The Business of Turning Sports Fantasies into Cold Hard Cash
Wish the National League had won this week's All-Star Game? You don't need to wait until next season for a rematch.
Thanks to an exemption from the Unlawful Internet Gambling Enforcement Act of 2006, fantasy sports businesses can be a good bet for entrepreneurs. Participation among users has surged more than 60 percent since 2007, and more than 32 million people aged 12 and older play in the U.S. and Canada, according to research conducted in 2012 by Ipsos Public Affairs for the Fantasy Sports Trade Association.
One of the newest companies on the scene is Star Fantasy Leagues, or SFL, in Rochester, N.Y. This particular company was founded by brothers Zachary (age 26) and Justin (age 31) Stanley in the summer of 2012.
To get their perspective on starting up in the mad-cap world of fantasy sports, we recently caught up with Zachary to talk shop. Here's what he had to say about the marketplace, the business model and what makes SFL stand out:
Q: There are a lot of fantasy sports companies out there today. What makes yours different?
A: We offer cash games like the rest of them, but we’re really focused on innovation. The best example of this is our program, Star Points. These points act like credits and allow our players to play cash games for free. They can exchange the Star Points for a chance to win prizes or buy tickets to various tournaments.
Q: How and when did you get the business started?
A: My brother Justin and I started the company in 2012. We’ve been playing fantasy sports since it has been available on the internet. Once daily games started popping up, we were playing those, as well. There were things about the sites we played that we didn’t really like. They catered less to players and more to dollar signs. We always hoped that we could create a site ourselves. When our dad died of lung cancer, he left us a bunch of money and we started the company with just over $400,000.
Q: Can you give us a status report on how the company is doing? For instance, how many games are you running each day and how many members or users do you have?
A: Right now we have about 3,000 members and about 30 games daily. We offer cash games ranging from $1 and $2 up to $400, and currently we offer games in all major sports: baseball, football, basketball and hockey.
Q: So how does it work?
A: Most of our games have no more than 20 players apiece. Some of our games pay out to the first and second place finishers only. In others -- we call them “double-ups” -- the top 50 percent of players double their money and don’t have to worry about where they place. We also offered featured games that deal with higher levels of entry volume. Eventually we’ll want those to be in the hundreds of entries for each game.
Q: How do you make money?
A: We make a small percentage off of each game. Kind of like a rake in a card room. Our $22 heads-up game pays up $40 to the winner, and we get $4 out of that game. It’s all scaled. The more people we have playing, the more revenue we have coming in. We don’t currently have ads on the site and we don’t have plans to incorporate them any time soon.
Q: How much knowledge of a particular sport is required of users to participate?
A: Keeping your skills sharp is critical to long-term results, as the more you prepare, the better you’re likely going to do. That said, at some point historical knowledge becomes relatively unimportant as users competing on a day-to-day basis look at every trend they can to get an edge. If you know the game, do the research and develop a strategy, you should be able to compete.
Q: Realistically, how much money can a user earn from participating in these games?
A: It's been nearly a year since we first opened our proverbial doors, and our top earner has won more than $11,000. Our top earner for the month of March brought in more than $3,500, with the top 10 players for that month earning more than $1,000 each.
Q: What are the biggest mistakes that entrepreneurs in your space seem to make?
A: Most of the companies in our space do the same exact thing. I think that’s a really poor business model, and I think it’s creating a bad name for the industry as a whole. We’re trying to do something different by innovating around the currency that members use on the site and adding Star Points. It turns out this is a huge differentiator.
Q: What’s next for Star Fantasy Leagues?
A: Because we’re committed to innovation, we’re working on a new style of game. I can’t talk much about it, but the game incorporates aspects of daily and season-long contests. We think it’s going to be big. We’re hoping to launch it for football season this fall.
Matt Villano is a freelance writer and editor in Healdsburg, Calif. He is a regular contributor to Entrepreneur, and has covered startups and entrepreneurship for The New York Times, TIME and CIO. He also covers a variety of other topics, including travel, parenting, education and -- seriously -- gambling. He can be found on his personal website, Whalehead.com.