The Key to Fantasy Sports Startups? Marketing & Data, Says DraftKings

7/19/12Follow @gthuang

The latest seed investment to be announced by Cambridge, MA-based Atlas Venture is DraftKings, an online fantasy sports startup in Boston. Atlas led a $1.4 million financing round for the company earlier this year, but today the founders are saying more about what they’re building.

Fantasy sports is kind of an odd duck. It’s male-dominated and has been moving toward daily online formats in the past few years, where you can choose players for your team and compete against others with outcomes on a daily basis (instead of at the end of a sports season). As a business, it’s sort of like social and casual gaming, only different. Although its target demographic is fairly narrow, its players are fanatical.

So a slew of companies have popped up to grab a piece of the pie. Locally, that includes DraftKings and also StarStreet, which began as a stock market for trading “shares” of pro athletes but now also does daily fantasy games. I checked in with both companies this week to hear about how they’re doing and what their latest challenges are in building their businesses.

From DraftKings’ perspective, co-founder and CEO Jason Robins says, “I think the biggest challenge in this sector is driving awareness. There is a massive market of fantasy sports players (30 million in the U.S. alone) and an even bigger market of sports fans, but the vast majority have never heard of this format. I myself play in a dozen season-long fantasy leagues every year, but I only discovered [daily play] very recently.” Robins adds, “As a fan of the games, I find the format to be superior to traditional season-long fantasy sports, but the main issue is that most people have simply never heard of it.”

So I wondered if it’s difficult to get enough revenues quickly in the daily-play sector. Most companies take a cut of all transactions—real money is at stake—but that depends on having enough people trying to win cash every day. StarStreet’s founder and CEO, Jeremy Levine, says it’s not tough to make money in fantasy sports, even as a young startup. He adds that StarStreet’s daily-play business, which started in February, is doing well.

Meanwhile, DraftKings was founded last year and went live with its daily-play fantasy baseball platform in April. Robins and his fellow co-founders Matt Kalish and Paul Liberman came from Vistaprint. They all have backgrounds in marketing analytics, and they all love fantasy sports. (Robins, Kalish, and marketing whiz Femi Wasserman were previously at Capital One.)

Here’s a short Q&A with DraftKings’ Wasserman:

Xconomy: How does a fantasy sports business compare to social/casual games, in terms of getting customers, revenues, and building a company?

Femi Wasserman: The bare bones of building a fantasy sports business are very similar to those for building social/casual games. You have to have a good and compelling idea for the game you want to build, compose the right team, and get funding for your idea. But, there are some key differences. Fantasy sports games are currently pretty niche, although the market is still sizeable and growing at 32 million players in the U.S. and Canada. Daily fantasy sports games for stakes are even more niche. That means that marketing is both easier and more challenging. Because the games are niche and online, you can find ways to target the players if you know where to look. Social media plays a big role in this market. But, because players tend to be savvy and experienced, especially early adopters, your product has to be incredibly strong to retain them. We’ve seen some good retention numbers at DraftKings already, but that will remain a focus of ours.

X: What are your challenges in getting started, and how has fantasy sports evolved recently?

FW: Usually this is where you would expect to see funding listed, but that actually wasn’t as long a road as we anticipated. Our investors saw the value pretty quickly. The biggest challenges have been internal. How do we split our limited startup budget between marketing and technology development? How quickly can we incorporate player feedback into a future release?

The daily fantasy sports sector has been growing rapidly in terms of players and companies offering games, as has the overall fantasy sports umbrella sector. We are not the first entrant in this sector in the past 2-3 years, but we think the difference will come down to the issues of a) clarity of vision, and b) how the investment decisions are made on the margin. The team at DraftKings comprises avid fantasy sports fans who also happen to be experienced marketers.

X: Are you looking at media-network and sports-league partnerships? It seems like TV could be a big partner in this.

FW: The field is wide open here. TV could be great. Right now, we’re focused on developing the best games possible and learning as much as we can from our players. We’re pretty passionate about data here at DraftKings. What the data tells us will likely drive where we head next. Near term, we’re preparing for the launch of our fantasy football platform.

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com or call him at 617-252-7323. Follow @gthuang

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