The success and explosive growth of daily fantasy sports is undeniable over the last few years. Latest industry reports have indicated that there are now more than 50 million fantasy players in North America, and a growing number of them are playing DFS.

However, at the moment, no DFS platform operators are profitable. So what has to happen in the medium term and in the long run to sustain and grow a healthy industry?

Two things: Innovation and legal clarity.

A look at the past of DFS

OK, credentials first. We have some experience helping the world predict the future. Our team operated the world’s leading prediction market, Intrade.com, from 2001 until 2013. We closed the site in 2013 for a myriad of reasons, but at its peak, Intrade was receiving 50 million hits a month from 2 million “uniques”. That’s pretty decent. The wisdom of the crowd — incentivized by real money — was incredibly accurate. We can talk this talk.

Furthermore, we’re living in the DFS space right now with our re-launch of Tradesports.com. We might seem like we’re in stealth mode, but we’ve been at it for a year. Originally, Tradesports was a person-to-person betting exchange that competed with U.K.-based Betfair.com (now by far the largest P2P betting exchange, but off limits to U.S. players) trading from 2003 until 2008. Tradesports had mostly U.S. customers and focused mostly on U.S. sports. “Black Friday“ changed the world for Tradesports and our 200,000 customers. Now we’re trying to figure things out again.

At the time, Yahoo, CBS Sports and a few other niche sites already “owned” the traditional season-long fantasy space. But this is the era of disruption. New models decapitate old models. Some people figured out there was a legal loophole via the Unlawful Internet Gambling Enforcement Act, passed in 2006, that would allow for daily fantasy sports for real money. FanDuel was the first site to figure out how to generate some real revenue with DFS. Make the contests daily. Increase player bankroll exposures. Grind it. Race at all cost for first-mover advantage.

Today, daily fantasy sports is getting plenty of attention. But now what?

What does the future hold for the DFS market?

Here’s a look at what I think is going to happen, moving forward, for DFS:

FanDuel and DraftKings

It’s likely that market leaders FanDuel and DraftKings will be very good businesses in the long run. Both will eventually make money. They seemingly have critical mass. They’ll both catch up to their unicorn valuations. (Note: Poker leader Amaya, parent company of PokerStars is a profitable $4 billion company.) FD and DK should eventually pay back investors (although DraftKings might be more up in the air after not closing reported investment deals.)

Other sites entering the market

Two, maybe three other sites will gain a toe-hold in U.S. daily fantasy sports, and then a “seat at the table” for a long-term run. News has been reported about Amaya and Yahoo already. But the effort isn’t trivial now as venture capital has jumped in, and the “good seats” are already taken. And there’s always the possibility of someone new under the radar. There’s not much room for more than five; just look at the online casino and poker industry.

Sports betting and fantasy

I predict that sports betting will become legal in the U.S., and fantasy sports operators will quickly morph into the sports betting business. Betting on sports is a 10X business compared to fantasy sports. Fantasy is capturing the betting limelight (and traffic) now by default. It’s the next best thing. It’s actually the only legal thing for online sports bettors in the U.S. If given a choice, more people would want to (and are more “qualified” to) bet on sports than grind in a statistics-based fantasy contest. I flipped baseball cards 40 years ago in the playground. And I used to know all the stats. Used to.

Do “social” and “mobile” matter?

“Social” won’t matter that much to the business model. Traffic will. I’m not staying friends with you if I always lose money to you, bro.

Mobile matters, but not that much. Players are willing to overlook a lot of inconvenience to hang with a site that has potential dollar value to them. And it’s becoming routine to afford mobile competency. Of course the effort should always be made for a great user experience, but fantasy sports is somewhat like online stock trading. A lot of information should be reviewed before trading, and even Schwab’s mobile app isn’t all that great. Better than others, but not great. We suffer to win.

So what’s missing from the picture of the future of DFS?

New formats are needed

Pretty much every new DFS entrant says “we don’t compete with FanDuel or Draft Kings.” And newbies shouldn’t try. The value prop isn’t there unless you are an absolutely amazing marketer.

But the current claims of uniqueness by the new sites just don’t ring true. If you operate a stats-based fantasy game — roster-based or draft-based, mobile or desktop — you’re trying to compete against them. It’s the same game. Even the FSTA wants to keep the definition of fantasy sports very “tight”.

DFS needs new formats. It needs to embrace sports fans and not just stat grinders. And let’s face it, if you’re not a stat grinder; you’re just lucky when you win.

DFS needs games that are more accessible to more players and games that are easier to play. The audience — sports fans — is primed and ready.

But the new games must continue to maintain relevance to the fan base. They shouldn’t only rely on rosters and stats. They should rely on fandom and fan passion.

Legal clarity is needed

FanDuel, DraftKings and other DFS sites exist only because of legal interpretation. It’s a slim and confusing window of legality, but it’s there.

As an industry, we have to stop hiding behind old UIGEA “technical” definitions and uncertain permissions, or interpretations, that very few politicos vocally support — even though the threat of change looms large. The real issue must be confronted: Gaining and confirming a clear understanding of just what the federal and state governments will permit, and then getting government out of the way.

There is a lot of interest in the space from big potential players still on the sidelines. Clarifying the legal position in the U.S. will help move that money from the outside in. The industry should be playing offense like NBA Commissioner Adam Silver has. He didn’t get all that much flak from his “controversial” stance on sports betting.

The public wants DFS. The government shouldn’t be restricting legal fantasy sports, sports betting, or any of our personal liberties.

Daily fantasy is mostly self-regulated, as it should be. More official clarity will help. We definitely don’t want another Black Friday, but pandering won’t prevent that.

Unfortunately, if I were a betting man, I’d say at some point DFS will no longer be self-regulated. The stakes are getting too high. There will be legal “clarifications”. But hopefully just the right amount.

Photo by James used under license CC BY-SA 2.0.