Fantasy sports is big business. Players spend more than $30 billion a year on gaming. The companies behind it make $7 billion a year.
The leagues are now on their second or third generation of play — growing from 500,000 participants in 1988 to 59.3 million today in the U.S. and Canada, according to the Fantasy Sports Trade Association. In other words, the fantasy sports industry is here to stay, said Rob Phythian, CEO of SportsHub Technologies, a growing company in Minneapolis’ North Loop.
About two-thirds of fantasy sports participants play only in friends and family leagues. They might have a member manage the league, or might use “commissioner” software available through Yahoo, ESPN and other sources, Phythian said.
SportsHub, Phythian said, is after the other third who want to play extra games or join tournaments online. “We call them the fantasy avid fans.”
The company acts as an umbrella layer for smaller fantasy sports brands offering online leagues, taking care of compliance to state regulations, marketing and underlying business functions such as processing payments and accounting, he said. The industry has become more complicated since the big two in the business, DraftKings and FanDuel, came under fire for alleged misleading advertising and possible insider trading. Regulations are different state by state, which is why a business like SportsHub can help a brand grow.
Since he founded the company in 2015, SportsHub has acquired six businesses, including WhatIfSports and National Fantasy Championships. It is backed by angel and venture capital, including an infusion of an undisclosed amount last week by New York-based WISE Ventures. WISE stands for Wilf Innovative Sports & Entertainment and is backed by Minnesota Vikings owners Mark and Zygi Wilf and their family.
“The Wilfs really want to take a good look at the market for sports technology,” Phythian said.
The Wilfs’ fund formally launched last week, with the focus on early- and growth-stage sports, entertainment and real estate ventures. So far, it has made investments in nine companies.
“We have a passion for investing in, and collaborating with, next-gen companies who are on the leading edge of ideas that can ultimately enhance people’s lives,” Mark Wilf said in a statement.
Phythian was a pioneer in the fantasy sports business. He and friend Paul Charchian raised $50,000 from friends and family to launch Fantasy Football Weekly in the early 1990s. Before their weekly magazine, the information for fantasy leagues was limited mostly to yearly manuals published before the seasons started. In its first week on newsstands in 1993, it outsold People and TV Guide in the stores where it was placed, Phythian said.
“That’s when we knew we were onto something,” he said, and he and Charchian were eventually able to quit their day jobs. They are both still in the industry, members of the Fantasy Sports Hall of Fame and have both served on the board of the Fantasy Sports Trade Association.
Fantasy Football Weekly grew into Fanball.com, expanded into services, filed for Chapter 11 bankruptcy during the dot.com bust, rebuilt and sold in 2005 for $22 million to Fun Technologies.
Next up for Phythian was a business called SportsData, started in 2010 with partner Dave Abbott. That business was born on the campus of his alma mater, the University of St. Thomas, where students entered data from games across the country, and it was backed by Minnesota angel investors including Jim Hays of the Hays Group.
The business grew fast — first by providing the statistics to fantasy sports leagues then platforms such as Google and Facebook — and sold in 2013 to Swiss firm Sportradar for an undisclosed amount. It still employs hundreds in the Twin Cities.
Phythian had looked at the fantasy sport super fan market before SportsData, but it was too soon, he said. When he was looking for another business opportunity in 2015, he found the market ripe for the kind of consolidation accomplished by SportsHub with support from local investors such as John Lettmann, retired CEO of Malt-O-Meal.
More acquisitions are expected for the company, although Phythian said he has already bought his favorite companies in the space, including LeagueSafe, a monetary platform run by Charchian. SportsHub’s model is like a holding company, where the businesses stay in their respective hubs run by the same management teams.
“The companies must have good management, good numbers of users and cash flow,” he said.
The fantasy sports market continues to be an opportunity, with more than 75 percent of players college-educated and more than 66 percent employed full-time, with age skewing toward the 20s and early 30s, according to statistics compiled by the Sports Management Degree Hub.
In general, companies related to major league sports are “recession proof,” he said. “That whole entertainment sector is going to stay [strong]. That’s where the money flows. That’s really how you need to look at the sports space.”