Introduction:
The Fantasy Sports Industry is a method of online gambling where the consumer creates an imaginary team of professional sports players. The imaginary teams then compete against each other through a comparison of statistics, and the team with the most points wins. There is a lot of controversy surrounding the industry due to its enormous size consisting of 59.3 million estimated players in the United States. Throughout the past five years it is estimated that the revenue for the industry has increased at a rate of 11% to $7.2 billion (IBISWorld, 2018). With regards to the profit of the industry, the profit margins are very high considering the climate of the industry reporting at approximately 28.8% of the revenue (IBISWorld, 2018). The primary activities of the industry consist of the different types of sports that the consumer uses the platform on such as basketball, football, baseball, etc. There aren’t many competitors in the industry due to the immense size and that it is an oligopolistic atmosphere as the main competitors consist of Yahoo, ESPN, CBS, DraftKings, and FanDuel. In an industry that is rapidly changing, it is essential that the external business environment is considered as there are many factors that impact the industry.
Economic Trends: Economic Growth
For any industry, economic growth is an extremely important trend to be aware of. Economic growth is the increase of an economy's ability to produce goods and services. There are multiple factors that contribute to economic growth such as GDP, GDP growth rate, and GDP per capita. Due to the Fantasy Sports Industry’s reliance on disposable income and people’s willingness to spend money on entertainment, economic growth is a very important trend. With economic growth comes an increase in money supply and economic security for the nation, therefore leading people to be more willing to spend money on luxuries like fantasy sports.
When projecting future economic growth the first key factor to look at is GDP. GDP represents the value of all goods and services produced within a country’s borders during a specific time period and a general indicator of the health of a country’s economy (Investopedia, 2018). In 2017 the US GDP hit 19390.60 billion dollars, the highest it has ever been in US history (Trading Economics, 2018). This continued an eighteen year rise in GDP and isn’t expected to slow down. Trading Economics (2018) projects that the US GDP will continue to rise over the course of the next two years and is projected to reach 20700 billion dollars in 2020. The continued growth of GDP is a promising sight for all U.S. industries including fantasy sports because it means that the economy will continue to stay strong and customers will continue to have money to spend. Coupled with GDP is GDP growth, or the rate at which GDP rises. Throughout 2017 and into the first two quarters of 2018, GDP growth rate highly fluctuated reaching as low as 1.8% in January 2017 and then peaking in July of 2018 at 4.2% (Trading Economics, 2018). GDP growth rate normally sits around 2.6-2.8% (Investopedia, 2018) . Seeing a rise to 4.2% in July of this year was a very promising sign for the U.S. However, growth rate is projected to return to its normal rate in the second of 2018 and then level out at around 2.6% for the duration of 2019. Trading Economics (2018) projects that GDP growth rate will fall to 1.2% in 2020 which could be a concern for the Fantasy Sports Industry. Even though GDP is still rising, this sudden slow down in the economy could lead to risks such as increased unemployment and decreased disposable income. In conjunction with a rising GDP comes a rising GDP per capita. GDP per capita is an important statistic because it is an indicator of standard of living in a country. With increased standard of living typically comes an increase in individual wealth which is an essential aspect of the Fantasy Sports Industry. GDP per capita has been on a steady rise growing from $48,374.60 in 2010 to $53,128.54 in 2018 (Trading Economics, 2018). This upward trend is expected to continue over the course of the next two years as expert analysts estimate GDP per capita to reach $54,800 in 2020 (Trading Economics, 2018). Overall, GDP is an important aspect of economic growth because it quantifies the growth of the country’s economy and allows businesses to understand what direction the economy is headed.
For the Fantasy Sports Industry, economic growth is especially crucial because of its relation to people’s current and future personal wealth. Personal wealth and disposable income are two aspects of an individual’s economic status that determine their willingness to spend on luxuries like fantasy sports. The Fantasy Sports Industry must monitor economic growth because of its power to shrink and expand the industry’s customer pool. If the economy starts to struggle (GDP begins to fall, growth rate slows, per capita shrinks) the people are more likely to save their money for necessities like bills, food, gas etc. In this respect, economic growth can be a threat to the industry because if economic growth slows then so will the growth of the industry. However, current and future trends in economic growth show that it is trending upward and will continue to provide opportunities for Fantasy Sports Industry. With the economy forecasted to continue to do well, the Fantasy Sports Industry can expect people to continue to make more money and, under the security of a strong economy, continue to spend their money freely.
