When internet behemoth Verizon purchased languishing Baby Boomer traffic hose Yahoo for $4.8 billion on Monday, most wondered why.
The purple exclamation point was hemorrhaging cash last quarter—$440 million worth, in fact—after years of failing to become the Netflix-esque original content destination celebrity CEO Marissa Mayer dreamt it could be. It failed to be much of anything else, either—including potentially profitable roads not taken like monetizing its billion-dollar social media toy, Tumblr.
Maybe the biggest missed opportunity? The sometimes legal, often absurdly profitable daily fantasy sports industry.
Rivals DraftKings and FanDuel brought in $3 billion—yes, with a b—in entry fees in 2016. Being degenerate gamblers at heart, DraftKings still wound up with a massive amount of debt by the end of the year by lobbying the government, fighting multiple legal battles against that government, and spending more marketing its product on ESPN than any other company ever has.
Still, $3 billion. Pretty impressive for daily fantasy sports, since it’s just old-fashioned fantasy football but with the mechanics of a slot machine.
Yahoo had the infrastructure to be a player. It was one of the earliest to provide the bones of the free fantasy football leagues that littered cubicle computers and dorm room iPhones for over a decade. They were a natural fit to make a bucket of somewhat unseemly cash from this industry right away.
So what was Yahoo’s jackpot from daily fantasy last year? Five million dollars. With an m, according to Forbes.
“No one knows exactly how market share will shake out this NFL season, but last year you were looking at a DraftKings or a FanDuel posting activity levels some ten times those seen at Yahoo,” said Chris Grove of LegalSportsReport, who covered the boom and now covers the bust of the daily fantasy sports industry.
Part of the differentiator with Yahoo was that it was actually doing ethical things with its product. DraftKings and FanDuel were notorious for allowing high-end bettors to saturate the market with almost every conceivable pick, guaranteeing they’d eventually win and ripping off casual players (read: regular people) by default. One guy profiled by Bloomberg last year risked $140,000 per day and used an algorithm to trap easy wins.
Yahoo doesn’t do that. The tech giant created regulations aimed at Fair Play—veteran players get a badge, and nobody can use scripts to rig the game. It’s something that would’ve made them much harder to sue by states like New York that have tried in the past year to get DFS sites shut down over their predatory practices.
“On one hand, having things like betting caps in place puts Yahoo in line with the general arc of regulatory efforts, many of which have focused on including some kind of mechanism for limiting the ability of strong players to profit from new or inexperienced players,” said Grove. “On the other, it is a way to separate the brand from market leaders and recast Yahoo's smaller size as something of an advantage for players.”
So, wait, is this a marketing ploy—or an effort to make the service look less shady for a conglomerate that doesn’t want a mess on their hands?
“Ultimately I'd say it was more about a marketing strategy than a condition to appease a buyer,“ said Grove.
In fact, Grove doesn’t believe daily fantasy sports were really on Verizon’s radar when they went on their one-store shopping spree. He thinks it could be one of the things that are now on the chopping block at Yahoo, a company known more for its bloat than what it even does at this point.
“I could see Verizon just saying ‘thanks but no thanks’ and shuttering DFS post-purchase. If California comes out against the industry, I could see a similar result,” said Grove. “But with more states moving toward the ‘pro’ column, and the continued support from pro sports leagues and teams, I suspect Verizon will keep the product around.”
Still, it’s possible it’s on the chopping block. Grove says he’s “not aware of any company of any meaningful size that is currently turning a significant profit from DFS.” Verizon, which just bought Yahoo for influence or fun or because they were very drunk, is certainly a “company of meaningful size.”
Verizon/Yahoo could be the first company to bring an ethical version of daily fantasy sports to a large scale. Or, like most DFS players, it could just swallow its pride and eat the cost.
Correction: DraftKings and FanDuel brought in $3 billion in entry fees in 2015, and not total revenue as the article previously stated. A representative for FanDuel would not disclose the company's revenue when asked by The Daily Beast.