2008–2013
This peculiar idea of his, which could have sunk to the bottom of the abyss of abandoned dreams, had a strange way of surfacing from time to time with the urgency of a vision that would change the world around him. Perhaps it wasn’t a coincidence that it always happened to Mark when he was in a drunken haze. Usually, it was along the long oak bar where Mark had an eye on one of the TVs split into four screens flashing with the afternoon slate, as his head swirled inside the brain-assaulting bar noise and that second or maybe third drink was beginning to settle in the part of his brain that allowed him sometimes to resist the urge that was the essential thing about him. Some stranger at the bar had taken out his phone and showed him his lineup, and while “Let me tell you about my fantasy lineup . . .” was a line that should be uttered only by someone who wants a conversation to crash into a dead end or a brain to go numb, Mark never felt exactly the way others did, that listening to someone talk about his fantasy sports team was as interesting as listening to someone go on about his dog’s sweater collection. Instead, when Mark listened to a person admiring what Mark in an instant could see was a frankly terrible selection of players, he felt that urge that was as difficult to fight as gravity: Mark wanted to teach this minnow a lesson and, while he was at it, make some money.
There were two types of people in the world: those who saw the world as a matrix of sharks and minnows, and those who didn’t. Mark Nerenberg was the type who always walked through a room looking for an edge, whether it was a poker room in Vegas, a room full of suits in his day job as an options trader, or this sweaty sports bar in Minneapolis overflowing with fish. When Mark was growing up in the suburbs of the Twin Cities, his father, Lex, would return from poker night with his longtime crew, and Mark would listen and absorb his father’s analysis of how the night had unfolded, each hand and tell methodically broken down and dissected by this internist by day and poker shark by night. By the time Mark was a rebellious eighth grader who’d been suspended from school more times than he could remember, he was mobilizing his buddies to join his own version of the old-school, season-long fantasy football games their dads played. His notebooks were overrun by stats from weekly games that he had meticulously compiled and charted and reset after each NFL Sunday, when his friends would put into the pool another $10, $20 each—a small chunk of bar mitzvah money for Mark’s circle of friends who found a little thrill in having some stake in the performances of a god like Brett Favre, Marshall Faulk, or Randy Moss. Mark’s wiring was completed in college during those hours spent hunched over a laptop on his frat-house couch, jazzing a second or third Red Bull and a cigarette and a line into PartyPoker live; he had turned hours of repetitive labor into more pocket money than a student in a sleepy college town knew what to do with, winning five figures in one night and somehow blowing it all during a one-week bender in Atlantic City.
Online poker was a beautiful moneymaker for him and other skilled poker players because of the vast ocean of minnows. When strangers showed him their terrible fantasy lineups, Mark couldn’t help seeing another vast ocean to exploit, except for one problem: unlike in poker, there was no way for fantasy football players to take strangers on for instant money. And from that problem of Mark’s emerged an idea.
One night in 2007, after too many rounds at the bar, Mark stumbled home, sat down with his laptop, and fired off a drunken email to one of his old University of Maryland buddies.
I want to create an online fantasy sports website where customers can:
Deposit and withdraw funds
Participate in live drafts and auctions with people they have never met all over the world
Chat with other participants
Know that their money and personal information is 100% secured
He added:
If this site was up and running the way I envision it, there would be so much traffic it’s ridiculous. $$$$
It was exhilarating to tell others about this idea that had been cooking in his head, but Mark didn’t have the faintest clue where to begin making it more than an idea and a drunken email. Ultimately, there was one person whose opinion he valued most—his dad’s. While he was certainly not going to ask his father for money, Mark knew that the odds of him actually doing something about this idea were slim without his dad’s blessing. Lex could be hard on his son, but he also admired the kid’s edge—his audacity, his refusal to accept convention. “Son, this is a good idea,” he said to Mark in his deep and commanding voice, like a judge’s. Lex meant it: the idea was inspired.
Though he also had another thought about Mark’s game, one that he kept to himself.
No way in hell is it legal.
One of Mark’s first memories was of a rumbling, rising elevator and opening doors that led to a room where a group of men assembled, dressed in attire that resembled clown outfits—an assortment of hats and T-shirts and jerseys slathered in a variety of radioactive colors. Mark sat in a corner and watched middle-aged men groan and sigh and belch and deliberate solemnly, as if over real estate transactions, as they convened around a table covered with scribbled legal pads and spreadsheets and glossy sports magazines and mulled the value of players they would draft onto their imaginary teams. This was little Mark’s first glimpse into his father’s secret society. All of its longtime members were men of roughly the same age, many of whom had grown up together, and some of whom returned home specifically for this occasion. Now, as middle-aged adults with young children, they assembled once a year to draft their teams in a fantasy football league that, by the time young Mark attended his first draft, had existed for decades.
When Mark was young, his father often told him that he invented fantasy football. Lex was kidding but not kidding. As a premed student at the University of Minnesota, Lex had the idea when some friends of his who were visiting from Canada told him about a game they played based on the statistics of hockey players during the NHL playoffs. Lex took that concept and created an NFL version of the game for his roommates and friends. He had stacks of papers from 1978 to prove it to his son. There it was, documented on a gridded sheet on yellowing paper: in the first draft of the league, held in a kitchen in a Saint Paul apartment complex, Terry Bradshaw of the Pittsburgh Steelers went first; a kicker (Can you believe it, son, a kicker?!?) was taken next. A fantasy football league was born.
