{"id":1082,"date":"2015-10-04T15:57:46","date_gmt":"2015-10-04T19:57:46","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-digit\/submission\/daily-fantasy-sports-compete-head-to-head\/"},"modified":"2015-10-04T15:57:46","modified_gmt":"2015-10-04T19:57:46","slug":"daily-fantasy-sports-compete-head-to-head","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-digit\/submission\/daily-fantasy-sports-compete-head-to-head\/","title":{"rendered":"Daily Fantasy Sports Compete Head-to-Head"},"content":{"rendered":"<p><img loading=\"lazy\" decoding=\"async\" class=\" wp-image-1070 alignright\" src=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2015\/10\/emerging-trends-in-online-gambling-within-australia-7-728-300x225.jpg\" alt=\"emerging-trends-in-online-gambling-within-australia-7-728\" width=\"375\" height=\"281\" srcset=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2015\/10\/emerging-trends-in-online-gambling-within-australia-7-728-300x225.jpg 300w, https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2015\/10\/emerging-trends-in-online-gambling-within-australia-7-728-600x450.jpg 600w, https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2015\/10\/emerging-trends-in-online-gambling-within-australia-7-728.jpg 728w\" sizes=\"auto, (max-width: 375px) 100vw, 375px\" \/>Digital transformation has deeply impacted the sports betting industry, creating significant value in an outdated ecosystem.\u00a0 As compared to traditional betting houses, digital gambling books bridge geographic bounds, add convenience, and make betting more accessible.<\/p>\n<p>This value creation has led to huge growth in online gambling over time:<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>This shift coincides with increasing popularity of fantasy sports, exempted from laws restricting sports gambling as fantasy sports are considered a \u201cgame of skill.\u201d\u00a0 As such, daily fantasy sports (DFS) platforms have exploded \u2013 led by strong competitors FanDuel and Draft Kings.<\/p>\n<p>There is one significant difference between these platforms and old-school booking houses like in Vegas: instead of playing against the house, daily fantasy sports are pooled against other users.\u00a0\u00a0 That means that scale is critical.\u00a0 Direct network effects come into play in two primary ways to make the experience better for all users:<\/p>\n<ol>\n<li>More users allow for greater variety in contests ranging from bet sizes, payouts, sports types, number of contests, structure (head to head, tournament, etc.)\u2026 the list goes on to create thousands of types of contests at any one time. Users have a more enjoyable experience when playing games that are specific to their interests.<\/li>\n<li>A higher user base frees up the platform to offer bigger prizes and higher guaranteed payouts. That means more potential money for users \u2013 and what\u2019s the point of online gambling if not to win money?<\/li>\n<\/ol>\n<p>On the other side of the coin, FanDuel &amp; Draft Kings benefit significantly from increased users.\u00a0 Most notably, as a game of \u201cskill,\u201d gambling laws stipulate that the platform has to set prize winnings before a contest runs.\u00a0 Even if a contest doesn\u2019t fill up (thus falling short on entry fees), the site must still pay out the winnings \u2013 sometimes several millions of dollars.<\/p>\n<p>Since users are critical to the platform\u2019s success, competitors in the industry have gone to extreme lengths to capture players (and their dollars).\u00a0 One hot promotion during the current NFL season is \u201cmatching\u201d \u2013 the platform will match your purse contributions dollar-for-dollar up to $200.\u00a0 That\u2019s some extreme customer acquisition cost, but according to a FanDuel investor (Andrew Cleland from Comcast Ventures), \u201cWe know the lifetime value of a customer and it\u2019s very profitable.\u201d (Source: WSJ.com) <em>Fun Fact<\/em>: Yahoo Daily Fantasy, current laggard in DFS, recognizes the importance of gaining on the industry leaders and is offering 200% matching for new users\u2026<\/p>\n<p>FanDuel \u2013 my personal favorite platform \u2013 also captures market share through a creative referral program: they capitalize on their current user base by encouraging existing users to bring on their friends.\u00a0\u00a0 However, this isn\u2019t any old referral program (although the referrer and referee do get a free $25 entry when they use a referral link*) \u2013 FanDuel ups the ante by sharing revenue for referrals.