(Author’s Disclosure: The author has provided consulting services to the parent company for the Fantasy Baseball Players Championship).
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Five years ago, CBS was seen as the market leader in hosting online fantasy sports contests.
However, according to a June 23, 2013 industry report produced by IBIS on “Fantasy Sports Services,” CBS has fallen to third place in this marketplace– behind both Yahoo! and ESPN.
CBS’s fall from atop the fantasy sports hosting market is likely attributable to a singular factor– the company’s low payout rates in its fantasy sports contests.
In the early days of play-for-cash hosting services, CBS may have been able to get away with payout rates of just 50% – 70%. Reason being, there were few other established competitors in the marketplace.
However since 2006, the legal climate for online fantasy contests has become somewhat more favorable. As a result, many new competitors have entered the market – leading to higher industry payouts based on the market forces of supply and demand.
In today’s fantasy sports marketplace, the industry standard for prize payouts is no longer in the 50% – 70% range. Rather, it seems to have risen above 80%.
Today, Yahoo! offers perhaps the highest payout rate among public companies offering fantasy sports contests — a payout rate that ranges from 87.5% to 91.7%. This payout rate has helped to propel Yahoo! to first place in the June 2013 IBIS report of “Fantasy Sports Services” market share. Similarly, the fantasy sports startup Fantrax lists on its website a 12-team fantasy baseball contest at the $100 price point that promises to pay prize fees of 91.7% — the same as Yahoo!
Meanwhile, another well-known fantasy baseball host site, the Fantasy Baseball Players Championship (“FBPC”), offers a 224-team Main Event contest which, according to one of the company’s founders, will pay a 2014 prize rate that exceeds the 91% threshold. The FBPC also offers an online satellite league at the $150 price point, which will pay a minimum of 83.3% of 2014 entry fees in prize money.
Finally, FanDuel, which is the market leader in “daily fantasy sports” contests, has historically offered payout rates of approximately 90% — a rate in line with many of the other of the upstart daily fantasy sports companies.
As CBS’s marketing team contemplates its future fantasy pricing strategy, it may need to keep its competitors pricing decisions in mind, and recognize that a mere 50% – 70% payout rate is no longer seen as attractive to consumers.
Although CBS may have a well-designed product that offers deep discounts to contestants who purchase multiple fantasy teams, its substantially lower payout rate for one-time entrants could serve as a major impediment to inducing trial among new users.
These are marketing challenges that are entirely normal for early entrants in maturing industries such as fantasy sports.
Marc Edelman is an Associate Professor of Law at the City University of New York’s Baruch College, Zicklin School of Business, where he has published more than 25 law review articles on sports law matters, including “A Short Treatise on Fantasy Sports and the Law.” He also consults for companies in the sports, online gaming, and social media industries. Nothing contained in this article should be construed as legal advice.
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