Lex knew that he didn’t invent the game he played, but he also knew that any claim to be the origin story for fantasy sports was probably not so. For instance, he and countless others had heard the story of a group of fans coming up with the idea for a fantasy baseball league in the early 1980s in New York City; this was the neat yarn for the origin of fantasy games of all kinds, a tale that would be passed around and written about in books and celebrated in film. An idea hatched during a cross-country flight. Eleven founding members. A French restaurant in Manhattan.* The details were polished and smoothed over through the years, and while there was no reason to dispute any of the facts, the idea that the early 1980s was the dawn of fantasy sports games was simply hogwash, since Lex and his pals were playing a kind of fantasy game years earlier.
Beneath one origin story, there was always another origin story.
Lex assumed that games like the one he’d come up with were already being played in living rooms and dormitories and offices by like-minded sports geeks of his generation. Many years later he would be able to read about a league that had been started a decade before his, in a basement in Oakland, by the staff of an NFL team. The story went something like this: The Oakland Raiders professional football team was approaching the end of a sixteen-day East Coast road trip when one night, in a Manhattan hotel room in the winter of 1962, the general manager, a man named Wilfred Winkenbach, and a sportswriter for the Oakland Tribune came up with the blueprint and the rules as the night progressed and the cocktails flowed. The first documented fantasy draft was, fittingly, held in someone’s basement—Winkenbach’s basement—and from the start the goals and purpose of the fantasy games were clear: to make the real games more interesting to watch, with bragging rights and money at stake, and to “bring together some of Oakland’s finest Saturday-morning gridiron forecasters,” it read in the original rules, “to pit their respective brains (and cash) against each other.”
The cash: it was essential to make things interesting. So began the first fantasy football league—on record at least. No one in Winkenbach’s league got famous or rich off their idea for a fantasy sports game. No one in the original Rotisserie baseball league did either. In the late 1980s, Lex had the thought of trying to make some money because he and others were putting so much time into sifting through every box score to manage the stats and scoring of the teams in the league. Why not do it for others across the country, for profit?
Lex called up the local newspaper and asked to put in an ad for a statistical service.
“No way—this is gambling!” was the response he got. Perhaps so—but a year later Lex opened up that newspaper and saw that it had decided to start running Vegas odds on professional games, even though sports betting was illegal virtually everywhere in America outside of Nevada.
For years, during breaks, in between seeing patients, Lex closed the door to his office, took out his yellow legal pad and the week’s NFL box scores, and at his desk began compiling the scoring for the teams in his leagues. Nothing gave him more joy during his day. Each week he mailed the league standings to the members. Those standings arrived sooner with the advent of the fax machine, and in the late 1990s another technological game-changer appeared: the internet allowed Lex to email updates (and, of course, trash talk) and later also let players log on to online services that did the scoring for the leagues. By then, the popularity of fantasy games had spread so far and wide that they had the endorsement of the professional leagues, which at first had seemed to keep their distance from this thing that sure smelled like gambling. Now they were embracing the games as a mainstream component of the fan experience. And yet, despite all these changes, in just about every other way Lex’s league through the decades remained basically the same as in those days when little Mark followed along to the draft meetings: the same scoring, the same rules, the same team names. Countless friends, coworkers, and neighbors passed through Lex’s life over the years, but the nine other men in his fantasy football league—these blustery, obnoxious, vulgar, beautiful men—were constants.
Their game didn’t change, but the world was changing, fast. Now those who fell in love with live snake drafts and five-hour auctions and the day-to-day micromanaging of a single team over many months, all for the reward of bragging rights and a few hundred bucks at the conclusion of an interminable season, were in their fifties and sixties, with adult children who lived in an instant gratification world of 140-character quips and six-second videos, a generation for whom the idea of playing one game over several months seemed as old-fashioned as Parcheesi. This generation was ready for a new kind of game, even if they didn’t know it.
Two years—two miserable, soul-crushing years at his desk job as an options trader—had passed since Mark first sat down and riffed about his idea for a new game, and during those two years, while most people on the other end of his idea agreed with him that there was something there, no one had the faintest idea what to do next. All that time, though, another like-minded soul was waiting to hear an idea like Mark’s. When Mark connected with Brian Schwartz for the first time, through a mutual friend, Brian was sitting at his desk in a drab cubicle in Manhattan; he was making good money just a few years out of the University of Wisconsin at a marketing job where he spent his days dreaming about doing something entirely different. One day, Mark reached out to Brian and explained his game.
MARK: It’s fantasy against total strangers for money.
BRIAN: I don’t really get it. I play fantasy with my friends and already make money.
MARK: It’s fantasy kinda like how u can play poker online for money. setting up a lobby like a poker site, where u sign up for leagues with different buy ins, scoring, drafts/auctions, players durations, etc.
BRIAN: I do think the instant gratification is part of the appeal for online poker.
MARK: It’s online poker meets fantasy. But it HAS to be short duration.
Brian had also grown up creating his own versions of fantasy games for his friends. A hockey player from Long Island, Brian would tally all the stats using box scores from newspapers and then email the standings to his friends. His first instinct about Mark’s idea was that it was brilliant. As fun as fantasy sports were, Brian knew just how frustrating, anticlimactic, and ultimately unsatisfying they could also be. In baseball’s relentlessly long season, for instance, after that exhilarating draft in late March, you were unlikely to still be checking your team every day by Memorial Day, and by August, if you were out of the money, it was a miracle if you remembered that you still had one. The direct connection that Mark had made between poker and fantasy sports was what made the idea fresh and new and interesting to Brian: the short duration was key.