\u00a0 This is how it works:<\/p>\n<p><a href=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2015\/10\/Fanduel-steps2.png\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-1075 aligncenter\" src=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2015\/10\/Fanduel-steps2.png\" alt=\"Fanduel steps\" width=\"895\" height=\"104\" srcset=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2015\/10\/Fanduel-steps2.png 1638w, https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2015\/10\/Fanduel-steps2-300x35.png 300w, https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2015\/10\/Fanduel-steps2-1024x119.png 1024w, https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2015\/10\/Fanduel-steps2-600x70.png 600w\" sizes=\"auto, (max-width: 895px) 100vw, 895px\" \/><\/a><\/p>\n<p>FanDuel actually gives away up to 35% of profits using a tiered payout:<img loading=\"lazy\" decoding=\"async\" class=\"wp-image-1077 alignright\" src=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2015\/10\/FanDuel-payout-structure.png\" alt=\"FanDuel payout structure\" width=\"491\" height=\"245\" srcset=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2015\/10\/FanDuel-payout-structure.png 698w, https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2015\/10\/FanDuel-payout-structure-300x150.png 300w, https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2015\/10\/FanDuel-payout-structure-600x299.png 600w\" sizes=\"auto, (max-width: 491px) 100vw, 491px\" \/><\/p>\n<p>It treats your referred friends as \u201crecruits\u201d in a system very reminiscent of the old school Mary-Kay format.\u00a0 Each user is highly incentivized to bring on new users and encourage them to spend $$ on the platform each week.<br \/>\n<img loading=\"lazy\" decoding=\"async\" class=\"wp-image-1080 alignleft\" src=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2015\/10\/fanduel-paid-actives.png\" alt=\"fanduel-paid-actives\" width=\"369\" height=\"261\" srcset=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2015\/10\/fanduel-paid-actives.png 602w, https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2015\/10\/fanduel-paid-actives-300x212.png 300w, https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2015\/10\/fanduel-paid-actives-600x425.png 600w\" sizes=\"auto, (max-width: 369px) 100vw, 369px\" \/><\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>These creative customer acquisition techniques have proven successful for FanDuel. \u00a0User acquisition and revenue growth has grown dramatically &#8211; helping them garner $363 million in outside investment at a valuation of over $1 Billion!<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>But there is a dark side to network effects in DFS, rarely noticed by the average player.\u00a0 There is diminishing value in additional players after a certain point: you want enough other players to ensure contest variety, but not so many as to make the contests too difficult or competitive.<\/p>\n<p>In fact, this dynamic has led to a proliferation of professional players \u2013 or sharks \u2013 who dedicate $100,000+ each week into a diverse number of contests.\u00a0 The sharks use advanced algorithms to identify valuable players or matchups and enter head-to-head contests against other players.\u00a0 Sharks are thrilled by many new novice users with less skill who they can easily take advantage of.<\/p>\n<p>When evaluating the ecosystem, it turns out that the sharks are the players that win money \u2013 and over time, novice users will generally lose (source: Bloomberg).\u00a0 Shouldn\u2019t losing players leave the platform, resulting in attrition that hurts network effects?\u00a0 FanDuel and Draft Kings are attempting to prevent this trend by limiting certain players, but only time will tell how effective it will be\u2026<\/p>\n<p>*In the meantime, you should probably sign up for FanDuel with this referral code \ud83d\ude09<\/p>\n<p><em><strong>https:\/\/www.fanduel.com\/?invitedby=kgraeber&amp;cnl=da<\/strong><\/em><\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p><em>Sources:<\/em><\/p>\n<p><em>Bloomberg: http:\/\/www.bloomberg.com\/news\/articles\/2015-09-10\/you-aren-t-good-enough-to-win-money-playing-daily-fantasy-football<\/em><\/p>\n<p><em>WSJ: http:\/\/blogs.wsj.com\/venturecapital\/2014\/09\/02\/fanduel-raises-70-million-as-daily-fantasy-sports-battle-heats-up\/<\/em><\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>In an industry where a large member base is critical for success, competitors FanDuel and DraftKings battle it out for user dominance using creative customer acquisition techniques.<\/p>\n","protected":false},"author":30,"featured_media":1083,"comment_status":"open","ping_status":"closed","template":"","categories":[479],"class_list":["post-1082","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-dfs-fanduel-fantasy"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-digit\/assignment\/competing-with-network-effects\/","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Daily Fantasy Sports Compete Head-to-Head - Digital Innovation and Transformation<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-digit\/submission\/daily-fantasy-sports-compete-head-to-head\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" 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