Ready to explode: Why Boom Fantasy looks primed to disrupt the DFS sector

In a March conversation with the president of the Fantasy Sports Trade Association (FSTA), Paul Charcian, EGR North America asked if we could expect to see more M&A in the DFS sector in the wake of the FanDuel/DraftKings merger.

“There’s just not many companies left for that kind of thing,” replied Charcian. “We’re down to like five companies from 50 two years ago, so honestly I think the industry has shaken itself out already.”

Charcian went on to list DraftDay, Draft and DraftPot as the only companies apart from the big two he could name off the top of his head.

Conspicuous by its absence was Boom Fantasy. And while that may not have been welcome news to Boom at the time, it is a measure of just how far the company has come that it has since taken over DraftPot – one of the companies that Charcian could name.

Indeed, the lack of name recognition is also symptomatic of the way Boom has gone about building its business over the past two-and-a-half years. As Boom co-founder and CEO Stephen Murphy puts it, the company has spent “basically nothing” on advertising since its foundation and only recently joined Charcian’s association, the FSTA.

It’s a business model that stands in stark contrast to that of the industry’s high-profile names and almost every other company in the space. But given the tremendous losses recently revealed by DraftKings and FanDuel (a combined $150m in the first three quarters of 2016), and the bankruptcy of just about every other competitor, maybe Boom had it right all along.

As Murphy puts it, the company has always been product-first. “We’ve done very little advertising and commercial partnerships, and just focused on making our product as good as it can possibly be,” he says. The results so far speak for themselves. Murphy says the firm is growing 15x year-on-year, while also spending 20% less than in 2016, thanks to investments in a scalable, technologically-advanced platform.

“It takes a lot of time and energy to create a product that’s good enough that people want to deposit again and again,” the CEO says. “But now we’re starting to see the fruits of that labor. Even with a very modest ad spend, we’re still growing substantially. May was our best month ever. We had $400,000 in entry fees, again with hardly any ad spend at all.”

The exec claims July and August, traditionally dead periods for the DFS industry with only the baseball season to drive interest, were likely to surpass May to be the company’s best months ever.

In focus

So what is this product that is driving so much growth? Arguably its greatest strength lies in its simplicity. Players are asked to pick one of two in a series of head-to-head matchups. For instance: ‘Who will have more receiving yards, Odell Beckham or AJ Green?’ The favorite offers fewer points if guessed correctly, while the longshot offers more points but is obviously riskier. That basic concept can be tweaked in the amount of choices made and the formats of contests entered. Crucially, it can’t be modelled and it is designed to be played live – ‘Who will throw for more yards on the next drive,’ for instance.

“We just want the core product to be fun to play,” says Murphy. “Because that’s an area where FanDuel and DraftKings have missed the mark. They’ve focused on big prizes. That’s one way to do it and they’ve had some success with that. But most fans aren’t gamblers and that approach is a gambling approach.

“We have real-money mechanics obviously, but we think you can really open up the industry by focusing on the entertainment aspect of DFS. Not just making predictions, but following those in real time, building a community of like-minded people also watching the games in real time. That’s one area where FanDuel and DraftKings haven’t devoted enough attention to, and one area where we think we can make an impact.”

The initial customers are almost exclusively players who grew tired of losing money to sharks on the main sites and began looking elsewhere, but Murphy has his sights set on a much wider audience than the estimated six million existing DFS players. “We have the foundation in place but we want to take it to the next level,” he says. “We don’t want to be known as a DFS company. We want to create our own genre. We want an experience that is 10 times more fun than FanDuel or DraftKings. That’s our high-level mission; increasing the thrill of sports for every fan. We’re starting with real-money gaming and starting with that core group that used to play traditional DFS but then we’re looking to expand.”

The next steps

That expansion push is not far off now, with Boom recently completing a couple of transactions that bolstered its financial firepower and its customer database. The first of these was the purchase of the primary assets of rival firm Draftpot, including its user-base, technology and gameplay IP.

Boom said the deal, announced at the start of June, would double its player base, although the financial details were not disclosed. The acquisition has gone smoothly, according to Murphy, with the integration and player conversions going ahead without any significant issues. What attracted Boom to the deal apparently were the synergies, with Draftpot having spent money in places where Boom hasn’t – yet.

“We were impressed with how they scaled so quickly, and they did that differently to us,” Murphy explains. “They raised $3m and spent $2m on advertising. So it was a very efficient way to build our database.

“The price also made sense for us. Draftpot was for sale and FanDuel and DraftKings were out of the question because of the merger and the last thing they need is to acquire another company. So we figured out a price which made sense.”

As part of the deal, Draftpot’s CTO Joshua Hughes also joined the Boom team and contributed immediately as a “great technical talent.” So has the successful deal encouraged Boom to consider more acquisitions in the rapidly consolidating sector?

“We’re not currently having conversations, but when it makes sense we’ll certainly consider it,” says Murphy. “If we find assets or team members that fit our culture, we’re capable of pulling the trigger.”

Smart money

The other transaction carried out by Boom at the same time was the successful completion of a $2m funding round, with investments from “top executives and owners from ESPN and Major League Baseball.”

