A fantasy sports fan bet about to hit $1 billion

DraftKings looks to change the game in sports
DraftKings looks to change the game in sports   

2015 is shaping up to be a big year for fantasy sports site DraftKings, but it may be just as big for a handful of players on the site.

At some point this year, the company will cross the $1 billion mark for total prizes awarded since its 2012 launch. As if that weren't enough, DraftKings will also be awarding more than $1 billion in 2015 alone.

The draw of such big payouts is one of the reasons DraftKings' more than 1 million members spend more than four hours per week playing all manner of fantasy sports on the site, from football to golf.

The four-hour-a-week DraftKings habit is roughly twice the amount of time the average American spends playing real sports, or even exercising. (Tweet this)

DraftKings founders (left to right) Paul Liberman, Jason Robins and Matt Kalish
Source: Draftkings
DraftKings founders (left to right) Paul Liberman, Jason Robins and Matt Kalish

"What DraftKings offers is, you don't have to make a season-long commitment," said COO and co-founder Paul Liberman. "So if you want to play [fantasy] baseball, you can play today's games; you don't have to start at the beginning of the season."

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Liberman said that ability to quickly get in or out of a competition is part of the secret of DraftKings' success, which ranked No. 45 on the 2015 CNBC Disruptor List.

Additionally, the company has lined up a partnership with Major League Baseball, making it the exclusive and official daily fantasy game of the league. More than just a marketing deal, it gives DraftKings access to extensive MLB video content, letting fantasy players do their research on site instead of having to click away to sports news sites or broadcast television.

A fantasy millionaire king maker

The chance at a $1 million payout is a big part of DraftKings' allure. Last August, Peter Jennings, a former stock trader from Fort Collins, Colorado, took home a $1 million prize after a five-day fantasy baseball event. Last November, brothers Dave and Rob Gomes split $1 million in a fantasy football tournament on the site, after splitting the $27 entry fee. Three single players had each become instant millionaires in the weeks before that.

Phillipsburg, Pennsylvania, police officer Brett Marino won $1 million last month through a Masters golf fantasy tournament. (In June the site will offer $2.5 million in total prizes for the U.S. Open.) And tens of thousands of dollars are awarded regularly for MLB and NBA games.

In all, DraftKings has minted 17 millionaires to date, with football far and away in the lead among fantasy millionaire-makers—NFL (14), MLB (1), PGA (1), NBA (1).

NASCAR just announced a three-year agreement with DraftKings to develop NASCAR-branded games. DraftKings is already looking to expand into other sports, with tennis, rugby and cricket on Liberman's radar, especially as it prepares for a larger international push over the next two years.

"There's a lot of emotion to people winning that's fun to watch." -Paul Liberman, DraftKings COO and co-founder

DraftKings and other daily fantasy sites, including FanDuel, are able to charge money to enter contests and skirt online gambling laws because they're considered games of skill rather than luck. The aggregated player statistics require research by the participants.

Increasingly, a part of that research is being done by watching other players. Just as video games have become a spectator sport, thanks to services like Twitch (which Amazon acquired for $1 billion last year), there's a growing number of people watching others play fantasy sports.

"It's similar to the Twitch model," Liberman said. "People are watching other people play fantasy sports. They like to observe how people pick their teams. There's a lot of emotion to people winning that's fun to watch."

In April, Disney, ESPN's parent company, invested $250 million in DraftKings.

"It speaks to the importance of engagement," said Rich Greenfield, media and entertainment analyst at BTIG. "Sports is such a critical part of Disney's ESPN. Fantasy sports on espn.com is obviously very important, but DraftKings and FanDuel take that engagement to yet another level with sports fans battling sports fans."

Peter Jennings, a former stock trader from Fort Collins, Colorado, took home a $1 million prize after a five-day fantasy baseball event.
Courtesy DraftKings
Peter Jennings, a former stock trader from Fort Collins, Colorado, took home a $1 million prize after a five-day fantasy baseball event.

Thousands of people concurrently watch the DraftKings video feed. Some are current players who are researching the competition, others are newbies looking to learn the best way to play, and others are just fans of certain fantasy players.

"Some players have started forming a community," Liberman said. "People want to see how they play. They want to see how they think about things."

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Greenfield said passionate sports fans are focused on their mobile or tablet during commercial breaks rather than watching ads on TV, so it creates a new way to monetize viewers who are less and less interested in ad spots.

Most of those viewers, like most of the players, fall into the daily fantasy sports sweet spot demographic of 21- to 34-year-old males. But Liberman said DraftKings is slowly starting to see those figures change. With fantasy golf, for instance, the age range was in the 29–45 spectrum.

As the site matures and expands its focus, the company hopes to see more female players participate.

"We think there's a huge opportunity with women," Liberman said. "It's a good way to interact with friends. It's a fun, social game. We're finding that for a lot of women who are competitive, it's a good way to engage with others."

By Chris Morris, special to CNBC.com