Last week daily fantasy game provider, DraftKings acquired fellow daily fantasy game provider DraftStreet. This effective puts in end to DraftStreet as their users have been migrated into DraftKings.
The consolidation of the #2 and #3 companies in the daily fantasy game provider market could signify that companies are having problems converting users growth into profit. Earlier this year, DraftDay was acquired by MGT Capital for $600,000. MGT Capital already owns FanThrowdown and now continues to operate DraftDay.
There is no shortage of good news in the growth of daily fantasy game market. It has been estimated that daily fantasy has grown 1500% in the last 4 years. The number of daily fantasy game providers continue to grow. Just looking at this site game providers directory lists approximately 40 daily game providers. There are only a handful of traditional game provider such as ESPN and Yahoo! However, player growth and participation especially in daily fantasy does not automatically equate to profit.
There has been only really one strategy for daily fantasy game provider to monetization and that is through game fees. The game providers charge players to play and then pay back some of the collected money of players to winners. This reward model has been successfully executed by the top daily fantasy game provider such as a FanDuel and DraftKings. FanDuel is the largest daily game provider and has been successful in creating revenue in the space. FanDuel projects to $40 million in revenue in 2014. They seem to have been able to locate the holy grail in daily fantasy: the paying returning player.
The traditional game providers do operate a small number of their leagues in this format, but there main revenue model is based on something different: participation. Yahoo! and ESPN would rather have millions and millions participate in their game, make their money of advertisement on the internet properties as well as advertisement on their TV deals.
The Fantasy Sports Trade Association has been stepping up efforts to make sure that any player has access to daily fantasy game and to highlight that fantasy sports is not gambling. The FSTA has a section of their website dedicated to address the gambling question. In addition, the FSTA has been backing legislation at the state level to officially remove all gambling restrictions that could be attached to fantasy sports.
The traditional game providers have been playing the waiting game and observing the daily fantasy game market. One of the issues, that they need to contend with is the question of gambling and the juxtaposition of gambling to their brand. An obvious sign of daily fantasy legitimacy is the introduction of daily games by Yahoo!, ESPN, Fox Sports, CBS Sports or NFL.com
