Why Are Sports Illustrated and USA TODAY Entering the Fantasy Sports Market?

Sports Illustrated and USA Today are entering the daily fantasy-sports space. How will they make money? And what does this mean for the industry?

Aug 23, 2014 at 9:08AM

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Keith Allison, Flickr.

There's a good chance either you or someone you know is obsessed with fantasy sports. More than 41 million people play in the U.S. and Canada, according to the Fantasy Sports Trade Association. But while traditional, season-long leagues from providers like ESPN and Yahoo get most of the attention, a smaller subset of the industry is gaining traction: daily games. They are becoming so popular, in fact, that two media giants are entering the fray.

SI and USA TODAY bring big-time experience
Last week, Time's (NYSE:TIME) Sports Illustrated and Gannett's (NYSE:GCI) USA TODAY revealed they're entering the daily fantasy sports market. SI's FanNation offers the MLB-focused Baseball Throwdown at launch, and it will eventually expand into the NFL, NBA, and NHL, the company said in a press release. The platform gives users the ability to play Facebook friends and Twitter followers head-to-head, and will likely leverage SI's massive magazine readership to expand.

USA TODAY, meanwhile, is introducing a service known as FantasyScore. In step with the upcoming NFL season, it will center on fantasy football first, before moving to other sports down the road. As Ad Age points out, FantasyScore will be marketed through USA TODAY's sports section, in addition to the numerous sports sites under its banner including HoopsHype and The Big Lead, and presumably Baseball Musings and AWSM.com. "We are going to be pulling all levers," vice president of innovation Mark Pesavento told the outlet.

How will they make money?
Both companies bring big-time experience to an industry previously controlled by upstarts DraftKings and FanDuel, which pay out millions in prizes, and take a cut in the process. FanDuel reportedly takes a 10% cut of all entry fees, while DraftKings nets between 6% and 10% of user fees, according to the Boston Business Journal.

SI and USA TODAY haven't revealed what type of fees they will charge, though it's possible both will keep a similar structure. The latter told Ad Age that "game management fees" are on the table, in addition to display advertising, native ads, and sponsorships. Eventually, "a series of branded events and tournaments" are possible, it says.

Espn Fantasy

ESPN's fantasy football app. Image taken by author.

Uncertainty makes it tough to calculate revenue figures. But billions could be up for grabs. The FSTA estimates that all fantasy users -- traditional and daily players -- spend $3.6 billion a year, on things including league fees, website prize fees, and challenge games.

FanDuel, meanwhile, projects it will make $40 million in revenue this year. The company reportedly has at least 4 million users, while the smaller DraftKings has over 1 million players, according to Forbes. If USA TODAY's and SI's daily games can simply persuade 5% or so of their Web visitors to sign up, each could surpass the seven-figure user mark. Under that scenario, tens of millions in revenue is a real possibility in the near term.

What's this mean for the industry?
Roughly two-thirds of this year's Super Bowl viewers don't play fantasy football yet. A little over 110 million people watched this year's game, Nielsen estimates. Assuming USA TODAY and SI can bring more publicity to the daily space, millions more users could jump on board. And it appears competitors agree.

"We think it is great USA TODAY getting into daily fantasy. ... I think it further validates the space and brings it to a whole new audience," FanDuel CEO Nigel Eccles recently told Forbes. DraftKings VP Femi Wasserman added, "[N]ew companies entering the space serve as further validation of the massive growth potential that still remains."

What's next?
Because they allow providers to take a cut of player fees, daily games offer the potential for higher profit margins compared to traditional ad-supported sports content. Most likely, this is one reason both media giants are entering the market. Gannett, in fact, shuttered its investment in the sportswriting website Sports on Earth a week before FantasyScore was unveiled.

This also makes it clear that daily fantasy sports are in expansion mode, at a time when online media companies are consolidating. The former is still very young, has a long way to go on the industry "life cycle curve," and it's quite possible more peers will follow in the footsteps of USA TODAY and SI going forward.

Ultimately, that's good news for players and fantasy providers alike. Greater competition should force sites to offer the lowest fees and best prizes possible, while more football fans will be pushed into the market as a result.

Don't make money playing fantasy sports?
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Jake Mann has no position in any stocks mentioned. The Motley Fool recommends Facebook, Twitter, and Yahoo!. The Motley Fool owns shares of Facebook and Yahoo!. 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.

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