Americans' attendance at sporting events has been steadily increasing over the past decade, but their fantasy participation has been growing at an even quicker rate.
Fantasy sport betting is a great way to add extra excitement to your normal fantasy pools. The best thing about fantasy sports betting is that it is completely legal in the U.S. and Canada. Even though it shares many similarities with traditional sports betting, fantasy sports betting relies on enough skill to not be classified as gambling. The government has no problem with fantasy sports betting because it is considered a contest of skill.
There are still elements of luck in fantasy sports betting, but your success is based on your ability to create the best teams with a limited amount of virtual money. The better you are at balancing strong teams, the more money you make with fantasy sports betting.
The legal status of fantasy sports betting is a major advantage because it means your betting sites are located on U.S. shores. This means you will get faster payouts and a safer experience. On top of that, you can use big-name services like PayPal to deposit and withdraw your money.
The Fantasy Sports Trade Association estimates that some 35 million Americans play fantasy sports, spending an average $95 each to play.
How Fantasy Sports Betting Works
Fantasy sports betting websites offer a variety of betting options. You can go head-to-head against a single person or compete for larger prizes in multiplayer competitions. Let's use a head-to-head match as an example to show how fantasy sports betting works.
The first thing you do is choose a match-up in the sports betting lobby. These match-ups are listed at a variety of stakes. You can wager for as little as $5 or as much as several hundred dollars. After you are matched with someone, you can then pick your ultimate team. You will be given a virtual salary cap that you can use to buy your players.
After you and your opponent finish picking your teams, the only thing you have to do is watch your team and hope for the best. Your team will receive points based on how those players actually perform in real life.
If your team scores more points in total than your opponent's team, you will win the match and your opponent's money. There is nothing else you have to do. You can cash your winnings out or continue playing against other people.
U.S.-Listed Players In The Fantasy Sports Market
There are two major players in the fantasy sports market.
It is widely speculated that Yahoo! (NASDAQ:YHOO) Fantasy Sports has the most user accounts, as it offers free membership, advice, and a functional way to track player stats. In addition to user-created leagues, Yahoo also offers pay-to-play "Pro" leagues, in which the most dedicated players can compete for prizes up to $500. The company also generates revenue from its premium content, most notably its "Scouting Report" and "Yahoo! Trade Review" services.
Walt Disney's (NYSE:DIS), ESPN has a much broader reach into the sports community, as it is able to market its fantasy sports service through three cable TV channels, most notably on its nightly broadcast of Sportscenter. Within ESPN.com's Fantasy Sports community, users are given the option to compete in their own leagues or in a range of other games, such as "Streak for the Cash," where fantasy diehards are allowed to place bets on numerous sports happenings. ESPN offers more than 40 different fantasy games covering almost every sport imaginable. Even though Yahoo has the larger user base, ESPN.com has historically received the most traffic, as it has averaged over 40 million unique visitors each month since 2006.
Walt Disney generated impressive sales and profitability in its fiscal second quarter, as its key business units are utilizing the pricing power embedded in its franchises. The stock had quite a run from $48 to $66 over the past six months. ESPN's dominant position in sports television creates a dual income stream (affiliate fees and ad revenues).
From a valuation standpoint I would prefer Disney above Yahoo!. Yahoo's first-quarter results indicated that the company is still in the midst of a turnaround. Yahoo's longer-term positioning and durability of its advantages are still unclear.
A small player that entered the market is a company called MGT Capital Investments (NYSEMKT:MGT). The company is primarily engaged in the business of acquiring, developing and monetizing intellectual property rights. On April 22, the company announced that its wholly owned subsidiary, MGT Sports, Inc., has reached an agreement to acquire a controlling interest in FanTD LLC, marking the company's initial venture in the online and mobile gaming and wagering space.
On its website, www.fanthrowdown.com, FanTD hosts a socially interactive destination where users can participate in free or real money daily fantasy sports contests. Users select a roster of athletes across all popular sports, and winnings are determined by the same-day performance of these rosters. Daily fantasy sports compress the betting timeframe of traditional fantasy sports from multi-month seasons into 24-hour periods. FanTD generates revenue through a rake of the total amount bet.
Fantasy Sports Business Going Forward
Nike (NYSE:NKE) is even supporting fantasy sports betting. In December 2012, with support from startup mentoring firm TechStars, the Nike+ Accelerator offers select startups the opportunity to enter a three-month program at a Nike space in Portland, Oregon, where they'll build products on top of the Nike+ and NikeFuel platforms. After receiving hundreds of applications to join the program, Nike narrowed the entries down to 10 new companies. One of them that is involved in fantasy sports. The company is called is Incomparable Things and creates activity-driven fantasy sports leagues.
In February 2013, Cantor Fantasy Sports, a unit of investment bank Cantor Fitzgerald, confirmed it will be expanding its sophisticated pay-to-play fantasy products on smartphones later this year. The company is bringing a new playbook to the pay-to-play fantasy market dominated by CBS Sports, Yahoo Sports and others: Cantor's niche is pay fantasy sports developed specifically for mobile devices.
Cantor Fantasy Sports, launched in 2012 by Cantor Data Services - a Cantor subsidiary based in Las Vegas - debuted a tablet app for fantasy games for Android devices last September and Apple devices at the beginning of the year.
Last month (April 22), Atlantic City casino patrons could begin to get the chance to play fantasy sports for prizes. New Jersey will allow Atlantic City casinos to conduct fantasy sports contests. In short, you will be able to put together a fantasy team and play for casino winnings.
Even Zynga (NASDAQ:ZNGA) is talking to potential partners with regard to expanding into bona fide online gambling. So games for fantasy sports betting could be their next step.
If you're tired of looking for decent U.S.-friendly sportsbooks, fantasy sports betting is a great alternative to traditional sports betting.
Professional sports leagues seem to view fantasy sports in a favorable light. The NFL, in fact, offers its own fantasy football game. On NFL.com, one of the first words to the right of the NFL shield is "FANTASY" in block letters.
The combination of great passion for the hobby and inexpensive participation has made fantasy sports very recession resilient. The sports participation has grown over 60 percent the past four years as over 35 million people are now actively playing in the U.S. and Canada, new research conducted by Ipsos for the Fantasy Sports Trade Association (NYSEARCA:FSTA) shows. This finding shows the highest participation numbers in the history of fantasy sports.
The fantasy industry is booming and several participants can profit from this trend. One of the smaller ones and is MGT Capital Investments, which could reap the fruits going forward.
Generally speaking, fantasy sports are viewed more kindly by the law than sports betting, with the federal Internet Gambling Prohibition and Enforcement Act of 2006 drawing a legal distinction between wagering on a game and participating in fantasy sports. A reading of the 2006 betting law and New Jersey's proposed regulations shows some clear similarities - which is likely no accident. Also, the proposed regulations for the fantasy games make it clear that the games are not considered to be gambling in the division of gaming enforcement's eyes.
But as competition for fantasy-sports dollars escalates, so does the risk that politicians will redefine the games as gambling and seek to impose regulations or taxes.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MGT over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.