Economic Trends: Disposable Income
Disposable income is defined as the amount of money leftover for spending and/or saving after income tax has been deducted (Investopedia, 2018). Once necessities such as mortgage, health insurance, and bills are paid off, the remaining amount of a person’s disposable income is known as discretionary income. This is the portion of disposable income that the Fantasy Sports Industry is interested in because discretionary income is the money that people have the freedom to spend as they choose. The average American spends 5.6% of their annual income on entertainment and from 2013 to 2016 discretionary spending on entertainment rose 17.37% (Wesley, 2018). Money spent on fantasy sports, an industry which considers itself part of entertainment, would fall under this category. Increasing disposable income is important for the Fantasy Sports Industry because it means that consumers in the industry have more money to spend. In addition, the upward trend in discretionary spending on entertainment shows that people continue to be more willing to spend their money on entertainment like fantasy sports. As the Fantasy Sports Industry continues to grow and reach new consumers, its vital to the industry that these consumers have money to invest in fantasy sports. The rising trend in disposable income shows that not only do people have the income to spend on fantasy sports, but that amount of money they can spend on fantasy sports will grow over the course of the next couple years.
The increase of disposable income has a large impact on fantasy sports. Real disposable income has advanced .6 % from the prior month which means that more people have more extra money to spend on things that aren't necessities like fantasy sports. Data has reflected a $30 billion increase in one-time bonuses and a $115.5 billion annualized drop in personal taxes. The reduction in taxes helped boost the saving rate to 3.2%. People are having to spend less money on taxes and have more money to invest in fantasy sports. (Chandra, 2018) Disposable Personal Income in the United States increased from 15566.48 USD Billion in July to 15617.39 USD in August of 2018. Disposable Personal Income in the United States averaged 5156.22 USD Billion from 1959 until 2018. It reached an all time high of 15617.39 USD Billion in August of 2018. Disposable Income rose slightly from June to July after there was large jump from May to June (United States Disposable Personal Income). Disposable income is slowly increasing so there's more of a chance for people to spend their money, and more of their money on fantasy sports.
Disposable Income has a projected annual growth rate of 1.3% over the next 5 years (Trading Economics, 2018). Disposable Income continues to increase which means that in the future, even more people will spend even more money investing in and playing fantasy sports on their down time. The prolonged low level of unemployment is expected to result in more rapid wage growth and new tax policies. These factors are anticipated to increase an individual's disposable income. Recent policy agendas that are more focused on minimum wage have increased the levels of disposable income (IBISWorld, 2018).
Rising disposable income is a big opportunity for the Fantasy Sports Industry to not only attract new consumers but attract more money from its current consumers. As research and statistics show, when an individual’s personal money supply grows their willingness/ability to spend money on luxuries such as entertainment grow with it. This is even more evident in a pseudo-gambling industry like fantasy sports where individual’s investments have the opportunity to turn into profit. It is the fantasy sports industries responsibility to engage consumers to spend their disposable incomes within the industry. Whether it be through increased advertising to gain new consumers or increased prize pools to entice current consumers to invest more money, the Fantasy Sports Industry has the opportunity grow even larger has disposable income rises.
Economic Trends: Unemployment
Unemployment rate is the percentage of people in the workforce who do not have a job but are actively seeking one (Investopedia, 2018). Economic growth and unemployment rate are very closely related. Typically as the economy grows unemployment falls and vice versa. As established earlier, the economy is forecasted to continue to grow over the course of the next several years. In turn, this means that unemployment is expected to continue to fall. Currently unemployment is just above (3.9%) the eighteen year low of 3.8% achieved in May 2018 (Trading Economics, 2018). This rate is expected to remain steady between 3.8-3.9% as 2018 ends and 2019 begins. The US has seen a general downward trend in unemployment since September 2017 and Trading Economics (2018) expects this downward trend to continue in the short run. For the Fantasy Sports Industry this represents a great opportunity. In the same way that rising GDP and rising GDP per capita bring promise of increased personal wealth, so too does falling unemployment. As more of the population enters the work force, more people will have a steady stream of income. In conjunction with the trend of rising wages, falling unemployment means that more people will have more money to spend and therefore the industry will see an increase in potential consumers. However, this trend is only expected to continue in the short run as unemployment is forecasted to climb to 4.5% in 2020 (Trading Economics, 2018). This is expected to be primarily caused by a decrease in job vacancies which naturally leads to less people being hired. Because this time frame of falling unemployment is rather short, its essential that the industry take advantage of this opportunity while it lasts. Between low unemployment and rising GDP, 2019 has the potential to be a very successful year for the industry as personal money supply will see a general increase.