Angel investor Cyan Banister, who has previously made early-stage investments in Uber and SpaceX, came on board, joining existing high-profile investors like Zynga co-founder Mark Pincus.

“Boom Fantasy is incredibly fun – both for diehard sports fans and for casual fans who want something to root for,” said Banister when explaining her investment.

“This was the first fantasy sports company that I was truly excited about. Boom Fantasy is poised to rapidly rise in an industry that has overcome regulatory scrutiny and expects substantial growth in the years ahead.”

Banister’s cash will go some way to making that growth a reality , with the capital raised from the round going towards product advancements, including larger prize pools, new gameplay mechanics, better customer support and most importantly the company’s first major marketing push.

“Now we feel good about where the product is, with our retention numbers a lot higher than our competitors, we have got to the point where growth is on our mind,” explains Murphy.

“Now we are going to look at partnerships and split our time between product and marketing 50/50. Those partnerships could be with the leagues or other media partners and we’re looking to do more with affiliates. We’re going to have some conversations and we’re hoping to make some big splashes soon.”

“I think the opportunity is so big here, so substantial. This to me is one of the last frontiers of real-money gaming” – Stephen Murphy, Boom Fantasy

Opportunity knocks

The timing is perfect for the firm, not least because the NFL season and its massive player engagement boost is round the corner, but also because the industry is ripe for some disruption, with FanDuel and DraftKings on their heels following revelations that the Federal Trade Commission plans to block their merger.

But while those two firms may be struggling, there is a sense the opportunity for DFS as a whole remains as strong as ever, as evidenced by Paddy Power Betfair’s entrance to the market via the $48m acquisition of Draft, another DFS start-up trying to make the game a little bit more fun.

“Investors are a lot more positive about the sector than 12 months ago thanks to the legislative momentum we’re seeing,” Murphy explains. “And they’re interested in us specifically because it’s clear our metrics are going in the right direction in terms of users, retention and revenues. It’s not magic.

“FanDuel and DraftKings grew by spending a lot on marketing, providing free cash on overlays. We decided early on we wanted to build a product that people actually want to pay for. And investors haven’t really heard that focus on profit before. It was growth at all costs and forget about the bottom line. And that’s why a lot of companies failed.”

Indeed Murphy is largely ambivalent about whether the DFS mega-merger goes through, claiming “the only company that can decide our future is us.” That said the merger will undoubtedly affect Boom’s future in some way. If it doesn’t go through for instance, Murphy is unsure whether both companies will be able to survive.

“I’m not incredibly bullish on both surviving because they need to make substantial changes to the product, and their expenses. And if one does go under, I do think there’s a major gaming company out there, maybe in Europe who would come in and make an offer, because those platforms and those player databases are very interesting.”

Paddy Power Betfair would likely top that list of potential suitors, with GVC, 888, Ladbrokes and William Hill all mooted as potential entrants to the DFS space by Eilers & Krejcik Gaming in a recent analyst note.

“The market is primed for a product in this area, and the consumers are hungry” – Stephen Murphy, Boom Fantasy

Golden ticket

Boom could also be seen as a potential target for these gaming giants based on its aforementioned metrics. And with the deal for Draft reaching up to $48m,, Murphy and investors could likely hand themselves a generous payday without any further risk. But that isn’t even an option, the CEO insists.

“We’ve heard from firms who are very interested in what we’re building,” confirms Murphy. “But I can’t call them buyers because you need to be selling something to have a buyer and we’re not.

“I know the Draft guys, I know Jeremy [Levine]. He’s a great entrepreneur and it’s a great product, but we’re not looking to sell. I think the opportunity is so big here, so substantial. This to me is one of the last frontiers of real-money gaming. And because the regulatory environment is so confused right now you have hesitancy from the big real-money players. They can’t just enter the market. So a company like ours, which is efficient, which has traction and very few competitors, I think we can do wildly well.”

Murphy refuses to rule out B2B partnerships – providing a platform for a gaming brand for instance, but refuses to cash out early on what he thinks is a jackpot-winning ticket.

“The American sports fan knows you can play DFS for real-money on a daily basis and they want to do that, which is wildly exciting,” he says. “But what products will win the day is so far from solved. And I know with every bone in my body it’s not a FanDuel DraftKings salary cap product. It’s just not. It’s just not fun enough.

“I say that as a sports fan who’s loved fantasy sports, and someone who’s lived in Vegas and worked for casino operators. That core gameplay is not a mass market product so we need one that is. Hopefully its Boom Fantasy, but maybe it’s not and we’ll need to change. But the market is primed for a product in this area, and the consumers are hungry. So that’s the race; what product will scale and scale with profit, not just because they’re throwing half a billion dollars on advertising.”

It’s a race that’s fast losing participants as FanDuel and DraftKings face an uncertain future and smaller firms like Draftpot and Fantasy Aces either go under or are stripped for parts. And with the spectre of sports betting looming it’s quickly becoming apparent that the DFS platform of the future will likely have to be a more recreational complement to sports betting, rather than a like-for-like replacement. And that is a race Boom Fantasy looks very well equipped to win.