And they’re racing: 2015 Australian fantasy industry update

Back in the dark ages of fusty history – I’m talking 2011 here, several years after my last foray into the history books – the Australian fantasy industry was taking all before it. With more than 700,000 “coaches” in AFL competitions play-acting at managing their fake teams of real players in fake leagues using real statistics, and other sports adding up to push the local audience for fantasy sports past a million, in a nation of not much more than 20 million people it was looking like it would become as popular as it is in America. Then, something went wrong. I will now present my personal views as to why, and how this means we need to change and adapt.

There are many possible reasons why participation in AFL fantasy has halved since then, and growth in other sports has levelled off. The first possible culprit was the byes, introduced in 2011 to accommodate the advent of the Gold Coast Suns, and then continued to lengthen the season after the GWS Giants evened up team numbers. The major AFL fantasy competitions, Dream Team and Super Coach, did not change to reflect this new reality and when multiple byes hit at once, suddenly fantasy teams were decimated with no way to prevent it. This sucked some of the fun out of the game, and although the rules were changed in subsequent years to compensate, the damage was done.

Part of the reason for inertia in the game rules was the fact that Vapormedia (a.k.a. VirtualSports), which founded the modern version of the Australian fantasy industry in 2001, was by that stage still operating both the DT and SC games, which led to a lack of innovation due to the game being somewhat of a pawn in the long-running battle between Telstra (who controlled the AFL fantasy game) and News Limited (for whom Supercoach is still very important these days). Any new feature that Pete Jankulovski of Vapormedia offered to one of them, he had to offer to the other. This prevented differentiation in the products to a large degree, to the ultimate detriment of both games. Eventually the inevitable decision had to be made, and the AFL and NRL contracts were taken off Vapormedia and handed to Fanhub Media, a joint venture between digital agency Loud&Clear and sports consultancy Accel Media. Its launch in 2014 was not terrible in AFL but was a disaster in NRL, leading to the costly decision to run a parallel competition with a second identical set of prizes. 2015 was a much smoother year for Fanhub, but again the damage was done the previous year.

Then there are the changing demographics of the Australian fantasy audience. FanFooty did a survey in 2011 of its audience, getting around 500 responses. To my surprise, a third were school-aged or university-aged, and a further third were in their twenties. Fantasy skewed young in Australia, it seemed, or at least it did with the hardcore fans who made up my audience and bothered to fill out a survey. For the similar demographics in America, for example, the average age of a fantasy coach is 34. I don’t have any up-to-date figures, but from watching the industry, I am hearing a lot less chatter from schoolies about fantasy sports. It used to be that you’d be told tales of entire Australian high school classrooms consumed with talk of fantasy whenever they weren’t in class. I haven’t heard much of that sort of thing lately. (More on this later.)

There are some people who bring up points to illustrate that things are not that bad. Some say the rise of draft games like Ultimate Footy/League, which received a boost in 2013 after being acquired by Fairfax, means that the industry is just becoming more diverse, with the concurrent drop in registrations to salary cap competitions like Dream Team and Supercoach merely being an aspect of a new diversity of fantasy competitions. Others like to say that there never were 700,000 people playing AFL fantasy games in the first place, as some coaches would enter multiple registrations for various reasons, so the peak numbers were illusory and they have just deflated back to reality.

Nevertheless, in my travels around the industry talking about these issues in the 2015 post-season, the reason brought up most often for the demise of Australian fantasy sports is the rapid increase in marketing by gambling operators. Again, this is not something that I or anyone else can back up with quantitative evidence, but many people in the industry have said to me, or agreed with me when I mentioned it, that the advent of millions of mass media marketing dollars poured in by bookies like Sportsbet and Ladbrokes, and totes like the TAB, has undermined the growth of fantasy sports and supplanted it in the minds of many young men. Where five years ago those boys would have been obsessing over spreadsheets looking for the next Dream Team premium or Supercoach unique, now they’re simply thumbing the big button on their phones marked BET.

The obvious conclusion is that all of these factors have contributed to the way the industry looks now, and that leads me (circuitously) to the point of this article. One of the many new products that have been tried to tempt Australian fantasy users back to the fold is the casual game. The height of this format is daily fantasy, where instead of managing the same team all the way through a sporting season, you pick it for a day or a single real game, then throw it away. Crucially, instead of being free to enter like DT/SC/UF, the big daily competitions require payment to enter, a.k.a. a betting ante. Traditionally, annual fantasy competitions in Australia have been treated legally as promotions, meaning the operators can’t charge entry fees and have to make their money through engaging sponsors. This paradigm is reversed in DFS, as the whole reason for running the competitions is to profit from the entry fees of participants.

