states as the online gambling laws passed in 2006 excluded fantasy sports from their remit. The laws just require FanDuel to follow simple rules such as publishing prize amounts before the games begin, making prize amounts independent of the number of players in the game, and making the game based on player stats instead of team scores.
FanDuel’s games last anywhere between a day to a week. Users choose the contest they would like to enter or create their own contests to play against friends. They then select the entry fee and prize for the game. After selecting their contest, the users then pick up their ultimate fantasy team for the games while staying under the salary cap and watch their teams play. Once the games start, the teams earn points based on the performance of their players. If a team earns more than the rivals on the day or the weekend, the user takes home the winnings without having to wait for the season to end.
Today, FanDuel has become the leader in the one-week fantasy sports industry. Their sports include the likes of NFL, NBA, NHL along with college football and basketball. Early this year, they had nearly 1.1 million customers playing on their platform. They account for nearly 75% of the daily fantasy market.
FanDuel’s detailed financials are not known, but they are seeing a rapid growth. In 2013, they had awarded $150 million in prizes and in 2014, that number grew to $500 million. FanDuel earns revenues by charging a fee of the winnings. Last year, FanDuel earned $50 million in fees. During 2015, FanDuel is projecting to pay out $1 billion in awards, translating to $100 million in revenues for themselves. The company isn’t profitable yet. Analysts believe that their customer acquisition cost is high, but FanDuel justifies that by claiming that a user returns every year after joining the game once.
They are venture funded so far with $361.2 million raised from investors including KKR, Google Capital, Time Warner, Shamrock Capital Ventures, Bullpen Capital, the Scottish Investment Bank, Comcast Ventures, and Piton Capital. Last year, the NBA also acknowledged the presence of FanDuel by signing a four-year partnership and taking a minor equity stake. They had received their last funding in July this year when they raised $275 million in a round led by KKR at a valuation of $1.5 billion. Rival DraftKings, which accounts for the remaining 25% daily fantasy market share has a valuation of $900 million.
More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. Unicorns will also be discussed with some special guests during our 1M/1M Roundtable programs over the next few weeks. To be a part of the conversation, please register here. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.
This segment is a part in the series : Billion Dollar Unicorns
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