The ability to compete against other users whom you’ve never met, over the internet, will become extremely popular, much like online poker, read the presentation that Brian told Mark to put together for potential investors.
Having the same players all season and having to wait months for a conclusion and potential payout is not enough for today’s fantasy players. Sports fans will love to reset every week, or even every day . . .
Playing blackjack, video poker, or betting on sports against “the house” is almost always a losing proposition in the long run. Like poker or stock-market trading, this will provide an opportunity for some of the most skilled players to make money over the long run . . .
The DraftStreet founders were sure they were onto something. They joked that they should all move to the UK, where sports gambling was legal and rampant, rent out a sweet flat maybe somewhere in London, a bachelor pad to end all bachelor pads, launch the company, sell the game, and move back to the US with their millions. While they all agreed it was a genius idea, it wasn’t clear to them that a game like this could make it through the legal buzz saw—sports gambling, after all, was illegal in the United States—but the idea was just too damn good. Gambling was legal in many other countries, including the UK, and there were plenty of offshore sites that would operate a game like this.
Then one day everything changed. Mark, Brian, and their two other cofounders, had gotten together in New York one weekend to formalize a business plan. Sitting at his computer, Mark came across the home page of a website with NBA star Gary Payton splashed over it. “Win daily cash games playing daily fantasy,” the site read. It was . . . precisely . . . Mark’s idea.
“No,” he whispered to himself as he stared at his laptop screen. He felt like a fool that it had never occurred to him that there might be another group of guys out there with his idea, having precisely the same conversations that they were having. Mark was crushed.
“Fuck!” he screamed, practically scattering the pigeons at the window of the conference room they’d taken over. “Fuck! Fuck! Fuuuuuckk!”
Mark was devastated. He thought they were done, finished.
Brian felt the opposite. To Brian, this was merely confirmation.
The race was on.
MARK: So why hasn’t anyone heard of these sites?
BRIAN: Question is, are those sites very young? have they not been doing good marketing? are the sites just not good products? or is there just not a big demand? I dont think it’s the demand. bc none of us have heard about it.
MARK: All of the above. def not good marketing.
BRIAN: That means they’re not hitting nearly enough of the market.
MARK: Like how have none of us heard of this. That’s just bad marketing.
BRIAN: I think we’ll need a lot of money to do this right, but we’ll prob have to spend a solid $100k on marketing alone to start. i don’t even think we need huge numbers to make a lot of money. bc there really won’t be much cost after the initial push.
MARK: at least we know it’s legal.
While the mere existence of other sites quickly allayed their fears about the game’s legality, Brian had some lawyer friends in New York who explained to him the specifics of the legal protection. Fantasy games were separated from sports betting by an obscure piece of legislation called the Unlawful Internet Gambling Enforcement Act (UIGEA). The act was what had pulled the rug from under the poker industry, but fantasy games were deemed legal. It all did seem tenuous: some of Brian’s lawyer friends called it a loophole, and others were adamant that the question of legality could be a serious problem if these games ever got big enough for anyone to care about them—but that was a bridge they would cross when they came to it. There was no time to waste, because it was clear that no one had to move across the ocean to get their idea off the ground. They now had a name for their operation: DraftStreet.
Mark then found that once you started really looking for sites like these, you could find them everywhere, sprouting like weeds. The site Mark stumbled upon was an outfit called DraftZone; a handful of others resembled high school computer science projects, and there were also “daily games” products tucked away within big media sites, like ESPN and CBS, that were operational but not advertised—instead of straight cash, they offered gift cards as prizes. It was as if the big media companies wanted to dip their toes in the daily games space, but not so deep that they couldn’t flee the scene the moment anyone started calling these games gambling.
And then there was an odd site with a simple home page, a site that seemed to change the kind of products it offered almost every day; of all the other sites, the DraftStreet guys were most perplexed by these shape-shifters. It was clear that this startup didn’t have a grasp of who they were, which was odd, because every other site seemed like a vanity project run by a dude making games for himself. With a little investigation, they also noticed that this site was doing some different things in marketing—such as partnering with local newspapers and radio stations in big sports-mad cities like Philadelphia, the kind of traditional outlets that the millennials at DraftStreet would never imagine working with. Most perplexing of all was the page on the site listing the founders and featuring classy black-and-white head shots that looked more like what you’d see on a bio page for a consulting group than one for a fantasy sports company. The bios of the founders listed credentials that were just as jarringly out of place in their world: a management consultant at McKinsey; a marketing executive at Capgemini Ernst & Young; a University of Cambridge graduate and PhD candidate at the University of Edinburgh . . . and then it occurred to them that these founders hawking this new kind of game that was going to upend sports in America were . . . five Brits.
Five fucking Brits??
Beneath one origin story there was always another origin story.
And beneath the story of DraftStreet was a story belonging to a group of founders who would find themselves asking, over and over again: How did we end up here?
Their story begins one evening in the summer of 2007, in an auditorium full of wannabe entrepreneurs with half-baked ideas, hanging on every word of a local startup founder. A postdoc sitting in an auditorium at the University of Edinburgh looked up to see a man in a suit and fancy glasses walk into a room of unkempt students. What is that guy doing here? wondered Tom Griffiths. That guy must have an interesting story.