A second aspect for unemployment and its relation to the fantasy sports industry is youth unemployment. The Bureau of Labor Statistics (2018) considers “youth workers” to be people seeking employment between the ages of 15-24. This age range also happens to be one of the key age demographics for the fantasy sports industry. In the second quarter of 2018, the youth remained the largest portion of unemployed people making up 12.8% of total unemployment (Bureau of Labor and Statistics, 2018). Currently the youth unemployment rate sits at 8.4% and this number is projected to drop along with a falling general unemployment. Youth unemployment is forecasted to fall to 7.9% in 2020, an encouraging statistic for the industry (Trading Economics, 2018). Decreasing unemployment of one of the industry’s key demographic groups is an additional opportunity for the Fantasy Sports Industry, but the large percentage of total unemployed people made up by this key demographic is potentially concerning. With unemployment expected to rise once again in 2020, the industry must be aware that their key demographic could still be hit the hardest.
Overall the nation and the industries within it are used to fluctuating unemployment rate and the fluctuating personal income that goes along with it. In the short time falling unemployment is definitely an opportunity that the fantasy sport industry can take advantage of, but the industry must also prepare to see unemployment bounce back up and the effect that it’s going have on its participants.
Political-Legal: Taxation
Taxation is an essential factor in the discussion of the Fantasy Sports Industry, for taxation fluctuates very rapidly throughout modern day society. Gambling taxation laws are applicable to the industry, which further strengthening the importance of the current and future trend of taxation with regards to fantasy sports. Taxation is also an important factor of consumer income, which impacts the Fantasy Sports Industry as less people will want to spend money on the industry if taxes are high and prices are higher.
With that being said, the current impact of taxation on the Fantasy Sports Industry is prominent, for there is already taxation on the industry in 19 states across the United States (Daily Fantasy Sports – Bill Tracker, 2018). Plus, the states where daily fantasy sports are illegal are trying to legalize them and the states that they are legal in are trying to use existing gambling taxation parameters to tax the industry. The taxation on the industry manages to bring in enormous revenue for state governments all with minimal effort. For example, Pennsylvania taxes fantasy sports and manages to tax the consumers earnings for 15% which generates a grand net revenue for the state government (Fielkow, 2018). With regards to the consumer, the impact of taxation can prove as a reason to not even utilize the Fantasy Sports Industry due to increased costs. In an article by “Stats.com”, it was shown that the average annual fantasy spending per player within a traditional league is $257 (Stats LLC, 2016). Upon combining this cost with the additional tax, it adds up to a formidable amount which serves as a negative impact on the industry as it deters potential users.
The future impact of taxation on the Fantasy Sports Industry is increasing, thus creating a negative impact. More states want fantasy sports to be taxed and regulated. The trend of taxation is on the rise and rapidly increasing as the government wants to generate income. Although there are only 18 states with regulations to date, 30 states attempted to regulate and tax the industry this past year alone (Fielkow, 2018). Despite many of these states’ bills being rejected, there are still other attempts for taxation that are currently going throughout the government. For example, Louisiana failed to legalize online fantasy sports in 2017 however, in May, Louisiana was able to formulate a bill that enables regulation and taxation on the industry and it just passed through Senate (Ramsey, 2018). Not to mention that there is an upward trend in the amount of people that play fantasy sports which could also impact taxation and the industry. In the past ten years, the number of people playing fantasy sports in the United States has increased drastically from 19.4 million in 2007 to 59.3 million in 2017 (Industry Demographics | FSTA, 2017). Due to this increased player base, it is highly probable that the amount of taxes on the industry will increase considering taxes and population of players are proportional. Taxation not only has an enormous current impact on the industry, but will become an even more important aspect overtime due to the rapid fluctuation in player base and state government interest.
