Having to deal with a slowing and stagnating advertising revenue, Yahoo Inc. made a bold move and has now joined a booming industry: fantasy sports betting. The Silicon Valley giant told media this week that it would launch Yahoo Sports Daily Fantasy. What is that? It’s prognosticated to be a popular betting service that will introduce tens of millions of potential bettors to legalized online sports gambling.
It will be made available through a mobile app, that shall allows users to compete against each other in groups or individually by making bets on a professional athlete’s performance in any given sport.
It’s projected by industry experts that these daily fantasy games will generate around $2.6 billion this year alone in entry wagers, which should grow to 41% annually; an estimated $14.4 billion by 2020.
Yahoo probably sped up their plan, since their first-quarter earnings of $1.04 billion fell just short of analyst expectations and its shares had declined by nearly 50% since November.
Eric Jackson, managing partner of Ironfire Capital & Angel, said Yahoo’s poor mobile performance was at the core of the company’s weak performance last year. “The problem is Yahoo is an older way of reaching customers,” Jackson said. “Their most profitable ads are PC-based, but more and more ad [dollars] are moving to mobile.” So that’s exactly what Yahoo is doing now.
Yahoo has a major advantage over its daily fantasy sports rivals in marketing the new product.
It’s rivals, DraftKings and FanDuel “are spending every dollar they raise in VC money in advertising to attract new users,” Jackson said. “Their cost of accruing new customers is extremely high whereas Yahoo doesn’t even have to do any TV advertising. They basically just have to put up a banner on all Yahoo pages. So they could have the same growth, but much different costs.”
The industry currently is being led by them, DraftKings and FanDuel. In general, fantasy sports betting has been on the upswing since 2006, which is when the U.S. federal government enacted the ‘Unlawful Internet Gambling Enforcement Act’.
The law basically made the distinction of gambling on fantasy sports as a ‘game of skill’ rather than a game of chance such as online poker. This made it fully viable and legal in all states except Arizona, Louisiana, Iowa, Montana and Washington where the state enacted local laws to ban all kinds of betting.
Ken Fuchs, Yahoo’s vice president of products, announced this past Wednesday, that they will expand their presence to mobile devices, and will market hardcore to appeal to the 18- to 34-year-old demographic. They are striving to create a base of steady transactional revenues by taking 10% from each bet.
Yahoo will start with baseball and football and soon shall expand to basketball and hockey, with larger plans to go international in the near future.
This goes hand in hand with their wider ambitions. Yahoo wants to get a piece of the pie in the professional sporting world. In June they announced winning the exclusive NFL rights to broadcast the London match between the Buffalo Bills and Jacksonville Jaguars in October 2015.
Yahoo says it has tens of millions of users signed up with its traditional fantasy sports, for over 16 years now with their users spending 500 million hours on fantasy sports last year alone, the company reported.
Entry fees for Yahoo’s daily fantasy can cost up to $500, though many games are free or will cost just a few dollars. It will all vary on the contest or game. So far, Yahoo reported that the biggest payout was just yesterday for $10,000 in a baseball contest.
Players will be able to deposit up to $600 a day using PayPal or a credit card. Fuchs also told media that Yahoo would monitor accounts for huge swings in cash to prevent fraud or abuse.
Sounds like Yahoo is ready to play.