Fantasy football...real money
Yahoo!, Disney and CBS should score financial touchdowns thanks to the increased popularity of fantasy football.
NEW YORK (CNNMoney.com) -- Are you ready for some fantasy football?
With the start of the NFL season just around the corner, many Americans are getting ready to cheer on their local football teams. But a growing number of pigskin junkies are also planning to root heavily for individual players...even if they play for their favorite team's most hated rival.
Fantasy football, a "sport" that lets people draft teams of players and compete against other teams based on their players' real gridiron statistics, has become an increasingly popular pastime.
According to figures from the Fantasy Sports Trade Association - yes, this is big enough of a market to warrant a real trade group - there are currently between 15 million and 18 million fantasy sports players in the U.S. The number of players has grown 7 percent to 10 percent a year for the past three years.
About 85 percent of all fantasy sports participants play fantasy football, mainly online. And big consumer-oriented companies have taken notice.
"Advertisers are really keeping an astute eye on fantasy football. It's a very loyal market," said Scott Linzer, director of media with iCrossing, a digital marketing agency. "Several of our large clients are doing direct advertising for the fantasy football market."
Linzer said that marketing research has shown the average fantasy football player to be predominantly male, married, in a high income bracket and more likely to do research or make purchases online.
Most fantasy addicts have leagues set up on Web sites run by big media companies like Yahoo! (Charts), CBS (Charts), Walt Disney's (Charts) ESPN and News Corp.'s (Charts) Fox, which runs its fantasy site in conjunction with Microsoft's (Charts) MSN.
Fantasy fanatics are real ad targets
So the increased popularity of fantasy sports could be a financial boon for these firms. There is real money to be made from people pretending to be NFL general managers and coaches.
In most cases, people can set up a league and play for free. Some sites offer premium fantasy packages for a fee that offer more services such as news, draft strategies (Should you take Larry Johnson, Shaun Alexander or LaDainian Tomlinson with the first pick? What a dilemma!) and scouting reports about individual players as well as real-time stat updates.
But several media companies are recognizing that it is more lucrative to not charge fantasy players since free games draw more traffic...and hence, more advertising revenue.
The biggest beneficiary by far should be Yahoo. Jeff Thomas, founder and CEO of fantasy sports site SportsBuff.com and president of the Fantasy Sports Trade Association, said Yahoo has become the fantasy football leader because it kept promoting a basic, free service even when competitors were charging fees to set up leagues.
"The industry has gone back and forth between charging fees and being free. Yahoo was the one who primarily stayed free and that helped them gain a lot of market share," he said.
According to research from comScore Media Metrix, traffic at Yahoo's fantasy football site was more than twice that of ESPN's during last year's football season. Yahoo would not disclose how many registered fantasy football players it has.
But David Katz, who is the head of Yahoo's sports and studios divisions, said the company has seen steady growth for its free product and strong growth in its premium game. Visa and General Motors' GMC unit have returned as the main marketing sponsors for Yahoo's fantasy football.
"We're seeing significant growth in our ad revenue. Fantasy is driven by the fact that it is, was and continues to be one of the most engaged audiences on the Internet," Katz said.
Yahoo also stands to gain more users through a marketing deal with the web site of Sports Illustrated. SI.com no longer hosts leagues on its site and instead sends people to Yahoo. (SI, like CNNMoney, is owned by Time Warner (Charts).)
ESPN is looking to close the gap though. On their respective fantasy football pages, Yahoo held just a slim lead over ESPN last month, with 1.33 million unique visitors in July compared to 1.24 million for ESPN.
John Kosner, senior vice president and general manager for new media for ESPN, said ESPN's decision last year to introduce a free fantasy football service led to a five-fold increase in its members in 2005 and that numbers were way up this year. He would not disclose how many total registered players it had though.
The increase in players has also led to dramatic growth in advertising revenue. Kosner said that GMC, Samsung and DirecTV are sponsors for ESPN's fantasy football game this year while Coca-Cola's Coke Zero is the sponsor for fantasy football news and columns.
"Fantasy football is being wildly embraced by our advertisers," Kosner said.
And this year, ESPN is stepping up its efforts to increase its fantasy presence. It is launching a fantasy football TV show later this month that will air on ESPN2. ESPN also offers fantasy advice through its magazine, radio shows and podcasts. Kosner thinks that the breadth of ESPN's fantasy coverage gives it a leg up on Yahoo and other competitors.
"The power is in being at all these different media, hitting the fan everywhere he or she is," Kosner said.
CBS still believes in "premium" product
Still, not all media companies think that free fantasy football is the way to go. Steve Snyder, general manager of CBS SportsLine, said that it has "well over a million" users playing in paid football leagues. And even though CBS doesn't have as many members as Yahoo or ESPN because of its paid subscription model, Snyder said its fantasy site is still attractive to advertisers.
In fact, he said having people that are willing to pay for fantasy football has been a lure.
"Since we have a high-end audience, we've always had success with advertisers. Ad inventory for fantasy football has been sold out for years," Snyder said, adding that GMC, McDonald's, Budweiser, Toyota and Coke are big advertisers this year.
Nonetheless, free competition from Yahoo and ESPN has caused CBS SportsLine to begin offering its own free product as well. But the company also is trying to differentiate itself with new games.
Snyder said CBS is launching a free offering called Heads Up Fantasy Football this season that will allow people to draft new players every Sunday and make changes after every quarter of those games. (Think fantasy football meets day-trading.)
There appears to be plenty of room for small independents to thrive as well.
SportsBuff.com's Thomas said his firm has worked in the past with the Minneapolis Star Tribune and Chicago Tribune to create fantasy games as promotional tools that were designed to help increase their circulation and newsstand sales.
The fantasy sports industry also won an important legal battle earlier this week that should allow most leagues to remain free. A U.S. District Court Judge ruled that fantasy baseball leagues do not have to get licensing agreements from Major League Baseball in order to use players' names and statistics.
Some had feared that a court victory for Major League Baseball would have meant that smaller fantasy baseball league companies (and possibly fantasy leagues of other sports) would have to pay for stats, which would make it tough for them to compete unless they passed on costs to fantasy participants.
"The recent litigation news is a great positive for fantasy companies that have been around for more than a decade and put a lot of sweat equity into the industry," Thomas said.