Daily fantasy sports sites betting on lure of instant payouts

On some days, Christopher Batsche can walk away with hundreds of dollars with a $2 buy in. But he's not heading to casinos and he isn't playing online poker.

Instead, the 27-year-old from Cincinnati goes to a website before the day's Major League Baseball games begin and picks players who he expects will hit and pitch better than players selected by other bettors. When the players do well in the real games, Batsche, who pays $2 to play, can win as much as $700.

Batsche is taking part in a new form of fantasy sports that is rapidly growing in popularity. Unlike traditional fantasy sports, in which gamers select a set of players before the sports season begins and then must wait until the season is over to collect, bettors such as Batsche can choose players and bet every day. The payback, if any, is immediate rather than months later.

"I do some research on my breaks at work, then spend a couple of hours after work researching, and then I tune in to podcasts or videos discussing the day's action," he said.

The daily fantasy league has been gaining traction with avid fantasy sports players — the kinds of fans willing to spend time posting to online forums and listening to sports talk shows on the radio.

Now the industry is set to go mainstream, moving from the world of Wall Street traders, Las Vegas regulars and college students to more casual fans of sports and entertainment.

Recently, a fledgling Los Angeles firm that's led by a big name from the fantasy sports industry received a $25-million investment. TopLine Game Labs is creating short-term games that are appealing to a wide audience. It enters an industry with dozens of competitors, including at least two other start-ups from Southern California.

After the federal government shut down illegal online poker websites in 2011, daily fantasy sports emerged as an instant-gratification alternative for many Internet bettors.

Its own legal status is unclear. Although payouts for fantasy sports are legal under a 2006 federal law, daily games didn't exist then so they weren't considered. Signaling a lucrative market, Cantor Ventures' financing of TopLine was at least the fifth major investment in the daily games industry this year.

"This was a slam-dunk opportunity to get involved in something at just the beginning of its life cycle," Cantor Ventures director Jed Kleckner said.

TopLine Game Labs' first service, a weekly fantasy football game, should launch by fall. David Geller, the head of Yahoo's wildly successful fantasy sports division until a year ago, founded the company.

"One of the things we saw at Yahoo is that in the season-long games, 50% to 60% of the audience is no longer in contention by midseason," Geller said. "Traffic starts to dip, and interest starts to wane."

Daily and weekly games are designed to keep people hooked 365 days a year.

Geller said TopLine would differentiate itself by creating a technology platform that can host games for sports around the world. He also wants to dip into other topics, such as reality shows, industry award shows and stocks. The games would be available across desktop and mobile devices, though the company will have a mobile-first philosophy.

"If you have a few minutes waiting for someone, you might as well pull up the app and make a prediction on a topic of interest," Geller said.

TopLine is paying special attention to trying to make the game inviting to people hesitant to gamble their money by giving players the option to compete for non-cash rewards and prizes.

"We want to have something that still rewards users and makes it competitive for them," Geller said.

At Yahoo, Geller helped make fantasy games more user-friendly. One innovation enabled users to drag and drop the names of players to easily shift around their lineups.

Geller left Yahoo to focus on the creation of mobile apps, serving for a year as president of DreamWorks Animation SKG Inc.'s incubator division. Since founding TopLine in April, he's hired 10 employees. The count should double by January. Already on his roster is Edwin Pankau, who had been Yahoo's senior product manager for fantasy sports.

Yahoo, ESPN and CBS — the leaders in season-long online games — don't offer short-term games yet. Legal experts say big companies may be scared off because short-term games remain in murky taxation and legal territory. The 2006 federal law allows for fantasy sports games as long as a bettor's wins or losses "reflect the relative knowledge and skill of the participants" rather than the outcome of a single game or a single athlete's performance.

Geller said TopLine's offerings would pass legal muster.

"The short-term games are more interesting on a skill level because you have to know about matchups that are imminent," he said. "You can't bank on the law of averages to even things out over a season."

Despite the potential for scrutiny, several short-term sites have earned major funding.

Barry Diller's IAC/InteractiveCorp has a stake in DraftStreet, a daily games website. Competitor DraftKings raised $7 million from Atlas Venture. FanDuel picked up $11 million, largely from Comcast Ventures. MGT Capital Investments took a majority stake in FanThrowdown for about $2.5 million in stock.

Even investment bank Cantor Fitzgerald, the parent company of the group that invested in TopLine, launched a daily gaming website this year. It also owns the Hollywood Stock Exchange, a virtual market for buying shares of movies and celebrities. TopLine plans to draw from lessons learned from those two sites.

DraftDay, Nitrodraft and several others offer short-term games too. Los Angeles-based daily games website Amped Fantasy is trying to get games into bars and casinos through touch-screen tables. In Huntington Beach, former poker star Tri Nguyen runs Frafty. Nguyen said his daily games service will attract users because it's designed for people who have never played fantasy sports.

Analysts expect the fantasy gaming industry to see tremendous growth over the next few years as mobile devices give more people access to games.

IBISWorld analyst Dale Schmidt said TopLine's focus on mobile users could be a key advantage because the company isn't concerned about maintaining eyeballs for long periods of time. Still, he said TopLine could struggle if it fails to secure the strong marketing partnerships needed to attract users in the first place.

"It is a fast-growing industry that's attracting a lot of companies with good reason," Schmidt said.


Twitter: @peard33

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