Upon examination of the taxation trend on the industry, this trend is a potential threat for the industry. The upward trend of taxation as well as massive impact that taxation has on the industry now continues to be unsettling. As taxation increases, participation population decreases. If taxation on the Fantasy Sports Industry continues to grow at the current rapid and exponential rate, the lifespan of the Fantasy Sports Industry could be short winded.
Political-Legal: Industry Regulations
Government regulations are important for any industry because they dictate the way that the industry conducts its business. The industry has long been impacted by government regulations to limit gambling in general, but with PASPA and Interstate Wire Act sports betting was targeted directly. Regulations like these control the size and scope of the industry and therefore stunt its growth. With these regulations making it more difficult for consumers in addition to the industry itself, the revenue of the industry is also impacted. Regulations like The Unlawful Internet Gambling Enforcement Act (UIGEA) makes it more difficult for consumers to claim prize money and sometimes even forcing some companies to use third party money transfer services that a percentage fee for the transaction. Because of the major impact that regulations can have, it’s extremely important that the Fantasy Sports Industry to monitor the future regulations due to their potential as a threat to the industry.
There are many regulations on the Fantasy Sports Industry today and even the slightest alteration can majorly impact the industry. For example, the Professional and Amateur Sports Protection Act (PASPA) was passed in 1992 and prevents any government entity from betting on any amateur or professional athletics (Gambling Laws and Regulations in the United States, 2018). Despite the limited audience of this act, it majorly impacts the industry as it was recently used to prevent the legalization of sport gambling in Atlantic City, meaning that the industry lost all revenue in that city. This past year a Supreme Court case determined that a PASPA provision which prohibited states from legalizing sports gambling violated the anti commandeering doctrine in the 10th amendment (Gambling Laws and Regulations in the United States, 2018). From this case, the outcome was that the federal government cannot prevent states from legalizing sports betting. This result majorly benefits the Fantasy Sports Industry considering legalizing sports betting in a state ensures that daily fantasy sports are legal which then yields more customers in the industry. All of this reiterates the enormous economic impact that a political act can have on the profit of the Fantasy Sports Industry.
Current impact aside, the regulations on the Fantasy Sports Industry appear to have a consistent upward trend throughout time that is increasing rapidly. These regulations all relate back to state governments as the government is looking for a way to maximize profitability. For example, seeing as 30 states have attempted to regulate or tax the industry in this past year alone, it appears that the future of the industry will be surrounded by regulations (Daily Fantasy Sports – Bill Tracker, 2018). Since state governments will always be looking for a profit, the trend of regulations on the industry will only increase from this point. Some of these recent regulations include minimum user age, registration/licensing initial fees, and advertising/promotion restrictions all of which decrease the profit of the industry (Fielkow, 2018). Due to these recent regulations, less people are likely to become involved in the industry, lowering the fantasy player base which negatively impacts profit. Also, despite the upward trend in player population, there is an inverse relationship between population satisfaction and regulations thus yielding a net loss in the future if the regulation trend continues.
As state and national regulations on gambling and gambling taxation grow, the Fantasy Sports Industry will be negatively impacted. This potential threat affects all aspects of the industry from consumers to individual companies. Future regulations are expected to impact everything from taxing winnings to preventing certain states access to daily fantasy sports. All of which is bad for the industry. If state and national regulations continue to limit people’s access the fantasy sports, then the industry will be forced to shrink and revenue will fall. In reaction to the increased threat of government regulations, fantasy sports companies like DraftKings and FanDuel have begun investing more money into lobbying (USA Today). Though this is a good initial reaction, the Fantasy Sports Industry must continue to brace itself as the trend rises in the future. Overall due to the immense power government regulations have over the industry, this trend of increased regulations represents a great threat to the Fantasy Sports Industry.
Sociocultural: Demographics
Population demographics are hugely important to consider when assessing trends that may affect an industry. In general, demographics refer to the characteristics of certain people living in a particular area. These characteristics can include but are not limited to age, race, gender, marital status, occupation, and educational level. It is also important to note the interests of the various groups within a demographic sample. Changing demographics can affect the overall interests of a society which can cause certain industries to struggle when trying to appeal to the general public. In terms of the Fantasy Sports Industry, demographic trends are important to be aware of.
