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Small fantasy sports outfits are wary and feeling left out

Fantasy sports startups that raised millions as DraftKings and FanDuel rocketed to billion-dollar valuations could struggle to secure additional funding.<b> </b>
Fantasy sports startups that raised millions as DraftKings and FanDuel rocketed to billion-dollar valuations could struggle to secure additional funding.<b> </b> Scott Olson/Getty Images

Matt Chatlin has mixed feelings about the firestorm engulfing DraftKings Inc. and FanDuel Inc.

On one hand, the investigations, subpoenas and suspicions aimed at the daily fantasy sports leaders could present an opportunity for his competing startup, OwnThePlay Inc., to capitalize. In fact, Chatlin has already added features in response to complaints about the player experience on DraftKings and FanDuel, and says entries are growing at a rate of 40 percent a week.

On the other hand, none of the state or federal regulators probing OwnThePlay’s larger rivals have contacted him, meaning Chatlin may not get a seat at the table when important decisions about his industry are made.

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“I’m incredibly surprised that I haven’t been contacted, and I hate that I haven’t been asked,” said Chatlin, a former professional poker player. “I have very strong opinions about how to bring regulation to the Internet gaming space.”

Chatlin’s ambivalence typifies the mood of small-scale fantasy sports operators who have been mostly overlooked in the recent brouhaha over the legality and integrity of cash contests. Three others interviewed agreed that there are benefits as well as drawbacks. They will happily scoop up customers seeking alternatives and are glad to avoid FBI scrutiny, but they also worry about being left out of regulatory conversations.

Plus, what seemed like an unstoppable growth sector only one month ago now looks like a shaky bet. Fantasy sports startups that raised millions as DraftKings and FanDuel rocketed to billion-dollar valuations could struggle to secure additional funding.

“Any investor looking to invest in daily fantasy would certainly pause,” said David Geller, who raised $25 million in venture capital for his company, TopLine Game Labs LLC, maker of the DailyMVP fantasy app. “I think it would be very challenging to go out and raise a round for something like a DraftKings or FanDuel right now.”

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The gap between DraftKings and FanDuel and everyone else is enormous. In contests based on last Sunday’s NFL games, DraftKings collected $22.9 million in entry fees, and FanDuel took in $19.9 million, according to fantasy data tracker SuperLobby. Yahoo! Inc. was a distant third, at $1.2 million, and no other company cracked $350,000.

Yet the fantasy sports pie is getting so big that more than a dozen other firms are vying for slices, handing out more money in prizes than they collect in fees, in hopes that players will get hooked, keep spending, and eventually yield profits.

Participation in fantasy sports contests of all kinds has grown 58 percent since 2011, according to the Fantasy Sports Trade Association. Roughly 57 million people in North America now play, and the fastest-growing segment is daily fantasy play.

The industry’s bright forecast turned cloudy in recent weeks. Federal investigators in Boston have subpoenaed DraftKings, which is also under review by Attorney General Maura Healey and the Massachusetts Gaming Commission.

Meanwhile, a deputy prosecutor in New Hampshire said Friday that Attorney General Joseph Foster’s office was aware of the controversy and was “looking at” daily fantasy sports, but declined to detail the review.

In Connecticut, a spokeswoman said Attorney General George Jepsen’s office and the state’s Department of Consumer Protection were jointly reviewing daily fantasy sports, to see whether companies such as DraftKings “have made reliable and accurate representations to consumers about the way they operate and whether adequate and transparent controls are in place to ensure fairness to Connecticut consumers.”

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Globe correspondent Dan Adams contributed to this report. Callum Borchers can be reached at callum.borchers@globe.com.