The economics of fantasy football — or why you can’t watch TV anymore without seeing an ad for FanDuel

Given the high number of commercials for FanDuel and DraftKings during the average NFL game, fans might be forgiven for wondering if what they’re watching is America’s favorite sport or an endless series of ads, with occasional interruptions for a pass, a blitz or a touchdown.

The explosive growth in premium online fantasy football gaming (some might call it “gambling”) has companies like DraftKings and FanDuel buying up literally dozens of spots in NFL (and college) telecasts in an intense pursuit of one of the most elusive advertising demographics: young-­ish men. 

Some factoids on the growth of the phenomenon:

• According to the Fantasy Sports Trade Association (yes, there’s a trade organization for fantasy sports), something like 56 million people will play fantasy sports in 2015; 12 million played 10 years ago.
• DraftKings, bolstered by heavy investments from the likes of ESPN and FanDuel (whose major investors include the NBA) are each now valued at over $1 billion.
• According to Inc. magazine, on­line fantasy “gaming” is the third most profitable industry in the United States, topped only by on­line survey software and human services/payroll software.
• In the NFL, 28 of the league’s 32 teams have deals with one online fantasy site or another.
• Two-thirds of fantasy players are male, with 34 percent being female.
• The average player who puts in money (to the likes of DraftKings or FanDuel) spends $476 a year.
• Of those who pay to play, 66 percent have “full­time employment”(quite a few are still in school).
• Football is far and away the fantasy league of choice for those paying players, hoovering up 73 percent of online gaming activity.

It has long been a fact of marketing that other than sports, television is largely a female medium. Network television in particular (as well as local TV news) appeals primarily to women, a group valued for their out-sized role in family consumer buying decisions.

But young men … are a much tougher crowd for advertisers to capture, especially with live programming, where they might actually be exposed to an ad.

Ironically, the DVR revolution, which has millions now skipping past commercials, ​has accentuated the value of sports to advertisers — particularly the NFL — because fantasy players will avidly tune in to watchgames — live — that might otherwise have little appeal (like, say, the Browns vs. Chargers this Sunday). Fantasy league participants’ financial and emotional attachment to the players on their fantasy teams has goosed the value of sports programming even more.

How much more? The NFL is currently pulling in $7.3 billion ​a year in TV rights. The networks are paying for that by selling 30-second ad spots in regular season games for roughly $350,000 (for a noon regional game like the Vikings-Chargers) to more than $665,000 (for “Sunday Night Football,” the NFL’s marquee broadcast). Early word on rates for the 2016 Super Bowl have 30-second spots going for $5 million a pop.

The online fantasy connection is obvious. The rapidly growing number of players, most but not all of whom have money on the line, translates to more and more eyeballs on the tube, for which the networks can charge ever-higher ad rates. That, in turn, has allowed the NFL to ask for ever-more gargantuan TV rights contracts, some of which the NFL is now re-investing in online fantasy as a way to spur more viewership. In the Pentagon’s well-lubricated relationship with defense contractors, the term for such a system is called “a self-licking ice cream cone.”

Conventional wisdom says that it was a 2006 law, the Unlawful Internet Gambling and Enforcement Act​, that set off the online fantasy explosion by separating fantasy sports activity and horse racing from actual gambling, like, you know, poker.

How the millions being wagered on sacks, pass completions and touchdowns differs significantly from aces and eights is confounding to some, including a few lonely politicians pushing for a re-look at the definition of online gaming, but the distinction was made that online fantasy is a game of skill, not mere luck.

If you were to bet on a showdown between the combined resources of the NFL (and other leagues) and America’s television corporations against a handful of righteous lawmakers fighting to regulate this game, who would you take and at what odds?

Paul Charchian
Paul Charchian

Here in Minnesota the go-to guy for all things fantasy sports is and has been for 21 years, Paul Charchian, a regular voice on ​KFAN sports talk ​radio and now ​on podcasts​. Now 47, Charchian, who by the way is the president of the Fantasy Sports Trade Association, is an affable font of statistics and breaking sports news. He is also the creator/operator of LeagueSafe.com​, “think of it as a PayPal for fantasy players.”

“The buy-in to DraftKings and FanDuel by major investors over the last few years has been incredible,” he says. “We’re talking numbers like $500 million. You have DraftKing’s exclusive deal with ESPN; the NBA into FanDuel; the Kraft family that owns the [New England] Patriots, they’re into DraftKings. It’s amazing. There’s a lot of sizable money going into this because they can all read the numbers. I mean, 56 million now say they play fantasy sports.

“But the real thing, as you say, is the people who are watching. That young, male demo is not only watching three times as much football as non-fantasy players, but they’re watching it ​liveAdvertisers in today’s TV market are desperate to find viewers who avoid the DVR, and fantasy sports is it, in a very big way.”

Charchian, who jokes that when he decided to go all-in on fantasy sports he had to quit “my $60,000 a year computer tech job for an $18,000 job in fantasy sports,” says the growth and credibility of online fantasy sports “are ridiculous,” with no apparent point of concern.

Certainly not new regulation. In fact, he says his trade association has signed up five legislators around the country to carry bills removing other obstacles to the industry’s growth. 

As for the cynics and skeptics who have seen enough bubble markets come and go, thank you, Charchian argues that the research shows that the players involved today fully expect to continue to play for another 10 years, and many until they die (which — if they really are spending three hours Thursday, Sunday and Monday nights and six hours Sunday afternoons flopped out watching TV — could be sooner rather than later.)

“Frankly,” he says, “if there’s a concern about possible corruption, I really don’t see any great impetus for a company like DraftKings or FanDuel to cheat their customers. It wouldn’t make any sense.”

Comments (2)

  1. Submitted by Peter Stark on 10/01/2015 - 01:29 pm.

    “Game of Skill”

    This keeps getting trotted out as if it distinguished games as gambling or not-gambling. In what universe is Texas Hold’Em Poker a game of luck and not a game of skill? As if Doyle Brunson and Phil Helmuth are simply the luckiest men alive.

    At any rate, the only distinction I can identify between Fantasy Sports betting and Sport Betting is that Sports Betting is gambling on the outcome of individual (or groups of) games, where Fantasy Sports Betting is gambling on the outcome of individual (or groups of) players and plays. What, exactly, is the legal significance of this difference? Why can I not bet that the Arizona Cardinals will beat the Seattle Seahawks, but I can bet that during that game Larry Fitzgerald will catch a number of balls, amass a number of yards, and score a number of touchdowns?

  2. Submitted by Matt Haas on 10/01/2015 - 05:05 pm.

    I doubt legislation will be the cure

    But rather the fact that these daily sites are basically a riggable lottery, dominated by a few wealthy, tech savvy heavyweights literally writing software to game the system and suck up the pay-ins from the masses. I expect that when the general audience comes to the realization that unlike a lottery they have exactly zero chance of success we’ll see some of the air come out of the balloon. They won’t disappear entirely, suckers are born every minute after all, but there is already a disconnect between some of us “real” fantasy players who do it for fun and don’t care so much about the money aspect and those newcomers looking for the promise of an easy payday that these outfits offer.

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