Tom Griffiths was just out of college, twenty-five years old, an aspiring Mark Zuckerberg whose problem was that he was not in Silicon Valley but in Scotland—a wasteland for startups—studying machine learning as a PhD student. He grew up in a place as far away as you can imagine from an incubator like Silicon Valley: in a tiny farming town in Wales called Narberth. To become a successful entrepreneur from Narberth was as unlikely as a kid in Beijing becoming a NASCAR driver, and yet Tom, the son of a medical doctor and an English teacher, seemed to be on the fast track early on. He started coding when he was eight years old, on an old BBC Model B, and always put his entire allowance into upgrading his computers. In high school, he was the president of his class of one hundred, well liked by his classmates, but he also had his head buried in books and computers, was captain of the chemistry quiz team, and became the top student in his class, even setting a school record for highest exam marks. You’d peg him as an A-plus nerd if it weren’t for the friend who was always at his side: Rob Jones, always the coolest boyo in the class, king of the jocks, captain of the soccer and rugby teams. Tom helped Rob with his chemistry homework, Rob helped Tom get girls. They started a band together and used Tom’s coding skills to start a web design company for local businesses. Tom and Rob learned that if you had an idea and showed a little initiative, people were willing to pay you money. Their first project was building a website for a local businessman in rural Wales. After getting paid over £1,000 for the project, they suddenly had all the drinking money they would ever need.
Tom attended Cambridge, where he studied computer science in the mid-2000s. Around then, YouTube was sold to Google for $1.6 billion, and Tom was one of countless young programmers across the world who took notice of the fact that YouTube offered no original technology—it was just a website. Suddenly Tom looked back at his time at Cambridge and Edinburgh, where he’d spent days and nights learning to create original technology and building intellectual property, as almost wasted years. He decided that encouraging students to patent their technology was a bit of a fallacy of entrepreneurship feeder programs in universities. The future was about building a product that consumers loved, could grow with a network effect, and were willing to pay to play. So he and Rob, whose aspirations to become a professional soccer player had hit a wall after a gruesome injury, reunited after their undergraduate years and holed themselves up in a tiny studio apartment, where Rob slept on the couch, for six months, developing a site that helped groups organize and meet up. Facebook was exploding in the United States, and Tom and Rob imagined that their site—called Groopit—could make them the UK Mark Zuckerbergs. As they prepared for Groopit’s grand introduction to the world, they were looking for anything—a sliver of inspiration for a new idea, a chance meeting with an investor—that could help them to the next step.
It came that night in the summer of 2007 when Tom showed up at the talk for entrepreneurs at the University of Edinburgh. In a post-event meet-up at a pub across the street from the talk, Tom introduced himself to the mystery man with the fancy glasses. Nigel Eccles was a lean, sandy-haired thirty-two-year-old with a quick wit and an air of restless curiosity—someone with, yes, an interesting story. That night Tom learned the basic facts: that Nigel had grown up on a dairy farm in Northern Ireland; that he had served in Iraq as a consultant with the British army; that he had worked in a number of startups before spending four years at McKinsey; and that he now had an executive job at an Edinburgh media company that had led his family, his wife and son, away from London to this city. There was one other takeaway from the conversation: Nigel was utterly dissatisfied with his career. He, like Tom, was ready to create something of his own.
A few days later, half-drunk and wearing rugby jerseys that made them look like local hooligans, Tom and Rob arrived at a house with a blue door and black grime facade on a winding, quiet street near the University of Edinburgh. After the two hit it off that night at the pub, Nigel had invited Tom and Rob to his home to continue the conversation, and on a Saturday Tom and his partner stumbled in from a rugby match on the other side of town. The moment the front door of the Eccleses’ house opened, however, Tom and Rob realized that they had made a serious miscalculation.
While Nigel had seemed like the kind of mellow, relaxed fellow who wouldn’t mind if two drunk guys showed up at his home to commiserate about the tortured life of an entrepreneur, it quickly became clear that the woman at the door wasn’t. Simply with the stern look on her face, Lesley Eccles—Nigel’s wife—made it clear that she didn’t have time for nonsense—and for two inebriated rugby fans with a half-baked idea. During their visit, which was to show Nigel their idea, Tom and Rob found themselves trying to impress not Nigel but Lesley, a former management consultant who, they learned, was in between jobs, with a one-month-old baby. After just a few minutes of listening to what Tom and Rob had to say about their prototype for Groopit, Lesley more or less said, This is terrible. Now get out of my house. Tom and Rob were not crushed; in fact, they were inspired. After six months of banging their heads and hearing friends say only “That’s great!” honest, sharp criticism was refreshing. Lesley and Nigel, they would find out, had a way of cutting straight to the problem. The core point of Lesley’s critique was that Groopit was a Frankenproduct, a mishmash of too many ideas and concepts. That was enough for Tom and Rob to see that Groopit needed much more work than they had thought. They returned to the Eccleses’ house over and over again, but during long talks in the backyard, below a dimming sky, the four also discussed something that had been percolating in the house for months: Nigel’s idea for a new kind of game.
The idea was a news prediction site that offered users virtual cash to wager on outcomes of real-life events. Users in the United Kingdom and the United States could make predictions about what would happen around a news story, and their wagers would give them a reason to come back to the site and check the story. It was a sound idea—a far more original one, Tom and Rob admitted, than Groopit, which he and Rob were quickly seeing was the kind of site that programmers in dorm rooms across the world were coming up with and trying and failing at.