As of 2018, the average age of fantasy sports participants is 32. The industry is currently male dominated, with an overwhelming 71% of participants being male, and 29% being female. Currently, 67% of fantasy sports participants are full-time employees (Fantasy Sports Trade Association, 2017). As of now, the U.S. Population is expected to increase from 328.43 million people in 2018 to 339.02 million people in 2022 (Statista, 2018). This characteristic could be beneficial to the Fantasy Sports Industry because more people means more potential business, yet a large portion of the population will belong to an older age group. This does not appeal to the Industry because the average age of people who participate in Fantasy Sports Services is 32 years old. The Baby Boomer generation, the second largest generation by population in the U.S., is nearing its older years. Adults ages 65 and over are the fastest growing group in the U.S. population. This age group is expected to increase 18% from 51 million people to over 60 million people by year 2022 (Mintel Academic, 2017). By year 2030, individuals over the age of 65 are expected to account for 21% of the U.S. population (Armstrong, Medina, & Vespa, 2018). Due to advancing technology and the rapid decline of fluid intelligence in older adults, the growth of this age group will detriment the fantasy Sports Industry. Older adults may find the technology and competitive aspect of the Industry to be too difficult to keep up with. Further, the average age of the U.S. population is expected to increase 0.4% per year and will be 39 years old by year 2022 (IBISWorld, 2018). The higher the average age of the U.S. population, the further the majority of Americans are from 32 years old, or the average age of Fantasy Sports participants. Being an industry heavily based on technology and online betting, the Fantasy Sports Industry will have trouble appealing to these older individuals. It will have to adapt its platform to accommodate with the wants and needs of an older crowd. Continuing with this older demographic, these aging individuals are entering the retirement period of their lives. This poses a problem, for as earlier mentioned, 67% of people who participate in Fantasy Sports Services have full-time employment. Similarly, 90% of members from the Baby Boomer, Swing, and World War II generations (individuals ages 65 and over) agree that leisure time activities should line up with their personal values. These values include loyalty, patriotism, tradition, and independence (Academic Mintel, 2015). It may be difficult for Fantasy Sports Services to argue that online gambling coincides with the pure values of these more traditional generations, therefore the Industry may suffer. Even members of the Millennial and iGeneration are increasingly saying that free time should be relaxing, but that it should also be spent doing productive and educational activities (Mintel Academic, 2015). Again, it is hard to argue that online gambling is productive or educational. It is projected that by year 2025, there will be 68 people under the age of 18 or over the age of 65 for every 100 people aged 18-64, compared to the current ratio of 61:100. Individuals aged lower than 18 and above 65 are considered dependents, meaning that they require someone else to take care of them (Colby & Ortman, 2015). This may negatively impact the fantasy Sports Service Industry because more people in the U.S. will need care which allows less leisure time for independent individuals. To conclude, the current and future demographic changes that are expected in the U.S. may have a negative impact on the Fantasy Sports Industry.
Sociocultural: Values in Society
The values of U.S. citizens are an important trend to consider when assessing an industry’s potential in a society. Values in a society refer to the beliefs that individuals in a society have toward what is right, wrong, acceptable, and unacceptable. Values are ever changing and can be heavily influenced through interaction. Individuals in the U.S. value both sports and gambling to certain extents. The level of value that Americans place on these areas are highly related to Fantasy Sports Services, for the industry is a platform for online betting on various sports teams. When a high value is placed on sports and gambling, people may be attracted to the Fantasy Sports Industry.
When assessing the value that individuals place on sports in society, it is crucial to focus on individual’s participation in sports. To continue with its current rise, the participation in sports is expected to increase 3.2 percentage points from 2018 to 2023 (IBISWorld, 2018). This increase is likely to benefit the Fantasy Sports Industry because a rising participation in sports may lead to a rising interest in sports, which is the basis of why people tap into this industry. On a more technical scale, U.S. revenue from esports is predicted to increase to 1.5 billion dollars by 2020. eSports are multiplayer sports video games that are broadcasted online and watched by audiences through technology. As of 2018, 15% of adults watch eSports and this percentage is expected to increase (Mintel Academic, 2018). This increase shows that Americans place a high value on not only the participation in sports, but the viewing of them as well. It shows the value of competition in U.S. society, and how watching sports competition in particular is highly valued as a pastime. This will benefit the fantasy Sports Industry because this industry is based around watching and betting on competitive sports games.
