Fan Duel Demo's & Growth & Racing's Big Sleep

The cash game fantasy sports avenue that has been growing recently - Fan Duel, as well as Draft Kings and others - has been making a lot of noise. Interestingly, the NBA is certainly on their side, as witnessed by the comments of commissioner Adam Silver in the New York Times.

These sites are not new, and Fantasy sports has been played for money for ages (not to mention office pools and other forms of betting) but they've since gone mainstream. People who love sports are playing them, and those with a particular affinity for stats, advanced analytics, like Chase Stuart, are devoting time to it. 

This is clearly the aggregation of a phenomenon.

What is most interesting, is that the game appears to have value. Takeout rates are not penal - in fact Fan Duel have some of the worst (if you can call these bad) - and winning is an option. Piggybacking on the popularity of sports in general, is not difficult.

The demographic also reads like a who's who, for Madison Avenue or any gambling game. Approximately 4 in 10 players are women, and the demo skews young and relevant when it comes to technology, with approximately 7 in ten playing on a tablet or mobile device.

 In other words: A fun medium, low takeout rates, ability to win if you are smart, a growing demo with a high marginal propensity to consume, skewed younger, who use modern technology to survive.  What's exactly not to like?

Other than the obvious political risk (what gambling game does not have that), the sky appears to be the limit. Fantasy sports, like Horse Racing, has a carve out in the UIGEA of 2006.

Racing's carve out in that same act has not seen the same trajectory. There are "source market fees", regulations led by horsemen, infighting, penal takeout rates that only go higher. While Fan Duel and others have maximized their carve out be being entrepreneurial and forward thinking, racing has, unsurprisingly, gone the other way.

The usual response to such issues is that horse racing relies on betting revenue. That is barely partially true. Slots make up close to 40% of the purses, and Fan Duel is not a charity. They set their rates and work their business on a marginal cost and revenue basis like any other to maximize profit. Horse racing should be run similarly.

Although it really is an untrue statement in the first place, responses like "horse racing is expensive you know" only show how little racing understands the modern gambling consumer. It's not a customers job to care about the health of any business, it's a business's job to care about a customer. If Steve Wynn is having union issues and wants to charge more for the use of his gym, consumers just go next door to use another casino gym. If players - and I believe this is, has and will happen - move to skill based Fantasy Sports, it's not their fault horse racing can't get it together to attract them.

Disruptive technologies have changed businesses throughout history. In the late 1800's people were upset that loud steam "cars" were scaring the horses and tried to ban them. Sotheby's was no great fan of Ebay, newspapers not supporters of the free information flow of the net, companies selling $20 CD's with one hit and eight bad songs really, really dislike iTunes. Fantasy sports were long a back room pursuit by gamblers, statistics junkies and sports fans; but with entrepreneurship, the embrace of risk, and the hope to generate rates of return, this has been brought out into the open. Racing has done almost the exact opposite with their carve-out, and it is emblematic of the industry at its very core.  It's no way to run any business in the 21st century, and in no way can this industry be successful in terms of end-use gambling demand if they continue with such strategies.