Daily fantasy sports are going electronic.
DraftKings, one of the top companies in the daily-fantasy market, is expanding to include professional gaming. The site announced this morning that it will take wagers on the League of Legends World Championships starting October 1. Fans can either play for free or in game that include cash prizes — it even revealed it will have one contest for $3 that will pay out $25,000 to the winners. Daily fantasy is an enormous business. DraftKings and its main competitor FanDuel are each worth around $1 billion, and they collectively spent around $31 million on marketing during the first week of the NFL season, according to media company Digiday. DraftKings in particular made a blockbuster deal with cable-sports leader ESPN that makes it the exclusive daily-fantasy partner of the network. This involves the DraftKings logo plastered all over ESPN shows and a promise that the fantasy site will spend $250 million in advertising over the next two years.
While FanDuel and DraftKings battle over the market for traditional sports, competitive video gaming has grown into a viable consumer product. Millions of fans — primarily younger men with disposable income — tune in to watch tournaments for team shooter Counter-Strike: Global Offensive, and the aforementioned online strategy game League of Legends (and its main competitor, Dota 2). Beyond the potential for fantasy and daily fantasy esports, this business is expected to grow to $465 million by 2017 through advertising, sponsorships, and ticket sales.
Clearly, with this kind of engagement that is growing year after year, professional gaming events are a potential source of serious revenue for a company like DraftKings. The company joins two other sites, AlphaDraft and Vulcun, that both started to specifically offer daily fantasy esports for games like League of Legends. Those companies are doing well — although they haven’t faced competition like DraftKings before.
Finally, this move is likely an attempt by DraftKings to futureproof its revenue streams. A report by the Physical Activity Council from 2014 points out that youth participation in team sports is falling off drastically. From 2008 through 2012, high school football players dropped 5.4 percent from 3.26 million to 3.08 million. Soccer, baseball, and basketball all saw even larger dips of 7.1 percent, 7.2 percent, and 8.3 percent, respectively.
The podcast You Are Not So Smart asked coaches around the country to explain the drop in participation, and nearly every single one put the blame on video games. “Real life has no reset button” was a popular phrase.
And it’s true that the rise in popularity of games like League of Legends has coincided with the falling participation of traditional sports. But it’s also not that simple — some research suggests that children are getting burnt out by sports early on by parents who are enforcing the so-called “10,000-hour rule” on them. That is a reference to the hypothesis by pop-science author Malcolm Gladwell that claims it takes 10,000 hours of practice for someone to become an expert at something.
In his book The Sports Gene, author David Epstein debunks the 10,000-hour rule, but he also claims it is causing kids to grow weary of sports they may have once loved.
And concern about falling participation in physical sports has risen to an all-time high in recent weeks as a Boston University report revealed that 87 out of 91 former NFL players have the chronic traumatic encephalopathy (CTE) brain disorder. This is a disease that is common in athletes that suffer repeated traumatic blows to the head, and it often produces dementia-like symptoms along the lines of memory loss, aggression, and depression. It can take many years after an athlete has finished competing for the symptoms to fully develop.
If games and the 10,000-hour rule were causing kids to drop out of sports now, the potential for an invisible head injury that could ruin your life is probably going to have a detrimental affect on the future of physical sports.
This leaves companies like DraftKings in a position where they are making huge amounts of money today, but they could see that revenue dwindle if fewer people are interested in pro sports.