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.