“Dream11 brings out the selector in you,” said celebrated Indian cricket commentator Harsha Bhogle in a 2017 advertisement for the fantasy sport company Dream11. It was this advertisement that got Aditya Somani (name changed), a 26-year-old marketing professional, hooked to the platform.
Now you might be wondering why we would change the name of a person for just playing a game. It’ll become clearer as we go on.
Headquartered in Mumbai, Dream11 was officially incorporated in 2007, but it was in 2012 that the company found its true calling, when Harsh Jain and Bhavit Sheth, the longest-serving directors in the firm, decided to pivot to a freemium fantasy cricket game on Dream11.com. Now the leader in India’s fantasy sport space, Dream11 has grown from 2 million users in 2016 to over 20 million in 2018. It holds 90% of the market share with revenues going up from around Rs 83 lakh (~$114,245) in FY15 to Rs 62 crore (~$8.5 million) in FY17. This leap is nothing short of gargantuan.
Fantasy sport platforms allow users like Somani to act as owners of their own sports teams. On Dream11, he gets 100 credit points to make a team of 11 players in a match. A fantasy team can have players from both the competing teams and the performance of that virtual team is then based on how the real-life cricketers play in the match. Points are then awarded for the players’ batting, bowling, fielding, economy rate and strike rate. The team which scores the most points wins the tournament. Depending on the tournament structure, there can be a single winner to thousands, where the money from the pot is distributed as per the rank of a team.
Somani’s friend, Kiran Chawla (name changed), a 24-year-old sales executive at Amex, Gurugram, says that this makes watching the matches more fun because it gives a sense of having some skin in the game.
Once again, we had to change a name. And with reason. Because fantasy sport is very much in bed with betting. Even English comedian and host of HBO’s Last Week Tonight, John Oliver, thinks so. He dedicated an entire segment to fantasy sport where he drew parallels with traditional gambling games. Oliver starts to describe fantasy sport by saying that these are “the most addictive thing you can do on your phone, other than, perhaps, cocaine.”
Gambling, games where the outcome predominantly depends on chance, is one of the most restricted and harshly regulated industries in India. Only three places—Goa, Daman & Diu and Sikkim—allow casinos to operate within their jurisdiction.
Dream11 is also restricted on the Google Play Store. What then made it grow so fast in a country quick to narrow its gaze at all forms of sports betting?
A Punjab and Haryana High Court verdict.
An individual called Varun Gumber had lost Rs 50,000 (~$696) on Dream11 and had appealed to the court to initiate criminal proceedings against the site under the Public Gambling Act of 1867. The court rejected the complaint observing that it is a game of considerable skill. This is all that fence-sitting entrepreneurs wanted to hear. Harsh Jain acknowledges this in an ET interview; he says it kept their ‘Dream11 alive.’
Jain, also the chairman of Indian Federation of Sports Gaming (IFSG), in an interview with Moneycontrol in June, noted that until September 2017 there were just 10 fantasy sport platforms in India. Today, there are over 70.
The growth of fantasy sport in India though has largely gone unnoticed. While venture capitalists are now starting to see this fast-growing market as a promising investment opportunity, the future for Dream11 and the like is uncertain as they operate in a regulatory grey area. No one knows how various state governments will view this going ahead.
We reached out to Dream11 for a meeting but the company declined. A detailed questionnaire also didn’t elicit a response.
Luck, interest and deep pockets
Dream11 has had a dream run of its own in the last couple of years. Piggybacking on the growth of the Indian Premier League (IPL), Hotstar and other enabling factors like smartphones and the internet, it has, so to speak, hit it out of the park.
Data provided by research firm Venture Intelligence shows that Dream11 has secured an undisclosed amount of funding from early-stage venture capital firm Kalaari Capital and San Francisco-based investment firm Think Investments. It has also raised $22 million from private equity firm Multiples Alternate Asset Management.
But those might pale with the scale of its next funding.
Recent news reports suggest that it might be in talks with Chinese internet firm Tencent Holdings for an investment of $100 million. This could peg Dream11 at a pre-money valuation of $400-$450 million.
On the back of the money raised, Dream11 has been doing some aggressive marketing. In FY17, the company spent Rs 10 crore (~$1.4 million) on advertisements, Rs 35 crore (~$4.9 million) in promotional credits and Rs 13 crore (~$1.8 million) in customer incentives, roughly 74% of their total expenditure. Enough to rope in Bhogle and the former captain of the Indian cricket team Mahendra Singh Dhoni as brand ambassadors.
“Getting Dhoni was a masterstroke,” says a former product manager of a fantasy cricket platform. He requested not to be quoted.
“What’s really impactful in cricket is TV marketing. Cricket happens on TV and with Dhoni on the screen, you have India’s smartest captain ever asking your target audience whether they are smart enough for this game or not. The star potential is crazy,” he adds.
It apparently doesn’t take much for fantasy sport to take off.
“Fantasy sport is a very lucrative category globally and frankly it is not a surprise because it brings together aspects of social gaming, research and skill, luck and gambling and your deep interest in a sport together, which makes it a fun activity,” says Nitin Sharma, who is a technology investor and founder of Incrypt, a new “blockchain investment network” in Bengaluru. Sharma also plays fantasy football leagues with his friends and has been keeping an eye on the developments in the space in India.