If you’ve gotten this far into the article, I probably don’t need to tell you how big daily fantasy sports (DFS) have become in the US, to the extent that the two major providers are now worth well over a billion US dollars. The rapid ascension of Fanduel and DraftKings into so-called “unicorn” status has piqued interest across the world, as there are obvious similarities here to the American market and so far none of the international providers have expanded to Australia. The main similarity is that daily fantasy skews younger than annual in America (two-thirds of DFS coaches in America are younger than the median age of 34 for annual fantasy), and it promises to bring back the hundreds of thousands of young men to fantasy sports who have abandoned it for a variety of reasons. It’s the sort of format that attracts the casual player, and that suits the modern mobile millennial just fine.

Thus, perhaps unsurprisingly, now we have a situation where there are ten providers in Australia, by my last count, and there are some interesting backgrounds among the prime movers behind the startups. The five to launch so far are:
– Moneyball (Rax Huq and James Fitzgerald, ex-Fairfax digital experts from Sydney): AFL, NRL, NBA, NFL, EPL, A-League
– Top8 Fantasy (Samuel Murray, a doctor from Sydney, and Venkatesh Kanchan as CTO… with assistance from ex-One.Tel director Brad Keeling): AFL, NRL, NBA, NFL, EPL, A-League
– Sports Fantasy Pro (Daniel Simic, serial entrepreneur from Sydney who made his name in construction): NRL, NFL, NBA, Test cricket (and presumably ODIs and BBL to come)
– Fantasy King (three blokes from Melbourne: Andrew Whiteman, Matt Tapper and Paul MacTier… Tapper’s day job is running global marketing for Lion beer): AFL, Super Rugby, EPL, UFC
– Fantasy Games (Liam Boukas, from Sydney): EPL, A-League, NBA, cricket

There is also one provider who had launched and operated this AFL season, but has gone back into stealth mode in preparation for a rebranding:
– Stadium Fantasy (James Merchan, a Frankston real estate agent in Melbourne): AFL this year, but adding NRL in 2016

Two more providers have web sites but are still in beta mode:
– TradeChamp (by c8apps, comprised of a couple of Canberran lads in Charles Noble and Bao-Minh Tran-Vo who are now in Melbourne, launched in association with BigFooty): AFL
– FanSports (Peter Gorman, Dean Gorman and Brad Piper, another group of digital mavens from Sydney… no relation to FanFooty btw): AFL, NRL, possibly others

There is another who has announced a site but has not launched yet:
– FootyRhino (Ryan Daniels, Seven Sport journalist from Perth, plus one other): NBA, others to follow

There is one further company whose DFS project is in stealth mode, which is one of the biggest in the industry – and it’s not Fanhub. It’s an open secret, so I’m not breaking any confidences there. This site will have AFL and NRL plus many others. (EDITED TO ADD: Its name is Sportsdeck, and it’s from VirtualSports.)

EDITED TO ADD:
– long-established but still small startup The Bench, with their product SuperDraft which launched in late February with NRL and AFL, with a promise to add SUper Rugby soon
– new startup Fantasy Coach Pro which promises to self-fund through a Kickstarter campaign to launch probably in the second hald of 2016 covering AFL, NRL, Super Rugby, EPL and/or A-League, cricket, NFL, NBA, MLB and NHL

So, we have a Melbourne Cup field in the fledgling Australian DFS industry. Already, I’ve heard some chatter that this is too many as it is. This is not quite correct yet, as Moneyball is the only one who has any money: A$1.5 million in its Series A fundraising earlier this year, reportedly from millionaires who made their money as executives at Macquarie Bank. If there were half a dozen other startups which already had money to spend on marketing and were flooding the media with confusingly different pitches for the same audience, that might be too much. As it is, most of the startups are looking for venture capital backing from precisely the sort of people who just funded Moneyball. I don’t know how many will manage to attract anything like what Moneyball secured, particularly given that the winners in this industry will probably end up needing well upwards of A$10 million in funding to gain critical mass.

As can be seen from the large number of entrants, building the application itself is one of the easier jobs in the whole process of starting up a DFS company. In 2015, all you need to do is point some random development outsource agency from Kazakhstan or Argentina at Fanduel.com and say “copy that”, and pay them a relatively small sum to get a professional-looking clone site mere months later. Those who build their own in Australia don’t need to spend much time or effort making it look pretty, as the Fanduel/DraftKings standard is pretty ugly and simplistic, when it comes down to it. The regulatory hoops you have to jump through to get licensed by Norfolk Island are onerous, but not prohibitive.

