I admit it: I’m not a big sports fan (aside from the ‘big game day’ events with friends). That being said, I and every guy in my office was drawn into the addictiveness that is fantasy sports.
A fantasy sport allows one to build his or her own virtual sports team and “own” real-life athletes to play for his/her team. The fantasy team’s performance is decided based on the performances of these real-life athletes when they compete in real-life sporting matches. The enjoyment made me more of a sports fan, and the money potential became more than just a perk.
Fantasy sports is a fast-growing business.
According to the Fantasy Sports Trade Association, an estimated 35 million users wager money on fantasy sports. What is even more exciting is that the new trend in fantasy sports is making paydays more than just once a season. Now with daily fantasy sports, a user can draft a team, place a wager, and get paid, all in one day. Sports include the NFL, NBA, NHL, MLB, golf, and NCAA basketball and football.
Atlas Ventures predicts that daily fantasy sports will overtake traditional fantasy sports in 5 to 7 years, and that daily fantasy wagering will generate $2 billion in fees by the year 2020, versus less than $100 million today. There are many smaller competitors in the daily space, including Draftday.com, DraftSreet.com, StarStreet.com, and FantasyThrowdown.com, which offer weekly contests.
This industry is growing at triple digit rates. Investors should consider not just playing for the fun, but investing in businesses engaged in the monetization of fantasy sports. To that end, in this article, I will look at MGT Capital Investments Inc. (NYSEMKT:MGT), Comcast Corporation (NASDAQ:CMCSA) and Yahoo! Inc. (NASDAQ:YHOO).
Meet the players
MGT Capital Investments and its subsidiaries are engaged in the business of acquiring, developing and monetizing assets in the online and mobile gaming space. Recently, MGT acquired a 65% stake in FanTD, owner of the daily fantasy sports website www.FanThrowdown.com, for $2,584,500 worth of restricted stock and cash. Although the stock portion will fluctuate with the price of MGT, the deal valued FanTD at roughly $4 million.
MGT Capital Investments Inc. (NYSEMKT:MGT) has a market cap of about 26 million and an EPS (ttm) of -2.79. The negative EPS is largely due to its acquisition and selling off of its other assets. At the current price of about $4.34, the performance of its new site (as well as the settling of current legal woes), could rally the stock back to over $6 a share–a decent gain for investors.
Another major player, and the largest website dedicated to fantasy sports, is FanDuel.com. FanDuel has captured an estimated 60% of the daily fantasy sports market, and as of 2013 its user base exceeded 4 million. This number prompted a sizable $11 million investment led by Comcast Ventures, the venture capital arm of Comcast Corporation (NASDAQ:CMCSA). The $11 million Series C financing for FanDuel was closed with Comcast along with existing investors Piton Capital, Pentech Ventures, Bullpen Capital and serial investor Richard Koch.
Comcast Corporation (NASDAQ:CMCSA) shares are currently priced at just under $41. The company has a market cap of $85.5 billion and still gets the majority of its revenue from its solid grip on the media industry. Shares are up 7.5% year to date, and analysts from TheStreet rate it a buy.
Enter another tech name that might raise some eyebrows is Yahoo! Inc. (NASDAQ:YHOO). You remember Yahoo! – the company that has been overtaken in most of its offerings by companies such as Microsoft Corporation (NASDAQ:MSFT) and Google Inc (NASDAQ:GOOG). However, Yahoo! Fantasy Sports has an offering called Pro Leagues, which generates steady revenue streams from its “Trade Review Service” and “Scouting Report.” Yahoo! also profits from the advertisements on its fantasy pages and content. According to AskMen.com, “Fantasy football contributes to Yahoo!’s bottom line; however, detailed figures on the game’s financial impact were not readily available. In the last quarter of 2005 — during football season — the company had a net income of $683 million. For the entire year, profits were about $1.89 billion.”
Much has already been mentioned of the moves Yahoo! Inc. (NASDAQ:YHOO) is making. CEO Marissa Mayer is responsible for improving the livelihood of Yahoo! Inc. (NASDAQ:YHOO)’s employees, and earning a return for the company’s stockholders. Yahoo!’s recently announced acquisition of Tumblr for $1.1 billion in a mostly cash deal should help propel the company’s stock in a positive direction.
Other companies vying for a piece of this ever-expanding pie are CBS Sports, which grosses revenues over $50 million per year, Disney subsidiary ESPN, and SiriusXM radio, which has dedicated an entire channel to fantasy sports.
Big Moves and Where They Lead
MGT Capital Investments Inc. (NYSEMKT:MGT)’s move on FanTD was considered at approximately $200,000 in cash plus 600,000 shares of restricted stock, valuing FanTD LLC around $4 million, as previously stated. This is an excellent move – and no, revenue is not the only plus. While the main task is for the site to add as many active users as possible, MGT will then be able to optimize Cost Per Acquisition (“CPA”) and Lifetime Value (“LTV”). Online companies are often acquired for their user base alone. Fortunately, FanThrowdown.com is generating revenue, and adding users is simply the responsibility of a digital marketing agency.
MGT is facing some serious competition online. Time Warner and Comcast Corporation (NASDAQ:CMCSA) will soon be expanding beyond their existing seasonal offerings to daily offerings, as MGT Capital Investments Inc. (NYSEMKT:MGT) is doing. The two biggest competitors in the space, FanDuel.com and DraftKings.com, have just raised significant funds to continue a marketing onslaught. Any small (or even growing) sites that wish to survive, either as a stand-alone enterprise or as an acquisition target, will need capital to survive until it turns a profit.
Conclusion
Where does that lead us? Sites will crop up and die off quickly. The industry itself will inevitably experience consolidation, and the final handful of survivors will be acquired by the major media companies. That is why my money is on companies that have their hands in fantasy sports, like MGT Capital Investments Inc. (NYSEMKT:MGT), and the media powerhouses such as Comcast Corporation (NASDAQ:CMCSA), Yahoo! Inc. (NASDAQ:YHOO) and even Time Warner, as long-term investments in this area.
Fantasy sports is a growing industry. Investors should do their due diligence and get in the game.
Bill Edson has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article 3 Ways to Play Fantasy Sports in 2013 originally appeared on Fool.com.
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