Thursday, October 8, 2015

Daily Fantasy Sports and Intercollegiate Athletics - Part 3 - A solution to budget and student attendance concerns?

The explosion of Daily Fantasy Sports (DFS), fueled by industry leaders Draft Kings and Fan Duel, has become a hot topic within intercollegiate athletic circles prompting significant questions and areas of debate.  Part one of this series addressed the question, is DFS gambling? And part two answered the question - Does DFS erode the integrity of college sports?  In this article UltimateSportsInsider.com addresses the question "Could Daily Fantasy Sports be a solution to athletic budget concerns and student attendance at games?" 

Higher education and intercollegiate athletics are under tremendous budgetary pressures. State budgets are soft.  College attendance by traditional age students is in decline and demographic trends suggest that this erosion will continue for years.  Further, college is increasingly viewed as a commodity where price can be negotiated and tuition price sensitivity is increasing with greater access to information.  


The search for athletic revenue is intense and two competing Daily Fantasy Sports titans, as well as numerous other companies who want a piece of the action, will spend hundreds of millions of dollars this year to attract new players to the activity or shift the spending by current participants from a competitor company to their own.  In the first week of the 2015 NFL season alone, $27 million was spent on fantasy sports television advertising. Other estimates are that Daily Fantasy Sports spent over $150 million on advertising in the three months leading into the 2015 NFL season.  

By comparison, the rights fee that CBS pays to the NCAA to broadcast the men's basketball championship is $10.8 billion over 14 years, an average of more than $750 million annually.  Annual advertising by Daily Fantasy Sports websites could eclipse this amount, in effect, acting as a second NCAA basketball championship. But the dollar amount alone doesn't make this spending meaningful. What makes it meaningful is the distribution mechanism for those who choose to accept these advertising dollars. 


Rights fees for the NCAA men's basketball tournament are huge, but by the time they make their way to the member campuses, they typically represent a very small fraction of an athletic department's budget.  The reduced impact of these funds happens for a variety of reasons:

  • the funds are paid over six years; 
  • the funds are paid to the conferences where the revenue is then divided across the conference office, tournament participants and then the member schools; 
  • the funds support NCAA operations; 
  • the funds support more than 80 championships and various programs to enhance student athlete welfare.
Although the NCAA isn't accepting Daily Fantasy advertising, conferences and campuses will access these funds directly by permitting the advertising on their own websites and in their multi-media rights agreements and more importantly, conference television rights, providing more direct access to this revenue.  And conferences have started to stake out their positions regarding the appropriateness of accepting DFS advertising.  The SEC has indicated they will not accept DFS revenue.  The Big Ten Network is accepting advertising and the Pac 12 network is currently doing the same as long as it doesn't promote college fantasy sports.  

In the short term, DFS can be a significant revenue generator for any entity that is willing to provide advertising inventory.  

DFS may also address concerns about declining student attendance and interest as well.  The Wall Street Journal noted the negative attendance trend more than two years ago and the concerns continue to exist with institutions continuing to look for creative ways to encourage students to come early and stay to the conclusion of contests.  These creative enhancements include expanded wifi connections, improved high end amenities and an experience that tries to compare to the experience you can have in your own living room.  


But regardless of these improvements, students (and in fact all fans) have numerous instantaneous entertainment options in the palm of their hand via their smartphone.  Students seek social opportunities with friends at every turn.  And they want to actively participate, not spectate.  Athletic administrators need to adapt to these demographic trends and have been searching for ways to do so. One possibility has dropped into our lap. 
"Experiential learning" is a popular concept in higher education.  Daily Fantasy Sports, for right or wrong, is experiential, immediate, impacts the individual directly, is emotional and is very social.  

In a recent Wall Street Journal interview of Oakland Athletics General Manager Billy Beane and Boston Red Sox senior advisor Bill James made the following observation about how sabermetrics have made baseball a better game to watch.

James: We produce information, and information ties the fans to the game. People in a culture with no information about baseball have no interest in baseball. If you give people a little bit of information about baseball, they have a little bit of interest, and if you give them a lot of information about baseball, there’s the potential that they have a lot of interest. 
Beane: It’s a different generation of fan that now has exposure and an interest in why things happen. Give them some rational reason for outcomes. We’re an information-hungry society, and one that is constantly trying to understand. I think there are a group of kids who love it for the numbers and love it for the information.
Fantasy sports is an extension of many people's desire to utilize information, learn and understand, to compete, and immerse themselves further into athletics.  This is a positive development for our fan bases and their future stability.  

Whether college athletic administrators will embrace Daily Fantasy Sports in some manner remains to be seen.  But the discovery of insider trading activities makes accepting DFS even more complicated for those who are open to the concept.  In the next installment in this series, I will analyze the entanglement between DFS and intercollegiate athletics and make some predictions about the future relationship between the two entities.   

What do you think?  Can Daily Fantasy Sports help enhance intercollegiate athletic budgets or improve student attendance?  Share your views in the comments section. 


Next: The future relationship between Daily Fantasy Sports and intercollegiate athletics.  


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