Tom and Rob had met with an angel investor, a prominent Edinburgh businessman named Kevin Dorren, who was impressed by the two young men, and Dorren had told them, “I’d love to work with you.” Just days after that initial meeting, Tom and Rob went back to Dorren and said, “We have a better idea. And there are a few more of us.” The five founders—Tom and Rob, Nigel and Lesley, and a fifth, a former classmate of Tom’s named Chris Stafford—had teamed up for this new site, which they called Hubdub. They immediately began to see that, while their idea was inspired, the execution would be cumbersome and almost hilariously impractical. They hired a half-dozen students from the University of Edinburgh to sit in a room and watch the news in order to make judgments as to which predictions had come to fruition, and it was nothing short of a nightmare.* There was no business model to speak of, and as a free product, Hubdub had nothing that they could monetize. While they had partnerships with media outlets, they had nowhere near enough revenue from advertising to prevent their initial $1.2 million investment from running dry.
It was clear that they needed a new idea—at the very least, they needed to pivot to a new variation of their game. One thought was to offer a politics-based game, but that was too similar to the original idea. There was one topic area that actually did better than politics: sports. Sports, in fact, made up 60 percent of their traffic—far more than any other category, especially among their US users.
There was a bit of a problem, though: while they were aware that online sports games existed in the United States, none of them had a clue about anything regarding that industry. Early on, as the founders tried to get a handle on the subject, they began to have a series of conversations with sports fans they’d found from their database of users. As they talked with high-ranking business development executives in the fantasy sports space, the conversations revolved around the season-long fantasy sports model that Lex Nerenberg had started playing thirty years earlier and that over fifty million were playing now. A conversation between Nigel and a business executive in the fantasy sports space went something like this.
NIGEL: Okay! I’d like to try this out.
EXECUTIVE: Great! But . . . right now, you can’t. It’s February. At the moment we’re waiting for baseball season. You should try it in two months.
NIGEL: Well, isn’t there basketball going on?
EXECUTIVE: Yes! And there are leagues going on right now! But . . . it’s too late to join any of them—the season started four months ago.
NIGEL: So if I can’t join after the first week of the season . . . then I’m just out of luck?
EXECUTIVE: That’s right.
NIGEL: Well, what are you doing at the moment?
EXECUTIVE: Waiting for baseball season!
NIGEL: And when does that start?
EXECUTIVE: In two months!
NIGEL (to himself): And you call yourself a business!? What on earth do you guys do all day?
Besides the odd factor of seasonality—being beholden to the schedule of the leagues—the Brits thought the oddest thing of all was that the only way fantasy sports could grow was virally, through word of mouth. No one could wake up one morning during the season and decide that he wanted to play and go to a website and start playing. They thought it odd that, in the season-long model, a player had to have a group of friends who were willing to be in a league with him if he wanted to start one. And then there were the other groups of people who clearly enjoyed being in the league simply for the one day of the year when they got together with old friends and drafted the team but who found it a chore to do whatever else went into maintaining a team during the rest of the season, because if you had a losing team, at a certain point you avoided looking at your team the way you avoided looking at your growing waistline.
After every conversation, the founders would find themselves asking, And this is a $800 million industry? How? For an industry that allegedly had become so popular with the mainstream, Nigel in particular was struck by how arcane the actual games were. When it came to how they were played, Nigel thought of the fourth law of thermodynamics: with all the various scoring systems and rules, it seemed as if the games always gravitated to the most complex solution.
“Let me show you—we’ve got the best system ever!” another eager demonstrator would say to the founders, who were desperate to fall in love with fantasy sports: “So we built this website going back fifteen years, and we have figured out the absolute best scoring system . . . based on our calculations, QB passing yards are worth 0.04 point per yard, or one point for every twenty-five yards . . . and since for the average NFL quarterback, the ratio of touchdowns to interceptions is roughly three-to-one, then based on that ratio, each interception should subtract two points from your quarterback’s point total . . . But throw that out the window if you are in a nonstandard scoring league, in which case you . . .”
The Brits could all feel their heads explode.
With a startup, there is always an element of hubris lurking in the belief that you are the one—the only one!—who can crack a puzzle that others have attempted to solve but with no success. There is also an element of hubris at work when Big Ten bros think they have the idea that will fundamentally change how people play fantasy sports. But five Brits who have never played fantasy sports and who believe that they can offer something utterly new to an industry that’s been around and thriving for decades? Well, that requires hubris drenched in a vat of magical thinking.
Fantasy sports seemed, on the surface, like a saturated market, impenetrable to any sort of outside disruption. Part of the reason, the founders discovered, was that the sports space was toxic to investors and thus terrible at producing big startups. The scarcity could be explained partly by the fact that the behemoth incumbents (ESPN, FOX, CBS, NBC) occupied one end of the spectrum, niche activity (bloggers working from home) was at the other, and only a barren wasteland could be found in between. The last startup of scale was ESPN, founded in 1979; more recently, the content website Bleacher Report was an unlikely success story, but otherwise, examples of startup successes were nonexistent. The industry was starved for innovation.
