August 25, 2009

The Reality of Fantasy Sports

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

For millions of fantasy gamers, Sept. 7, 2008, is a day that will live in infamy. Less than eight minutes into the New England Patriots' season opener against the Kansas City Chiefs, the Pats' superstar quarterback Tom Brady--the reigning National Football League most valuable player, coming off a record-setting 50 touchdown passes in the 2007 campaign--crumpled to the turf in agony, the victim of a low hit by Chiefs safety Bernard Pollard. As the Patriots' medical staff dashed from the sideline, Brady writhed at midfield, clutching his left knee. The diagnosis: torn anterior cruciate and medial collateral ligaments. Brady's season was over almost before it began.

The moment he went down, all those fantasy football players who selected Brady in their league drafts knew their seasons were in serious trouble.

In the aftermath of Brady's injury, CNBC.com reported that roughly half of fantasy gamers who drafted the quarterback the year before won their respective leagues. In fantasy sports, participants assemble teams of real professional athletes to go head-to-head with other league members based on the statistical performance of those players, and the kind of stratospheric passing numbers posted by Brady can be more than enough to swing the balance of power to the team owner prescient or lucky enough to select him. CNBC speculated that in his absence, the shift in fantasy league winnings from those gamers who had Brady to those who didn't could total as much as $150 million of the estimated $500 million up for grabs.

Some Brady owners no doubt threw in the towel upon losing their franchise player. But for most, the fun was just beginning.

"The one thing that unites all fantasy gamers is their passion to win," says Chris Russo, chairman and CEO of Fantasy Sports Ventures, an integrated marketing and media firm that aggregates more than 250 fantasy websites and related digital properties. "When you lose a big player, you start scrambling for a substitute, looking at different options and considering trades. In many ways it mimics what happens in the major leagues--if one of your players is injured, you have to come up with alternatives. The reason fantasy is so exciting is because the user becomes the general manager--it puts the power of the GM in the hands of the fan. You play to show off your knowledge and to share in a community with your friends. It's more about bragging rights than anything else."

Before founding Fantasy Sports Ventures in 2006, Russo served six years as the NFL's senior vice president of new media and publishing. He estimates that in 2000, the year he persuaded commissioner Paul Tagliabue to launch the league's first official fantasy football competition, there were about 2 million fans playing fantasy football across the U.S. Now an estimated 27 million American adults play fantasy sports, translating to annual revenue between $800 million and $1 billion, according to the Fantasy Sports Trade Association, an industry organization that represents more than 110 companies. About 85 percent of gamers play fantasy football, and 40 percent participate in fantasy baseball. The average player is male, between the ages of 18 and 49 and boasts above-average income and education levels--in other words, a marketer's dream.

Even as rising prices for tickets, merchandise and concessions conspire to keep fans away from the ballpark--the average ticket to Yankee Stadium in New York City costs $72.97, notes sports business analyst firm Team Marketing Report--fantasy gaming remains relatively affordable and accessible. Research sponsored by the Fantasy Sports Trade Association indicates that most players spend $150 per year to compete. While a chunk of that money is dedicated to league dues and buy-ins, many gamers also invest in the growing legions of premium websites, books and magazines promising expert analyses and insider information on which players to draft, which players to start and which players to sit.

"Fantasy sports is here to stay," says David Dodds, co-founder of Footballguys.com, an information and analysis site closing in on 40,000 paid subscribers. "The NCAA basketball tournament bracket pool is never going away--it's too enjoyable. The same thing with fantasy football. There are too many people that enjoy playing. Even in a recession, last year was our best year ever. People think, ‘This is my fun. Maybe I can't afford Disneyland, but I can afford this.'"

Fantasy sports entrepreneurs like Russo and Dodds are not so different from the gaming community their firms serve--most everyone in the industry started as a fantasy player, then parlayed their expertise and rabid enthusiasm into a full-fledged career. "I'm a big proponent of marrying your passion with something you can make money on--it's not really work anymore if you're passionate about it," says Kelly Perdew, CEO of RotoHog.com, a digital platform developer that designs, implements and markets fantasy services for media and advertising partners.

Perdew's own career is a peculiar mix of fantasy and reality. After graduating from West Point and serving three years as an Army military intelligence officer, Perdew earned a law degree from UCLA and a measure of pop-culture stardom by winning the 2004 season of Donald Trump's NBC television reality series The Apprentice. His prize: Supervising construction of the Manhattan apartment complex Trump Place, then becoming executive vice president for the Trump Ice bottled water brand.