The concept of daily fantasy sports is one of those strokes of genius that you wonder why it took so long for someone to offer it to the public in exchange for a lot of money. Blogging has Twitter and Tumblr, when somebody figured out that people would go crazy for bite-sized microblogs. Video has YouTube and then VineTube, when someone figured out that 6-second videos were actually a great idea. And finally, sports betting has fantasy sports and then daily fantasy sports, when somebody miraculously figured out that people would love placing microbets not on entire seasons or games, but just individual player performance reset daily. What a novel idea. (If anyone has a microidea that splits up a popular industry into bite-sized pieces, perhaps you should pursue it.)
With Yahoo now entering the daily fantasy sports arena, the whole industry is taking a huge leap forward. No one knows exactly how this will play out. On one extreme, it could be similar to when Google entered search, and Yahoo could finally be redeeming itself, somewhat, from its late 90’s loss of the title of King of the Internet. On the other extreme, it could be similar to when Google entered social media with Google Plus and nobody cared. Chances are, it will be something in between.
One could argue that Yahoo Daily Fantasy Sports will flop like Google Plus because just like Google was never thought of as a social media brand, Yahoo is not generally thought of as a betting site. But Yahoo’s foray into Daily Fantasy Sports won’t be a failure, because Google ventured into social media ex nihilo, out of nothing. Yahoo at least has a serious fantasy sports user base of 6.235 million back in 2013 (ergo more now). Converting a fantasy sports user base paying small fees and driving ad revenue into a daily fantasy sports user base paying into a betting pool is not nearly as hard as converting searchers plugging keywords into your search engine to a user base that suddenly wants to click on your social media buttons.
As much as Google has pulverized Yahoo in search, Yahoo still has advantages that Google hasn’t been able to touch. Primarily, those advantages are finance and sports. I am not much of a sports fan, but personally, I can attest to finance. Yahoo Finance is vastly superior to Google Finance in almost every way. I would go so far as to say that the only real advantage Google Finance has over Yahoo is the flash graphs. If Marissa Meyer ever figures out that she should put flash graphs on Yahoo Finance, I would never use Google Finance again.
The very same thing that killed Yahoo in search in favor of Google makes it succeed with sports and finance. Yahoo has a more personal touch to its content. With Yahoo it feels like you’re interacting with human beings as opposed to with a robot algorithm. This is annoying in search when you want quick results organized by an algorithm, but advantageous with things like fantasy sports betting and finance when you want to interact with human intelligence. This is why Yahoo is likely to succeed with its daily fantasy sports betting. It’s a natural fit, turbo charged by the relationship that Yahoo already has with major sports organizations including the NHL, MLB, and NBA, and NFL.
As far as FanDuel and DraftKings are concerned, Yahoo has a leg up. It doesn’t have to spend nearly as much increasing its user base, whereas the other two do. In fact, it may very well be that many FanDuel and DraftKings users are already Yahoo fantasy sports members, or have been in the past. Yahoo could take many of these users back over the next few quarters, all depending on how good each brand really is at offering its product. How important is brand loyalty here, and how strong a force is it in the industry? We don’t know exactly because it is so new. My feeling is that in the next two quarters, the picture will clear substantially and we will know who will be the market leader here.
Here are some numbers that we can base some speculation on. First, there is Marissa Meyer’s word on Daily Fantasy Sports where she said in the most recent conference call that users are already spending 30 billion minutes playing fantasy sports on Yahoo annually. All fantasy sports have been united into a single app, which is automatic cross marketing. Yahoo, in Meyer’s words, is the only company that offers daily as well as season long fantasy sports and real-time news in one experience. 1.3 million have already tried the daily product.
DraftKings is worth about $1.2B according to recent estimates. FanDuel is about $1B. The total value of fantasy sports as a whole is about $3.6B.
The main advantage that the two private companes DraftKings and FanDuel have over Yahoo is the ability to go after grey markets. Fantasy sports is officially exempted from the Unlawful Internet Gaming Enforcement Act, but as we all learned from the Bwin.party merger, staying private has its advantages. There is no telling how congress will react to an internet giant entering a grey gambling market that is something between a skill game and a chance game.
As for trading advice, I can only say that investors should buy YHOO about a week before next earnings report, as daily fantasy sports are likely to surprise to the upside. I can’t advise buying right now due to monetary conditions, but there are likely to be nice jumps on earnings that short term traders can make some nice gains on.