If the Brits had learned something from their previous failures, it was this: what separates the successes from the failures is the foresight and the tools to recognize which parts of a plan are working and which are not working and then—perhaps most crucially—the willingness and ability to immediately change strategy. The Big Ten bros didn’t know what to make of the site operated by the five Brits, who ran their operation like a laboratory, constantly making adjustments to the product and improving it, releasing new features on nearly a daily basis, and never settling on one concept until they could validate their assumptions. This approach, of course, required constant feedback from users, which the founders were happy to take, even if those users were telling them that their product sucked.
“No disrespect,” a forty-something man with a thick Bronx accent said to Tom over the phone. “But this sucks. This looks like something that my twelve-year-old nephew would be interested in.”
Tom, who was surveying users, was deflated. He had just pushed out the first version of their sports game, which was built on a Google spreadsheet. In their younger days, they would have been humiliated by this assessment. But Nigel’s number-one rule was that the game be simple, and their game was simple if nothing else. A user picked a lineup of NBA basketball players from a pool of players and went head-to-head against another user to see which lineup would perform the best based on how those chosen players scored in a game. The winner was the one who had more points based on a very simple scoring system that took into account points, rebounds, and assists.
The product did look like an eighth-grade school project. While the natural instinct for a technologist like Tom in building out a product would be to begin coding, Tom was now going at it in reverse: he decided not to code but rather to build a prototype as quickly as possible to see if this idea actually could go somewhere. He wasn’t going to make the same mistake of holing himself up in a room for six months building a product that no one in the outside world was interested in. Now Tom—as well as Nigel and the other founders—believed in faster iteration and constant customer insight. Tom often quoted Reid Hoffman, CEO of LinkedIn: “If you’re not embarrassed by your first effort, you’ve waited too long.” Tom figured he was on the right track because the product he’d designed was an embarrassment.
Still, Tom thought they’d stumbled onto something interesting when they’d come up with the format for this game, even if it looked terrible. But now Tom was on the line with someone who’d been recruited to test the product, and he was telling Tom something different.
Tom’s conversation with the man from the Bronx had begun with the typical list of questions.
What problems do you see with fantasy sports? (None)
Do you think it’s a pain to commit every week to pick your lineups? (Yes)
Are you looking for an alternative? (No)
And now this man from the Bronx was telling him that the product Tom had offered him resembled something only a twelve-year-old would be interested in.
“Okay!” said Tom. “But before you go,” he asked desperately, “tell me—what could we possibly do to get you to play this?”
There was a pause. “Well, tell me, can I win some money on this?”
Tom was caught off guard by the question. “Yeah, maybe—sure,” he said. “How about five dollars to maybe win . . . nine dollars?” he said, running the basic math in his head of the house taking a cut of a bet.
There was a pause. “Well, if I could put in fifty dollars to win ninety dollars? Now you’re talking!”
Tom felt the lightbulb in his head go on.
Adamant that they needed to validate their hypothesis in a very disciplined way,* Tom put an ad on Craigslist telling players to pick from a list of baseball players and email him their choices along with $10 over PayPal. Tom pitted users against each other, and the user whose baseball players accrued more points would see $19 of winnings arrive in his PayPal account. He was blown away by the response: a half-dozen random people responded. A half-dozen!
The first version of FanDuel was a snake draft format—in which participants drafted a player and took him off the board so his opponent would have to select from a smaller pool—built on a Google spreadsheet. The first interfaces were Craigslist and PayPal. It was embarrassing, and that was the point: the idea was to get it out there, to listen to the users about their experiences, and to change the product quickly based on feedback. They ran tests to see how well they hit their product market–fit goals, and the answer was clear: not well. In their initial surveys, only roughly fifteen out of one hundred users said that they would be “very disappointed” if FanDuel took the product away. Putting all their faith in the feedback—and again presuming they knew nothing—the Brits made changes, sometimes significant ones, to their product overnight. They noticed that competing companies did the opposite: those companies were religious about their beliefs about what a fantasy product should be. The FanDuel founders, entirely agnostic when it came to the religion of fantasy football, were true believers of the surveys and the numbers; having been told by the numbers that their product sucked, they had no reason to believe otherwise. After a few alterations, they produced a salary-cap-format game, and now just under fifty of one hundred people said that they would be disappointed if they couldn’t play the game the following day. It was a sign that maybe, just maybe, they’d stumbled onto something.
When the five Brits presented this idea for an American sports game to their board in the United Kingdom, it was met, not surprisingly, with some dismay. But like most investors, the board had invested in the people, not the product, and even if these five failed, they would end up doing something interesting and maybe even impactful. For this particular product, there happened to be one big concern at the start: the legality. In every early meeting, the first thing an investor would ask was: is this gambling? There were plenty of funds in the UK that didn’t invest in anything perceived as gambling. Kevin Dorren and the other investors joked that they liked to vacation in the US—the last thing they wanted was to end up in prison there instead. But the lawyers for the five Brits had come to the same conclusion as the lawyers for the Big Ten bros: fantasy games were covered by the legal scaffolding of the Unlawful Internet Gambling Enforcement Act. The founders—cautious and meticulous—listened intently to every word that the lawyers were saying to the room full of investors as the collective group decided whether to move forward with this idea for a new kind of game. They all looked around and saw faces that seemed reassured.
One of the founders, deep down, was terrified. Tom jotted down his thoughts in a notebook, and during one meeting he scribbled down words that he felt he might need one day as a reminder, or a reassurance:
Odds of going to jail? Highly unlikely.
