The Fantasy Sports Trade Association estimates the average fantasy sports GM spends over $400 on league fees and evaluation tools each year. With more than 30 million users in the U.S. alone, that's quite a bit of dough, despite the fact that most are playing a game unchanged since the late '90s.
Aside from daily fantasy leagues, are other forms of innovation on the way? I talked with one potentially disruptive company to find out.
Fan vs. Machine
Mike Presz, the former CTO of Match.com, founded Skyllzone in 2009. The company introduced daily games behemoth DraftStreet.com one year later, and with financial backing from IAC/InterActiveCorp (NASDAQ:IAC), it's now rolling out a concept called Fan vs. Machine.
First offered in the 2013 NFL season, the technology pits users against computers and offers cash prizes to those who come out on top. It's not as Terminator-esque, "come with me if you want to live," as it sounds, but in a fantasy industry dominated by human competition, it's novel.
Skyllzone launched an NBA version of Fan vs. Machine this past week, and Presz told me his company plans to expand into baseball, golf, hockey, and, potentially, soccer. "We will ask and listen carefully to our customers and make sure we deliver the sports they want," he said, adding, "we've done a great job meeting our customers' needs." He says the software's weekly repeat play rate is over 70%.
Rise of the machines
When asked what type of algorithms Fan vs. Machine's computers were based on, Skyllzone's founder revealed that each has its own personality. "Our patented algorithms are based upon unique draft strategies," he said. In a typical game, nine computers with nine different algorithms compete against one human, to form what amounts to a 10-user league.
Presz also disclosed some of the variables that affect how each algorithm plays:
- Favorite position type to draft
- What round the draft is in
- Human-like, subjective player rankings that vary based on different expert opinions
- Knowledge of teams' schedule strength and match-ups
In addition to holding different viewpoints on popular debates -- like "Which player is the best in the NBA, LeBron or Durant?" -- each computer understands how to draft bench players that fit the same positions as its starters. By allowing the algorithms to have a historical awareness, Presz says there's a level of artificial intelligence as well. As he put it, "it's not all that different than what the human mind does when playing fantasy sports."
The business side of things
The FSTA pegs an annual value of about $15 billion on the entire fantasy sports market, and daily fantasy games -- played by one of every four users -- are one of its quickest growing segments. While the very nature of traditional leagues forces dejected owners to lose interest as the season progresses, daily games allow hope to be renewed every 24 hours.
If the illusion of control is why fantasy sports are popular, the speed at which a new league can be built is the reason daily games are so successful. Fan vs. Machine simply takes this idea further, by giving its users the ability to ignore the inefficiencies of human competition. Computer algorithms eliminate the need to wait on your peers to pick players, and drafts can happen at any time of the day, in or out of season.
The standard payout structure for Fan vs. Machine's public contests is $20 for those who win their 10-team leagues, and a little over $1,000 in global prizes, which are divvied up between all users. Entry fees are free. And although the company is focused on growth, Presz told me his team has "a lot of experience" with monetization strategies, which the company will explore in the future.
Of course, plenty of risks remain. Will players be bored without human competition? Is the social aspect of fantasy sports -- trash talk and draft parties -- a main reason why people play?
Most likely, Fan vs. Machine will be an add-on service for expert users who want to hone their skills, but I'm hesitant to proclaim it will be a mainstream success. Depending on how it's monetized, though, a niche market may be enough for Presz and its creators.
There's no denying the multi-billion dollar fantasy sports industry is saturated with dozens of services, but there's still a lot of room to grow, particularly in the realm of mobile. I'm willing to give Fan vs. Machine a try, and assuming daily games continue to provide what The Wall Street Journal calls "instant gratification," others will too.
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Jake Mann has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.