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Fri September 20, 2013
Cashing In On The Fantasy-Sports Economy
Originally published on Tue September 24, 2013 4:04 pm
There's big money in fantasy sports. Last year, alone, people paid $1.7 billion to play in fantasy leagues. With all that money sloshing around, a fantasy economy has sprung up, giving rise to real businesses. Here are four of them.
The Insurance Company
Henry Olszewski founded Fantasy Sports Insurance in 2008 — the year the financial system nearly collapsed. And, more importantly, the year New England Patriots quarterback Tom Brady suffered a serious hit to the knee.
Brady was out for the season. And fantasy-football managers who had drafted Brady were screwed.
"And it kind of just hit me," Olszewski says. "Could this be an opportunity to put together a program to cover fantasy team owners against these type of injuries?"
Olszewski's business sells insurance — real insurance — to fantasy team owners. Here's how it works. Say you're a fantasy manager and you're paying $100 to participate in a fantasy league. You can buy insurance from Olszewski for $10. Then, if your star player goes down for the season, Olszewski will pay you $100.
This season, he says, the big player fantasy owners are insuring against is Minnesota Vikings Running Back Adrian Peterson.
Say it's late in the season. A manager of a team that's not in contention trades a great player in exchange for a weak player. "Everyone raises up their arms and says, 'Wait a minute, that's crazy," says Bill Green, founder and CEO of fantasydispute.com. In extreme cases, fantasy managers accuse each other of cutting side deals that are against the rules.
When this happens, Green will serve as a judge-for-hire: For $14.95 he'll step in and issue a ruling to resolve the dispute.
LeagueSafe holds entry fees and manages payouts for fantasy leagues. And while the businesses we described above — the insurance company and the judge — are small, part-time operations, LeagueSafe is a full-blown business.
"We're up to 8 employees, and we've got several hundred thousand people using the product," Paul Charchian, the company's founder, told me.
LeagueSafe doesn't charge a fee — they profit off the float, by investing the money they hold during the season.
Bonus: Carchian is also President of the Fantasy Sports Trade Association, because even fantasy sports companies have their own lobbying group.
The High-Speed League
FanDuel lets fantasy players have more fantasy.
In a typical fantasy league, managers draft teams and wait all season to figure out who won. FanDuel lets players compete against each other every week in football, and every day in other sports.
In 2009, the year the company launched, it paid out $100,000 to people using its service. Last year, they paid out $49 million. This year, they estimate they'll pay $135 million.
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The U.S. economy is growing, but not all that quickly. From about 2008 to 2012, it grew by about 10 percent. The fantasy sports economy is on a completely different trajectory. From 2008 to 2012, it grew 130 percent.
Lisa Chow, of NPR's Planet Money Team, introduces us to people making real money in that fantasy world.
LISA CHOW, BYLINE: Meet your fantasy insurance guy.
HENRY OLSZEWSKI: My name is Henry Olszewski. I'm the founder of Fantasy Sports Insurance.
CHOW: Olszewski started the company in 2008, when the financial industry collapsed. But more important, when Tom Brady - the New England Patriots quarterback - suffered a hit to the knee, Brady was out for the season, as were many fantasy owners who drafted him.
OLSZEWSKI: And it kind of just hit me as, you know, could this be an opportunity to put together a program to cover fantasy team owners against these types of injuries?
CHOW: Now a quick tutorial in fantasy football: You get together with a group of friends, you all pick players for your fantasy team, and you win or lose based on the players real statistical performance. Fantasy leagues can be informal, 10 friends that were worth thousands of people online. Often it costs money to join a fantasy league, which brings us back to Olszewski.
So, let's say you paid 100 bucks to participate in your fantasy league and your star player goes down for the season. If you paid a $10-insurance premium to Olszewski, he'll reimburse you for 100 bucks. So that's insurance. Now meet a fantasy judge.
BILL GREEN: Hi, I'm Bill Green and on the founder and CEO of FantasyDispute.com.
CHOW: With so many leagues, so many different rules, there are bound to be a dispute, although the nature of those disputes can be confusing to a layperson. Green read me a recent case he received online.
GREEN: OK, here is the dispute. It comes from a commissioner: I am a commissioner in a 12-team start up Dynasty League. Our waivers are first-come/first-served. And we have a taxi squad that only rookies can be placed in.
CHOW: If you have no idea what a Dynasty League, waiver or a Taxi Squad is, that sort of the point. Green charges $14.95 per dispute to utilize his very specialized skills set.
Now, both Green and Olszewski are what you call part-time employees in the fantasy world. They're moonlighting from their much more lucrative day jobs. Paul Charchian, on the other hand, does make his full-time living in the fantasy sports economy.
PAUL CHARCHIAN: We're up to eight employees. And we've got several hundred thousand people using the product just this football season alone.
CHOW: Charchian is not only president of the Fantasy Sports Trade Association - yes, fantasy sports companies have their own lobbying group, he also runs a company called LeagueSafe.
So, say you're in a couple of leagues and you don't play one through PayPal, write a check for another. Charchian's company says you give us the money, we'll handle all the payments.
CHARCHIAN: We allow everybody to pay online into, basically, like, our vault.
CHOW: Charchian doesn't charge you for the service but he invests your money while he holds it. So you've got your banker, your judge, your insurance guy. Now, here's the Mark Zuckerberg of the fantasy sports economy.
TOM GRIFFITHS: My name is Tom Griffith and I'm one of the founders of FanDuel.
CHOW: FanDuel's breakthrough was allowing fantasy players to have more fantasy. Before FanDuel, you draft your team and then you wait all season to figure out who won. Griffiths company came up with a way for fantasy players to compete against each other much more frequently - every week for football, every day in other sports; turns out there's a demand for the service.
In 2009, the year the company launched, it paid out of $100,000 to people using their service. The following year, the pot grew to 1.8 million.
GRIFFITHS: Fast forward to last year, we actually grew to pay out $49 million. And this year, our forecast is that we will be paying out over $135 million worth of prizes.
CHOW: That's insane.
CHOW: Everybody trying to make real money in fantasy sports is pretty bullish. Over the last five years, the size of the fantasy sports economy has more than doubled. It's now at $3.4 billion. And many people think there's still room to grow.
Lisa Chow, NPR News. Transcript provided by NPR, Copyright NPR.