At DraftStreet, Brian Schwartz’s job, as cofounder and CEO, was to present a vision for investors and to raise money. Mark Nerenberg’s job, as cofounder and head of product, was to develop the games. It was Mark’s responsibility to come up with various ways of making them more interesting—from instituting smaller features, like the ability for users to swap players after the first set of games locked, to adding entirely new games, including golf. Early on, DraftStreet had distinguished itself from the competition by having more innovative games that seemed to cater perfectly to the users’ preferences. That they were onto something was becoming apparent when other sites began blatantly copying what they were doing. DraftStreet had created a lobby on its site that was inspired by the poker sites they’d all once played on. Soon enough, other sites were doing the same. Later, FanDuel A/B tested a version of a site that looked exactly like DraftStreet’s. The copying was so obvious that Brian had one of his lawyer friends send a cease-and-desist letter to FanDuel’s office.
When he went into conference rooms to face potential investors looking to put money into the industry, Brian was sure to use these appropriations of their model to DraftStreet’s advantage and declare, “We’re the innovators in our space—and they’re knocking us off!”
The fact that the DraftStreet games designed by Mark were superior to the competition’s was giving them an early lead. But that wasn’t enough. If they were going to last, if they were really going to get rich off this, they needed to figure out how to tap into the pool of casual players to give the company a lead big enough so that someone couldn’t come into the space with a boatload of investment money and wipe out everyone else. They had to acquire customers faster than any other company. The problem with this space was that traditional user acquisition techniques were not going to work, because casual players had no idea what daily fantasy was. Brian imagined someone looking at an ad and saying, “What the fuck is this?” The money, ultimately, was what was going to attract new users, but the tournament prizes were small peanuts compared with the prizes of online poker in its heyday. They couldn’t advertise a million-dollar prize pool because their biggest prize pool was $1,000—not exactly an amount that was going to draw a great deal of attention. As they added players, though, the sites held bigger tournaments with larger payouts, and eventually DraftStreet got to a point where it could award a decent amount of cash.
In its first big NFL tournament, a player with the handle HixvilleHunk turned a $60 entry into $60,000. Mark had an idea: to post an advertisement on the site Barstool Sports, an online blog that they all read, but to do so in an article format. Looking at yet another fantasy sports ad, a reader could easily feel his eyes glaze over, but this would read like any other column he would see on the site; he’d need to get through just three or four sentences of something like this to understand how to play the game and how to make money from it. The site had a feverish following—it wasn’t a site readers visited purely for the headlines; they went in because they felt as if they knew the writers. Mark’s idea was to ask HixvilleHunk to write a five-hundred-word blog post, which DraftStreet would pay for, to run on Barstool. The post was the story of a twenty-one-year-old at Elon University who saw a promo for DraftStreet on Barstool and ended up entering a tournament with one of his buddies and winning $10. He put another $50 into the account and ended up winning DraftStreet’s $60,000 first prize.
They all came up with a headline: “Does Turning 60 Bucks into $9,000 on DraftStreet Get This Dude Laid?”
The night of their HixvilleHunk post on Barstool, the guys ordered pizza, brought out the beer, and gathered around a computer with a dashboard that tracked all the deposits coming in. Their offices were in a loft space in Union Square in Manhattan that had been turned into a frat house, with NBA posters plastered over the walls, a fridge stocked with cases of beer, and, in the middle of the room, a custom-made beer pong table—if anyone was going to find out whether a beer pong table could be custom-made, it was the Big Ten bros with a little bit of investor money to burn. Within an hour of the post, the dashboard began lighting up as they watched $20 deposits come in. The founders burst into giddy laughter, their drunken euphoria far surpassing any other moment in the company’s young history. By the time they left that night, DraftStreet had added over three thousand new users in the course of two hours, and when they staggered out into the New York night, they felt as if anything was possible for their little startup.
As much time as the Big Ten bros spent arguing over whether the football product should include a kicker, or whether a stolen base in baseball should be worth more than a walk, or whether players should be allowed four or five members of the same NBA team in their lineups, Brian began to see that to some degree all those discussions were noise. He began to realize that the war between all the daily fantasy companies, the battle to gain an edge over the others, wasn’t at all about product differentiation. He believed that DraftStreet’s product was superior to others, superior to whatever clunky game NBC Sports was half-heartedly pushing, or the latest iteration the five Brits were coming up with—but all of that was moot. Brian now saw that this war wasn’t going to be won over product, or design, or even innovation.
This was going to be a marketing war—a battle, simply, to acquire users.
On Tom Griffiths’s computer was a spreadsheet listing the daily fantasy companies that had entered the space since his company’s founding in the spring of 2009. What began as a serious and painstakingly meticulous catalog of all the competitors that were springing up became a list of ninety-six startups within just years, at which point the founders stopped bothering to count. There were now so many outfits dipping their toes into daily fantasy that if you were a media company even tangentially related to sports and you didn’t come up with your own daily fantasy product, you weren’t doing your job. If you ranked those operators in order of how big a threat they posed to the two leaders, DraftStreet and FanDuel, at the top of the list were the sites that had stuck around simply because they were backed by big money, and even those were dubious operations. At the bottom of the list were fly-by-night sites, including one that was a porn company.*
“That’s a problem for us,” an image-conscious FanDuel investor said to Nigel. To which Nigel replied, “And what do you want me to do about that?”
