Economics of the North
American Fantasy Sports
Industry
Presentation to the IASE 2008
Kevin G. Quinn
St. Norbert College
Department of Economics
North American Fantasy
Sports Industry
Purpose of paper: to introduce industry as a
topic worthy of attention by academic sports
economists.
• Presence of topic in academic economics literature is
nearly non-existent.
• Industry data are as yet scarce and not always
reliable.
Outline
• Size and Scope of Industry
• Economic History of Industry
• Industrial Organization of Fantasy
Leagues
• Complementarities and Externalities
• Intellectual Property Rights Issues
• Gambling and Moral Hazards
• Fantasy Sports in the Classroom
What are Fantasy Sports?
• Simulation of the experiences and choices made by
real team owners and managers.
• Included sports: auto racing, baseball, basketball,
boxing, bowling, cricket, cycling, darts, fishing,
football, hockey, golf, horse racing, skiing, soccer,
sumo wrestling, tennis, and wrestling. NFL and MLB
most common in U.S.
• Primary tasks: LR: Build a player roster; SR:
Decide which will be “active” in each contest.
North American Fantasy
Sports Industry; Demand Side, 2007
• Estimated 6.5%-7.5% of North American
population (15-20 million) played.
• Average player spent approximately $500
annually on fantasy sports.
• As many as 50 million North Americans may
have played at least once.
Demand Side, 2007 (con’t)
• 93% male overall; 12% of NFL fantasy
players female.
• Median player: 36 years old; married with
children; $76K household income.
• Estimated Total Expenditure: $1.5 billion
Supply Side
• Entities:
•
•
•
•
Real Leagues
Online Media
Print Media
Broadcast Media
• Industry revenues ~$150-200 million;
grew ~7%-10% annually 2003-2006.
Industry Associations
• Fantasy Sports Trade Association
• established 1998
• over 140 organizational members, including some
major media corporations
• Fantasy Sports Writers Association
• established 2004
• 232 individual members, including representation
from major media corporations
Background – Statistics in North
American Sports
• Core input to fantasy sports: statistics.
• Baseball: statistics tradition from cricket; Wisden
Almanack.
• 1850s: Henry Chadwick refines box scores in
baseball.
• 1870s: Print media publishes sports annuals.
• 1910s: Statistical services to MLB and print media.
Background: Simulation
Games
• 1941: All-Star Baseball
• Roulette-like game with paper disks.
• Only hitting statistics considered.
• 1961: Strat-O-Matic
• Multiple dice used.
• Simulated hitting, pitching, fielding, base-running.
• 1980s: Computer video games
• Graphical representations.
• includes physical interaction of participants.
• Key point: Player performances are based on past
statistics.
Background - Fantasy Sports
• Baseball: 1960 Gamson, Harvard, then
Michigan; “National Baseball Seminar;”
BA, RBI, W, ERA.
• “Rotisserie”: 1980 Okrent; New York
• Football: 1962 Winkenbach; Oakland
• Key point: Player performances based on
ongoing season statistics.
Industrial Organization of
Fantasy Leagues
• Philosophy and Competitive Balance
• Rawlsian (1971) ex ante fairness of outcomes.
• League choices between returns to owner effort
and skill versus chance – analyze via public
choice theory?
• Structure Formats
• Tournament
• League
Fantasy Play as Constrained
Optimization
• Objective: Maximize points per scoring
system by choosing limited number of
players (roster spending caps).
• Long-Run: Roster Assembly
• Short-Run: Active vs. Inactive Roster
Long Run: Roster Assembly
•
•
•
•
Keeper vs. Non-Keeper Leagues
Fixed roster size; min and max slots by position.
Methods: Drafts and auction.
Pre-season:
• Drafts: Automatic, non-cap, salary-cap; random and
serpentine
• Auction: Usually English with salary cap.
• During-Season:
• Trades
• Free Agent Pickups; waivers.
Short-Run: Contest-by-Contest,
Active vs. Inactive
• Subset of roster chosen as “active,” only
active player stats count toward scoring.
• Playing position min and max requirements
for active portion of roster.
• Stochastic production functions based on
league scoring rules, real player match-ups,
injury situations, playing styles, etc.
Complementarities and Externalities
– Real Sports Leagues
• Fantasy players ~4 to 5 times more likely to attend
real league contests.
• 95% of fantasy players watch television coverage of
real contests; watch ~ 2 to 3 hours more television
coverage than non-players.
• Consumers watch 55% more television sports
coverage after they become players than before.
Complementarities and Externalities
– Media
• 1980s, USA Today – circulation; reduced
league management costs.
• Online providers: viewership; reduce league
management costs.
• Yahoo, CBSsportsline and ESPN together
saw traffic double from July to 15 million
unique visitors per day in August 2007 – NFL
effect.
• Of estimated $727 million spent for sports
website advertising in 2007, approximately
$150 million went to fantasy sites.
Stats as League Intellectual Property
vs. Historical Facts under U.S. Law
• International News Service v. Associated Press, 248
U.S. 215 (1918).
• Copyright Act of 1976 – Broadcasts protected, but not
game data.
• The National Basketball Association v. Motorola, Inc,
05 F.3d 841 (2nd Cir. 1997) – Near-real-time duringgame data not protected.
• C.B.C. Distribution and Marketing Inc. v. Major
League Baseball Advanced Media, 06-3357 and 063358, U.S. Court of Appeals for the Eighth Circuit
AND Gionfriddo v. Major League.Baseball, 94 Cal.
App. 4th 400, 411 (2001) – 1st Amendment pre-empts
player right to publicity.
Fantasy Sports as Gambling
under U.S. Law
• Legal Criteria: Prizes, Chance,
“Consideration.”
• Tournament Format: Concerns if entry
fee?
• League Format: Exempted under
Unlawful Internet Gambling
Enforcement Act of 2006 and by
Humphrey v. Viacom, Inc., Case No. 062768 (DMC) (D.N.J., June 20, 2007).
Moral Hazard Issues
• Individual Fantasy League Administration
• Commissioner Principal-Agent problems
• Collusion
• Adjudication services
• Real Players in Real Leagues?
• Employee-Employer Principal Agent Problem
• $7.4 billion of productivity losses in 2007 NFL
Season? $1.6 in 2008 NCAA tourney?
• Methodological problems – productivity losses
associated with employer provision of toilet
facilities?
Fantasy Sports as Classroom
Simulations
• NFL Football: Econfantasy.com and
CBSsportsline.com.
• Final paper: business plan, calculation
of player MRPs (Scully method), league
competitive balance
• Can be a lot of work, but students highly
interested – sometimes too interested.
Summary
• This paper is an attempt to position North
American fantasy sports industry as worthy of
attention by academic sports economists.
• There are a variety of interesting issues
associated with fantasy sports:
• public choice, industrial organization, neoclassical
theory of the firm, complementaries, externalities,
intellectual property rights, and moral hazards
• Fantasy sports can be used as an effective
simulation tool in undergraduate economics
of sports courses.