No, the difficult bit is convincing CUBs (Cashed Up Bankers) to be willing to write off six- or seven-figure investments for the distant dream of realising a nine-figure payout. The question is how many of the half dozen unfunded Australian DFS startups will manage to escape the bootstrap backblocks and join the leading group of the Funded. Once one or two more of them release news of a major funding round, the case to be made for the others will dissipate, as the market may not be able to sustain more than two or three big players. The race is, therefore, on.

The thing that could change the game – a shadow under which the current form of the game is being played – is the possible entry of the bookies and/or totes into the DFS industry. Of course, the gambling companies are all casting a careful eye over the advent of DFS, as it represents a threat to their increasing stranglehold over the minds of young men who want a rooting interest when they watch a sport in which their favourite teams aren’t playing. If one of them entered the DFS industry with a product of their own, it would immediately scare off potential funders of the startups, and represent a direct challenge to the rise of Moneyball as the primary provider. The bookies & totes have an interest in not doing so, because it would dilute their existing revenue bases in traditional betting. Some of the smaller and newer gambling players have less of a problem with defending their turf, with CrownBet probably the most prominent among those.

In the absence of any concrete moves by the bookies & totes, though, for the moment the Australian DFS industry has to soldier on under the assumption that it will be left alone in the short term. The next question at this still very early stage of the Australian market is: assuming that the money will eventually come for marketing, what else needs to happen for DFS to succeed in Australia? In my talks with various people across the industry in recent months, I have been trying to address this question, mainly with one word: ecology. Australia as an economy is a twentieth the size of the US, and its fantasy audience is even smaller in proportion. If I had been as successful in America with FanFooty as I have been here, for example, I would have twenty employees. As it is, I’m one of the few people in the fantasy industry in Australia to not also have to take a day job, and I’ve been continually lucky to have avoided that fate thus far.

There just aren’t the same level of resources in Australia to support the providers by building all the things that have allowed the DFS market to thrive in the US. I’m speaking here about the DFS research tools that the likes of Rotogrinders and FantasyLabs provide for the US, very little of which we have seen in this country, outside of TooSerious and FFGenie. To enable the high-volume DFS players called “sharks”, whose presence would be a telling sign that the Australian industry is big enough to become viable, there need to be easy ways to generate and enter multiple teams at once for our local providers, which is where the likes of Daily Fantasy Cafe and Fanspeak come in for American DFS with automated lineup generators.

Perhaps most importantly, an aggregator site like Superlobby is needed because unlike salary cap competitions, the key with DFS is not to restrict yourself to one provider, as this means you’re a sucker for that site’s prize policies. The best provider on one day might be the worst the next day, because they can change their prizemoney parameters regularly. Aggregators are necessary for players to find the most lucrative competitions with live updated info on entries, prize pools, using the “overhang” statistic which measures the best chances of winning money in the biggest guaranteed prize pools (GPPs) with the least number of participants. This encourages DFS providers to attract players with big GPPs, and rewards them with rafts of new entries if the aggregator is powerful enough.

These kinds of products have to be built by people in the community, because they need to be provider-neutral. For that, there needs to be financial incentive for people to put the effort in, which is where affiliate revenue comes in. All of these third-party sites mentioned in the previous paragraph attach affiliate codes to their deep links inside the DFS provider sites, and they get a cut of activity from each player who clicks through and signs up. Moneyball in particular already has an extensive affiliate system up and running with sign-ups from many in the fantasy community, which is part of the reason why they are already attracting 500+ players in their bigger contests despite doing no mass market advertising (AFAIK). The likes of DT Talk and Fantasy Renegades have given a lot of publicity to Moneyball and SFP respectively to support affiliate deals. This marks a distinct difference from the incentives for those in the community for the annual comps. There were sites who were able to make decent advertising coin from DT/SC being mass market products through weight of traffic; others converted their popularity into official junkets with league insiders; still others used fantasy as a CV padder to help them get a job in the wider sports industry; and some just used it to bolster their egos, fulfil their personal ambitions and have a bit of fun. I’m not criticising any of these as valid goals for those in the community, of course, but the advent of affiliate revenue means that if DFS really takes off as a concept, there could be a lot more hard cash flowing through to enable more of the hardcore fans to quit their day jobs and help build out the ecology of a new industry.