There was a reason why not just anyone—a porn site, for instance, or a high schooler looking for a computer science project—could wake up one morning and decide they were going to start a daily fantasy company and turn into an overnight success. The reason was simple: liquidity was paramount. Liquidity was the reason why a behemoth like ESPN or Yahoo! would have second thoughts about entering the space. Unless a company had high liquidity—a big pool of players and money flowing in and out of the ecosystem—it simply wouldn’t last longer than a tadpole that had washed ashore. By 2012, no one was capable of catching the two leaders in the space, DraftStreet and FanDuel, which had spent years building up their user bases.
Later, the daily fantasy war would be cast as a story of excess and greed, but the early brilliance of the two companies was that they were lean startups before the lean startup rage in Silicon Valley. FanDuel’s founders were so obsessed with the bottom line that they strived to break even at the end of every month. DraftStreet was growing, with only eight employees, and it even experienced a stretch of profitability in 2012. In fact, neither company saw the battle as a zero-sum game. The way Brian saw it, both companies could fight over customers, but they could also coexist. Brian had big dreams for DraftStreet, but even those dreams were modest by later standards—in the most bullish of his projections, he saw the potential for daily fantasy as maybe in the millions within a few years.
The expectations of early FanDuel employees were intentionally tempered: the founders told new hires that in a best-case scenario, the company would be sold for a nice sum—how big would vary depending on which founder you asked—within a few years, allowing the founders and employees to move on to the next thing. DraftStreet and FanDuel were neck and neck; there were moments when DraftStreet, which focused more on its basketball and baseball products, held the lead, only to be overtaken during the NFL season, which was the focus of FanDuel. But by 2012, as the capital markets began to open up and investors emerged from the wreckage of the financial crisis, real money started flowing into the industry. That year Brian raised nearly $2 million, only to learn that, months later, FanDuel had raised $12 million. Brian began receiving offers from offshore casinos and then, finally, from big media companies in the United States. One was the media conglomerate IAC.
Brian and the founders were looking to raise money to keep up with FanDuel, but they weren’t looking to give up the company, and they certainly were not looking for a deal where a conglomerate like IAC would buy out all the existing investors and take over the majority of the company. But something was making the deal harder to refuse in the end: FanDuel was pulling away from DraftStreet, acquiring customers at a breakneck pace. Not only were they raising more and more money, but, most surprising to Brian, they were proving to be more effective at what was classic direct marketing: advertising a product with a measurable result. From afar, Brian saw FanDuel marketing in local newspapers and even putting resources into an aggressive radio campaign. But there was something else going on in the marketing war that Brian couldn’t exactly put his finger on. The only thing that was clear to him was that they were losing that war, and it ate at him that the Brits were beating him at his own game and he couldn’t figure out how.
On the night that Mark phoned home with the news that DraftStreet was being acquired by IAC, Lex Nerenberg could hear the rush in his son’s voice. Mark was staggered to see that his idea for a new kind of game had taken on such a life of its own that an entity like IAC was willing to pour money into it. Mark’s life wasn’t going to change overnight, but he now had enough money to buy an engagement ring for his girlfriend and move into a nicer apartment in the city. He also now had the satisfaction of knowing that, having once felt adrift, with no apparent place in the world, he’d had a hand in creating a place in the world that he could now call his own.
Tom Griffiths moved from Edinburgh to New York City, where FanDuel had opened a US office in Union Square—just a block from its fiercest rival, DraftStreet, which was now backed by a media conglomerate and had new momentum to challenge FanDuel as the top daily fantasy operator. But something was happening to change the dynamics of the game: a new entrant. It had been around for months, had even appeared on Tom Griffiths’s spreadsheet when it arrived on the scene in 2012, but seemingly overnight it had become a competitor worth paying attention to. For starters, the company, called DraftKings, had raised $11 million, an eye-opening amount for a company that barely had a footprint in a nascent, unproven industry. In a short period of time, it had developed a relationship with the most prominent daily fantasy content website, RotoGrinders, which instantly gave the company street cred with high-volume players who were beginning to make enough money off daily fantasy that they were quitting their jobs to play full time.
Most notably, this startup was clearly burning through its cash. At DraftStreet, the guys had built a scraper to mine data from this new rival’s lobby, to track exactly how many leagues and players the site had each night, and at the end of every night they pulled up spreadsheets and knew exactly how much the company made that day. It was a simple math equation, and there was no way around it: because their tournaments, with massive prize pools, weren’t filling out with enough entries, the site was losing boatloads of money. It wasn’t just that it was losing money; it was losing money in the one area in which a daily fantasy operation was supposed to be making money: on players entering tournaments. It was unsustainable, and, Brian Schwartz thought, reckless and destructive. There was a reason some in the industry called them the suicide bombers.
“There’s no way this is going to last. This is so stupid,” Brian told the others as they watched the site put up tournaments with massive prizes night after night that didn’t fill out with enough entries to cover the cost of the prize money.
At last, the founders at DraftStreet and FanDuel could agree on something: they both despised these guys in Boston who were taking their idea. “This isn’t a way to run a business,” said Brian. “No investor is going to be stupid enough to keep putting money into these guys.” The reaction was the same at the FanDuel offices. No one was taking this new player in the daily fantasy war very seriously. No one except for the head of marketing at FanDuel, who was on the front lines of the battle to acquire customers. The woman who, in 2013, from her office in the FanDuel headquarters in Edinburgh, saw all the pieces in the escalating battle and, calling attention to this upstart company in Boston, began to type out a warning to her cofounders.
These guys are the ones to watch out for, Lesley wrote.
Get ready for a war. We will win.