Blinders versus NBC

Since we launched fantasysportslive.com in June 2007 we have seen several copy cat sites come into existence that were entirely based on our web site. One was a now defunct site called instant fantasy sports, started by a fellow poker blogger who personally stole the idea from me after we agreed to discuss the idea in confidence months prior to launch. After we launched there is not much we can do, because the idea of daily fantasy sports is not patentable. So we had a major online sports book knock off our site. This knockoff was particularly helpful, because they threw a ton of money at the software, and made several improvements to the draft interface that we were able to implement on our site. The problem for them is they are an online sports book, so there are the usual issues funding and cashing out that we do not have, and they are also heavily restricted on advertising in the U.S., another huge disadvantage. After that there have been some low budget knock offs, one which actually stole our rules word for word, but have no hope of obtaining a critical mass of customers. The one site that is similar to ours that actually launched before us, shut down over the summer, and relaunched with its contest lobby overhauled to match ours nearly exactly. And then came NBC.

I just found out about a site that is backed by the mighty NBC that is essentially a carbon copy of our site with an identical contest lobby. I guess it is nice to set the industry standard in fantasy sports contest lobbies for all to follow. The list of previous knock offs all had fundamental problems that made them essentially no threat to Fantasy Sports Live, and the NBC site suffers from one of these major fatal flaws. The heart of the problem is a fundamental misunderstanding of what we are trying to do at FSL. Most copy cats just do not get it. We are trying to offer a very specific product that has very specific minimal requirements that must be met in order to compete. If you are simply copying something that looks promising, but you do not understand it, you might tweak something that makes you miss the minimum requirements. The trouble is that if you figure this out after the fact, you might realize that you no longer have a viable business model once the newly discovered minimum requirements are met.

Let me give you a hypothetical example. You have a great idea for a new web site called coinflips.com. To make the website legal, it needs to be a game of skill so you set up a couple of controls for the user to set before flipping. Let’s call them height and torque adjustments for the flip. Let’s say that you can play around with these controls and get heads to come up more often if they are set in a certain repeatable way. So those who practice can become good at it and win more than ½ of the time. So before you launched your website, you tried to figure out how big of an edge someone good at flipping could get. Lets say that the top flippers could gain a 10-15% edge on the system, but overall the edge washed away to zero for the sum of all players (there were others that made stupid plays when flipping). So you set up your site so that it costs $11 to flip and you win $20 if you are right. This seems to work out ok, because for the average flipper, they get to have some fun without too much cost, and the best flippers, have enough of a skill advantage to make some money long-term at flipping coins. Even those who can’t yet can look at those that already are earning money flipping coins and work to become good enough to do the same. Because of all of this, your little known website starts growing pretty quick and gets noticed by the mighty double youuuu eeeeeNnnnnn Beeee Ceeee. They just love the concept, and figure they can market it more aggressively, and earn a pretty penny. So they knock it off exactly down to the same controls over height and torque with a site called bettercoinflips.com. They make a couple of small changes. One thing they noticed about your site was the super low margins. 9% are you kidding me? We are freekin doubleyouennbeeeceee, and we don’t settle for 9% margins. How do we pay for the corporate jet, and our cash spewing network that way? Let’s bump those margins up to 20%. Let’s make it cost $10 to win $16, that way we can make some money on this. Anyone see the obvious problem here? In actuality our margins at 9% are too high. We obviously will lower them at some point, but as long as our buddies at NBC charge 20% why bother.

Anther thing to be worried about when not understanding what you are copying is the legal issues. We take the legal issues very seriously, and designed our website to be in strict compliance with both the letter and spirit of the UIGEA of 2006. One of the strict requirements for fantasy leagues is shown below.

(I) All prizes and awards offered to winning participants are established and made known to the participants in advance of the game or contest and their value is not determined by the number of participants or the amount of any fees paid by those participants.

Our competitor’s prize payout rules state:

“One 1st place prize is awarded which equals 80% of the contest fees.”

Let’s see here. Contest fees are equal to the number of participant’s times any fees paid, and the prize is 80% of that amount. That sure appears to be determined by what it is not allowed to be determined by. Also, how are the prizes known in advance? They do not publish them in advance. The only way to know what the prizes are in advance is to use the two things that are not allowed to determine the prize amount. You guys must have some good lawyers to find that much wiggle room in a pretty clear restriction on fantasy sports.

Ultimately we welcome the competition. With NBC now competing and being super loose with the laws, we are now insulated in a big way from any legal threats. Any entity will be going through NBC with their deep pockets and larger exposure first. Also, as long as the competition is inferior in a significant way they are no threat to us. Anyone who knows of both of us would obviously choose our offering. Anyone who does not know about us was not ours to lose at this point. That leaves the new class of users that NBC may be able to educate about daily fantasy sports with a deep pocketed advertising campaign. If just ½ of those people search for other daily fantasy offerings, and ½ of them find us, and we are able to capture ½ of those people we stand to gain a ton from our new competition.

See everyone in Vegas who is going, and I will be sure to take a few notes for later when the interesting stuff happens. God knows I will be too drunk to remember most of it.