Daily Fantasy Sports Operator Sports Tradex CEO Talks About Industry With G911
HOUSTON -- This sprawling Southwestern metropolis, now the country's fourth-largest city, has been home to many historic venues, such as the Astrodome and NASA headquarters.
And now it is the home of a sports fantasy company that is revolutionizing the industry--Sports Tradex (www.sportstradex.com).
While most sports fanstasy operations utilize some sort of salary cap--the better the player, the more he costs--Sports Tradex has abandoned that mindset and come up with a new way to value and select talent for fantasy sports.
Gambling 911 journeyed to the Lone Star State and visited the headquarters of Sports Tradex for a sit-down interview with company founder and chief executive officer Benjamin Lipson.
Here is a transcript of that interview:
Gambling 911: How does your fantasy operation work and how is it different from the many other fantasy leagues out there? What states and countries are you legal in and how do you stop players who are not in those locations from joining? And what is the age limit to join and how do you verify that?
Benjamin Lipson: Sports Tradex is a daily fantasy sports website. Daily fantasy sports feature contests that last just one day or one week in the case of football. Unlike traditional season-long fantasy sports, Sports Tradex gives players immediate gratification and eliminates the season-long commitment. Within daily games, the most common format is a salary cap game in which a user constructs a roster by buying players within a predetermined budget. Sports Tradex is the leader in non-salary cap games. Our most popular format is a tiered draft game where Sports Tradex participants draft a team from four tiers--A, B, C and D. The entrant in these games has a choice of a seven-, eight- or nine-player team with different allocations of player by tier for each team size. For example, a seven-player team will permit more top-tier players. This format is unique, fun and flexible. We have seen seven-player teams win and we have seen nine-player teams win. It also provides the most flexible lineup options by position, which means you could draft a fantasy football team with up to four or five quarterbacks.
G9: How much does it cost to join and what do you get for your money?
BL: It is free to sign up for a fantasy sports account at Sports Tradex. All of our games pay out cash prizes. Entry fees for the real money games range from $2 to $200. The winners of those contests win huge cash prizes. Sports Tradex paid out over $1.25 million in cash prizes in 2014.
G9: Why is your operation legal and why isn't it considered gambling? Is there really any difference between guessing which team will have a good day and win a game, which is gambling, and guessing which players will have good days, which is legal fantasy play?
BL: Fantasy sports is legal as a skill-based game and exempted under the Unlawful Internet Gaming Enforcement Act. The definition of fantasy sports requires, among other things, that the results are not dependent on the outcomes of real-world games. Winning fantasy sports players typically maintain their standing over time as elite players and the emergence of professional daily fantasy players is proof of the skill element. Success in our games relies upon many factors including but not limited to statistical analysis, evaluating match-ups and detecting trends in a particular fantasy sport. Building a fantasy team is more like building a stock portfolio than it is like picking the winner of the Super Bowl.
G9: How did you get into the fantasy sports business? Can you tell us about your personal background?
BL: Prior to founding Sports Tradex, I worked as a commodities trader at Macquarie Bank for five years. I also got an MBA from the University of Texas, which fueled my entrepreneurial drive. With my background and a passion for sports, I saw an opportunity in fantasy sports to deliver a really fun unique experience to fans.
G9: How are you preparing to compete against the commercially successful DraftKings and FanDuel? Both companies have attracted significant investment monies recently, so are you preparing to do the same?
BL: We differentiate ourselves from FanDuel and DraftKings by offering non-salary cap games and have gained significant traction in the industry with this strategy. We plan on continually expanding our prize pools and will secure the funding necessary to support our growth plans.
G9: What has been the growth rate of your business since last year? What is the driving force behind that growth? Has the media coverage fantasy is getting this season translated into a boost for your own business? And how many paying customers do you have right now?
BL: Our business has grown over five-fold and we are shooting for this type of growth in 2015. The media coverage of daily fantasy sports has certainly been a great tailwind for our business. We pride ourselves on responsiveness to our customers in our ongoing effort to deliver fun games and great experiences.
G9: What is an average fantasy player worth? How much will he or she spend on daily fantasy games in a given year? How does this compare with season-long contests?
BL: The value of a player differs from site to site and it appears the value of a player continues to grow. In the long run, daily fantasy sports player value will be comparable to the lifetime value of online poker players and perhaps even better. The value also grows for us as our site increases our player base and our prize pools.
G9: Can you compete with the likes of ESPN and Yahoo should they enter daily fantasy sports, as is rumored?
BL: It's difficult to respond to a theoretical since we don't know when and how they would enter and what type of contests they would offer. We believe the market can sustain up to half a dozen or so companies long term. By focusing on non-salary cap games, we are able to differentiate ourselves and carve out a significant piece of the market for ourselves that should be sustainable.
G9: Would it make sense for a fantasy company like yours to team up with an online sportsbook partner, such as Bookmaker.eu or Sportsbook.ag out of Costa Rica or one of the European books such as Paddy Power of Ireland or William Hill of the U.K.? Such a partnership would give you a ready-made customer base of sports-betting fanatics, so have any such companies approached you or vice-versa?
BL: We are very cautious about any perception of impropriety and would therefore be reluctant to partner with a sportsbook at this time. If we decide to expand to Europe, however, a partnership with a European sportsbook would present an interesting opportunity.
G9: Where are you based and why have you chosen that location? And are you considering branching out into other locations?
BL: Our offices are in Houston, Texas. We have a great team here and plan on continuing to use Houston as the base of our operations. Since the business is tech-enabled, we can reach our audience online wherever they are in the United States or Canada.
G9: What do you see as the fantasy highlights of 2014, both the highs and the lows? For example, what players have crushed your customer base and who are the big money-makers so far?
BL: The amount of fantasy scoring in Week 13 of the NFL was certainly exciting, and those that drafted both Ryan Fitzpatrick and Tre Mason that week struck gold. The fantasy low was certainly Week 2, where we saw a lot of injuries, particularly in the first quarter of games. In daily, it's one thing if a player is injured near the end of the game because at least then he's put up some stats to help your team. If it's at the beginning like the Jamaal Charles and A.J. Green injuries of Week 2, your team is toast!
G9: What is the most money anyone has earned playing with you?
BL: We have quite a few players that have netted five figures while playing at Sports Tradex, including users that have earned more than $30,000. In total, Sports Tradex will pay out over $1.5 million in prizes for 2014
G9: Do you have many female players? What percentage of your customer base is female? Are there any significant differences in the way female customers play fantasy as compared to male players, as far as strategy, tactics and expectations are concerned?
BL: Like most daily fantasy sports, the vast majority of our user base is male. There generally aren't significant differences between our female users and our male ones in terms of strategy or value.
G9: What is the basic demographic of your paying customer? If it mirrors the demo of the average American sports bettor, it would be white and male with a high level of education and income, although the age for fantasy players would be lower on average than the age for sports bettors. How accurate is that assessment?
BL: It generally fits the profile. Most of our users are 25 to 45 with good incomes and high levels of education.
G9: Where do you expect fantasy in general and your company in particular to be a year from now? Do you expect legal sports wagering to become more widespread in the U.S. in the coming years? If you do, how would that affect fantasy?
BL: We expect the daily fantasy sports market to continue to grow at a meteoric rate and for Sports Tradex to be part of this growth. We expect greater legalization of sports wagering but are unclear on the timing of such changes. For now, we are focused on delivering great skill-based fantasy games to our users.
By Tom Somach
Gambling 911 Staff Writer