In terms of gambling, U.S. citizens place a high value on this passtime. By year 2023, U.S. revenues from gambling are expected to increase to 172.2 billion dollars, even though only 23% of gamblers say that they expect to win when they participate. This is a 21% growth amongst the years of 2018-2023 (Mintel Academic, 2018). This increase will benefit the Fantasy Sports Industry because one of the main components of the industry is gambling. The more people spend on gambling, the more attraction the industry receives. Similarly, the Compound Annual Growth Rate of sports betting is forecasted to increase 8.62% from 2018 to 2022 (Gray, 2018). This further proves that sports betting is becoming more prominent in society and that it is valued amongst individuals. Online betting opportunities in casinos are also forecasted to increase. This is expected to influence younger individuals to join the gambling market, for younger individuals are generally skilled with technology.
In conclusion, the U.S. places a high value on sports viewing and sports participation as well as gambling. These highly valued topics are a trend that will positively affect the Fantasy Sports Industry. The industry should take precaution when it comes to recent NFL ratings. NFL ratings decreased 9% in the regular season and 6% in the playoffs season from 2016-2017, and this is expected to continue (Mintel Academic, 2017). One of the main sources of these forecasted decreases is the national anthem protests that are still prevailing. The decreased value that the U.S. places on the NFL in particular may detriment the industry’s fantasy football market.
Technological Trends: New Product Potential
New Product Potential is an important trend to consider when thinking about the Fantasy Sports Industry. These new products refer to technological advances and alternative and new devices that provide individuals with easier and more efficient ways of accessing technology. Technology is always changing, therefore new products can greatly benefit certain industries, such as the Fantasy Sports Industry, that are heavily web based.
With fantasy sports, mobile internet connections are important to consider. Mobile connections refer to the number of mobile broadband internet-capable devices. Many people stream professional sports games and watch them online. Further, the choosing of players and gambling aspects of the industry are entirely web based. The number of mobile internet connections in the United States is expected to increase at an annualized rate of 7.7% from 2019 to 2024 to a total of 565.3 million connections. A lot of this increase is due to an increase in smartphone popularity (IBISWorld, 2018). This will result in more US individuals having the ability to access various fantasy sports websites. It will be less necessary for people to share devices amongst households and family members with this jump in mobile connections. People will have more hands on time with their own devices, therefore more time to venture to fantasy sports sites and participate. If more people are capable of accessing these sites, there is a larger market of potential fantasy sports participants.
Wearable technology, such as apple watches, has the potential to benefit the Fantasy Sports Industry as well. Wearable technology allows participants to access their accounts, track their teams, and view their statistics more often, which increases convenience. The number of wearable technology users in the US is forecasted to increase from 38.4 million users in 2018 to 39.6 million users in 2023. With this, the revenue from wearable technology in the United States is expected to grow at an annualized rate of 5.1% per year in the next five years, reaching 3,770 million dollars by 2023. (Statista, 2018). This increase in users will positively affect the fantasy Sports industry because it increases the amount of ways and places that people can access their fantasy sports accounts. Individuals can access these sites not just when they are at home, on a computer, or connected to WIFI, but when they are on the go and using cellular data. This makes for a more interactive and accessible industry that is more adaptable to different lifestyles.
To conclude, new technological product potential in the US will benefit the fantasy sports industry due to its highly web-based structure.
Conclusion:
Overall, PEST analysis concludes that the future of the Fantasy Sports Industry is bright. Upward trends in economic growth and disposable income coupled with decreasing unemployment all represent opportunities for the industry as consumer personal money supply rises. Advancements in communications technology and increasingly favorable values in society provide additional opportunities for the industry. In contrast, increasing taxation and industry regulations are threats to the industry as they are expected to reduce industry revenue and size. The aging population of the US represents a different type of threat to the industry as it impacts the industry’s consumer population. In general, the Fantasy Sports Industry should continue to be successful for years to come.