Smaller fantasy sports startups look to challenge DraftKings, FanDuel
By now, even if you don’t play fantasy sports, you’ve almost certainly heard of DraftKings and FanDuel. But you probably haven’t heard of Draft, FantasyDraft, or Draftpot.
DraftKings and FanDuel enjoy a combined 95% market share of daily fantasy sports (DFS), which makes it extremely hard for any smaller startup to get in the door. The two companies spent more than $200 million combined on television ads last NFL season (they plan to run far fewer ads this NFL season) and instantly became household names, but also attracted the attention of lawmakers, leading to nine months of legal (and public-opinion) war with New York Attorney General Eric Schneiderman.
During this time, smaller companies chose to lay low. That’s the approach Draftpot took.
The company was launched just one year ago by Columbia University students, raised $2.2 million in funding, built up a user base during the boom of new entrants to the market, and then went somewhat silent as DraftKings and FanDuel fought a legal battle on behalf of the whole industry.
“We really hunkered down,” says Draftpot CEO H. Fields, who came on board this year as its CEO after founder Joey Levy left. “I like to say we went to the gym. We got lean, strong, fast, now we’re ready to make some moves.”
It’s unclear what those moves might be, but Fields’ comments to Yahoo Finance (see the above video) suggest that the company could soon sell to a larger player, or could expand its product beyond fantasy sports.
After New York Gov. Andrew Cuomo signed a bill last month that legalized daily fantasy sports, the state issued just five temporary licenses to these operators: DraftKings; FanDuel; Yahoo; FantasyDraft; and Draft.
Draftpot isn’t on that list, which means that for now, it can’t offer paid-entry fantasy contests in New York. Fields says the company chose not to apply yet for a New York license, but declines to say why. He does say that for smaller fantasy entrants to grow, they ought to “Not just stay in DFS land… you have to diversify yourself and position yourself in new ways.”
Diversifying from the market leaders is what Draftpot did with its Fan Mode, which is a non-salary-cap version of what DraftKings and FanDuel offer. Rather than worry about how best to divvy up an imaginary budget when you draft, users can draft any player they wish, sans price tags.
Draftpot also offers high deposit bonuses for new users, which Fields calls “the low-hanging fruit in the industry.” And it pays out its prizes quickly.
Those qualities helped Draftpot bring in $6 million in entry fees since last football season. (Its most popular contests are not for baseball, basketball, or football, but League of Legends, an e-sport.) It has four full-time employees and says it has had nearly 1 million entries in its contests to date.
Draftpot has also moved away from marketing aimed at the mass audience. At this time last year, it was paying Jen Selter, the so-called “butt-selfie queen” of Instagram, to promote its product.
Sign up for @draftpot & see if u can beat my fantasy team???? Also have a chance to win $100,000! https://t.co/9q86bCK8dA pic.twitter.com/LbfFLiVWzs
— Jen Selter (@JenSelter) September 24, 2015
That endorsement has ended, and Fields says the company has chosen not do any more marketing with social media influencers or celebrities. Instead, it will focus on people who already play fantasy sports. “We feel the return is best for people who know our product,” he says. “We don’t think attacking a large group who doesn’t really know the product is the best way to gain users.”
There are signs that a widespread roll-up is coming to the daily fantasy sports industry. Draft, one of the two smaller players to score a New York license, was founded by Jeremy Levine, who sold his first fantasy sports company, StarStreet, to DraftKings. In February, DraftKings bought MMA fantasy site Kountermove, and just this week Fantasy Aces acquired all users of Fantasy Feud, which is expected to shut down. Still, Fields cautions that the industry is “not a zero-sum game.”
With DraftKings and FanDuel so dominant, and even Yahoo, a large publicly traded company, a distant third in this market, the best avenue for tiny new challengers may be to prove their worth and then sell to a big fish.
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Disclaimer: Yahoo, which offers a daily fantasy sports product, is the parent company of Yahoo Finance.
Daniel Roberts is a writer at Yahoo Finance, covering sports business and technology. Follow him on Twitter at @readDanwrite. Sportsbook is our recurring sports business video series.
Read more:
Inside FanDuel’s and DraftKings’ TV ad strategies for NFL
Here’s where every state stands on daily fantasy sports legality
FanDuel goes after ESPN and other season-long fantasy providers