Each week, we seek expert advice to help a small or medium-sized business overcome a key issue.
Last summer, all bets were off for Pro Draft League. Founder and chief executive officer Mark Tadros was hours away from pulling the plug on his Vancouver company, a player in the fast-growing world of online fantasy sports, which allows fans to draft their own professional teams and place wagers on them.
Then Vancouver angel investor Shafin Diamond Tejani extended $100,000 (U.S.) to cash-strapped Pro Draft League. "He saved us at the very last minute," recalls Mr. Tadros, a former pro poker player who began looking at the fantasy sports space in 2012 and went on to incorporate Pro Draft League in the United States.
Mr. Tadros needs an edge in a highly competitive industry that is thriving thanks to a legal loophole. Although the U.S. government outlawed online gambling in 2006, fantasy sports got an exemption because it's a game of skill, not a game of chance, he says.
Canada also allows fantasy sports wagering on the National Football League and National Basketball Association and other pro leagues. Last year, 41.5 million players here and in the United States participated, according to the Chicago-based Fantasy Sports Trade Association. Those stateside spent some $3.6-billion (U.S.) on fees, games and information, the FSTA calculates.
More than 100 companies have entered the space. The two biggest are New York-based FanDuel Inc., which recently claimed to have 665,000 active monthly users, and DraftKings, of Boston. Since FanDuel launched in 2009, it has paid out more than $600-million (U.S.) to players. The company, whose partners include several NBA teams, has raised $88-million (U.S.) from Comcast Ventures and other venture capital firms.
With their vast marketing budgets, DraftKings and FanDuel are helping 10-employee Pro Draft League by raising awareness of fantasy sports, Mr. Tadros notes.
"But the other side of the equation is they're blanketing the market, and advertising is getting very expensive in our space," he says. "Everything in this industry is growing at an exponential rate, which is where the big challenge is: How do we get onto that wave?"
In early January, Mr. Tadros closed on "seven figures" worth of funding from a group of investors, having previously raised more than $250,000 (U.S.). Pro Draft League, which charges 10 per cent of each wager for the use of its software and safe holding of funds, took in a total of $100,000 (U.S.) from roughly 5,000 players last year. Since January, the company's user base has doubled.
Pro Draft League's biggest advantage is the strength of its platform, Mr. Tadros says. Whereas FanDuel and DraftKings offer just daily and weekly contests, his website offers traditional season-long competition, too.
Mr. Tadros also points to a variety of draft options. Among them is a "live interactive draft room" – the standard fantasy sports daily format is a ballot with a salary cap – that resembles an online poker table by letting players see their competitors. "We've created different styles of games and applied them to the daily concept," Mr. Tadros explains.
On the marketing side, the new investors will give Pro Draft League a shot in the arm. "They assured us that if we have an opportunity for big exposure, they'll ante up the dollars," Mr. Tadros says.
The Challenge: How can Pro Draft League compete with its much bigger rivals in fantasy sports?
THE EXPERTS WEIGH IN
Looking at their site, I don't see anything that makes me feel like there's a reason I should play here instead of with the other guys. I don't see a distinguishing characteristic for Pro Draft's product, and I don't see anything to suggest that I should have any more faith and trust in them than I would have in an established market leader like FanDuel or DraftKings.
They need to figure out what their distinguishing characteristics are going to be, then put those front and centre. With established leaders already several years ahead of them, it's not clear how they're going to get to a meaningful level of market penetration, especially when they're dealing with likely 100 other companies a lot like them.
A couple of years ago, you could get into the space on virtually no funding, and you may have had enough traction by now. But at this point, with so many other one-offs in the daily fantasy sports space, a lack of funding and an inability to generate user acquisition through marketing is a real problem.
Their name is incredibly generic. Pro Draft League – there's not a lot to hang your hat on there. If I were in their shoes, I would find something that's got a little more sizzle.
Rick Wolf, president, Fantasy Alarm, fantasy sports media company, Pleasantville, N.Y.
The uniqueness of having season-long play coupled with daily play is one of the more interesting things, and could be the differentiator. If you can drive traditional players to your site to play a traditional game where you play season-long, and then you can convert them to daily players during the season, that's a smart business model.
You have to have something that's different enough that major media will write about it and players will come there to try it, and then talk about it. The other way to is aggregate community. Try to make sure that you get significant players who play on the other sites to come play on yours, because people will recognize their handles. It's just like getting Bono from U2 to show up at your kid's party to play music.
The other way is to partner with young content companies that are going to emerge. Right now we're partnered with Fantasy Aces. It's a pretty small player – it's not DraftKings or FanDuel. We're going to help build their business, and they're going to help build ours.
The other way is technology. If you have the ability to create your technology with your hook, whatever that hook is, in such a way that it can be white-labelled for media companies, you can give it away to folks who are looking to get into the daily fantasy sports business in order to get bigger girth and to share revenue.
The technology behind the live draft room at Pro Draft League is great. Their live draft is as good an experience as anyone out there. That's a good hook, especially as you transition the traditional players to daily. Because they've already drafted a season-long league on your site using the same software, so there's no learning curve.
John FitzGerald, CEO, Intertain Group Ltd., online-gambling holding company, Toronto
It sounds like when this gentleman was focused on his technology – and he may have the best technology out there – he forgot about getting the players, and he didn't have the money to get the players that others had.
My view on the world is that software is going to become ubiquitous. Even in my business, if you look at it from a Las Vegas standpoint, everybody has the same suppliers, the same slot machines, the same table games. You have to differentiate yourself by your marketing spend and where you allocate that.
If he has 10,000 active users, if he can't raise significant capital, probably he's best to position his software to become a supplier to some of these companies that have large player bases: take a percentage of the win off the players to finance his business and make a profit. Or ultimately, whatever those 10,000 players are valued at from a cost per acquisition, he may be able to sell his database.
It comes down to acquisition of players. It's hard to acquire them when you have great technology without being able to tell them about it. That's where the real money comes in. When you do a $50-million marketing campaign, you're going to need a big financial backer.
If he wants to really give it a shot, he's going to have to find and convince three or four large institutions, maybe hedge funds, to write a big cheque to do a huge marketing campaign.
THREE THINGS THE COMPANY COULD DO NOW
Change its name
Choosing a less generic handle could help generate buzz.
Find cost-effective ways to attract users
Landing celebrity players and partnering with a content provider are two options.
Seek out large investors
A big marketing push to grow your player base will call for serious cash.
Interviews have been edited and condensed.