In North America alone, there are 59.3 million fantasy sport users and in the US it is a $7.22 billion industry, as stated in market research firm Nielsen report.
Sharma says that on the skill vs. luck spectrum, fantasy sport is arguably more about skill compared to other types of wagering games, fantasy sport is “really cool”. “Like [fantasy sport providers] FanDuel and DraftKings in the US, this is a phenomenon and a serious part of the season experience,” he adds.
Apart from the free practice matches, players have to pay an entry fee to the platform in order to play. It can range from Rs 13 ($0.18) to Rs 10,000 (~$139) and you can compete with thousands of users for the same pot. Besides, one can play within a closed circle of friends and customise the entry fee to their liking.
The economics is pretty straightforward. You provide an opportunity to people to gamble with small amounts of money and, in turn, get to keep a rake—a term borrowed from poker which means the fee taken by the organiser of the game—of around 15-20% from various pots.
“In addition to the rake, on [fantasy sport platform] HalaPlay we have an additional revenue stream in the form of a subscription or season pass,” says Shubhankar Bhattacharya, venture partner at Kae Capital and investor in HalaPlay, Dream11’s closest competitor.
“If you want to play the entirety of IPL then you can put an additional Rs 500 (~$6.97) or Rs 1,000 (~$13.93) subscription fee which gives you a discounted entry and other perks as well throughout the whole season. This is a pure income stream and it does not go into the pot,” he adds.
Out with downloads, in with sideloads
Now, revisit that 20 million number. This is despite the restriction on the Google Play Store. And Android, according to web traffic analysis tool StatCounter, rules over 90% of the mobile operating system market in India.
Google has a long list of conditions that need to be fulfilled by a fantasy sport company to get its app listed. One of the conditions is that the “app listing must clearly display information about responsible gambling”.
Dream11 though is doing just fine without Google’s support.
The fact that India’s Android market is a very sideload-happy market—shared from a device to another—has worked well in Dream11’s favour. “The distribution barrier isn’t that high for Android apps in India; people love sharing apps. That’s why you have apps like SHAREit,” the product manager quoted above says.
The company has provided a direct download option for its app on the website. One just needs to enter their mobile number or give a missed call on a 1800 number and a download link is sent to their Android phone. Also, there is a bonus of Rs 100 (~$1.39) to both the user and the friends they invite to download the app.
Sideloading motions to a larger threat to Google’s Play Store. Unlike Apple, which doesn’t let iPhone users download games and other apps from outside its app store, on Android one just needs to change a phone setting to install an app from an unknown source.
Interestingly, Dream11 exists on Apple’s iStore, a marketplace, which, last month, removed 25,000 illegal gambling apps from its China store. This came after local news reports accused Apple of allowing gambling apps listed as official lottery apps on its platform.
The Ken reached out to both Google and Apple for their perspective but received no reply.
Dream11 sure looks like it’s flourishing without much support from these giants. However, the massive traction aside, profitability continues to evade it. The company had a loss of Rs 5 crore (~$696,621) in FY16 which went upto Rs 15.7 crore (~$2.2 million) in FY18. It has even adopted a Swiggy-like approach and giving discounts to bring people on board, familiarising them with the idea of fantasy sport, says Bhattacharya.
“Once it has a steady group of people who come to the platform at a low acquisition cost, then the business will turn profitable as the model by itself allows you to make a pretty decent margin,” he adds.
It further helps the fantasy sport space that there is a pre-existing audience playing online games umbilically attached to betting. The wide audience for these games such as online poker and rummy in India make the next market for fantasy sport to tap into.
Natarajan says that the recent exits from online rummy site Ace2Three and mobile game developer Nazara Technologies has piqued the interest of investors in this sector.
Venture Intelligence shows that Matrix Partners India registered a 22X exit from Ace2Three when it sold its stake to Canadian firm Clairvest for Rs 154 crore (~$21 million). Matrix had invested Rs 7 crore (~$975,270) in 2011. Additionally, Matrix Partners also received Rs 35.8 crore (~$4.9 million) in dividend from the company.
WestBridge Capital registered a 40X part exit when it sold shares worth Rs 330 crore (~$45.9 million) in Nazara to IIFL Venture Capital.
Two years ago, no one was looking at this space, and suddenly, people have woken up to the fact that there is this unusually large market for fantasy sport, Bhattacharya says. Not just cricket, this model can expand to any professional sport. Dream11 already offers fantasy football—of interest to over a million people—and Kabaddi on its app.
Fantasy sport websites, in general, are not licensed by sporting associations. Some of the sporting associations have their own platforms while others tie up with existing websites as ‘official fantasy partners’. For instance, Dream11 is the official fantasy sport partner of National Basketball Association (NBA), Indian Super League (ISL) which is the men’s professional football league in India and the Caribbean Premier League (CPL), an annual T20 cricket tournament held in the Caribbean.
“Fantasy sport platforms increase viewership and engagement to sports which, in turn, increase advertising revenue for the various sporting leagues. This is why Dream11 has the support of both IPL and Hotstar,” Bhattacharya says.
Going ahead, if the law of the land permits, then platforms like Dream11 could also get a license for betting like FanDuel and DraftKings.
The 1.3% versus the 98.7%
In 2015, Ed Miller, author of numerous books on poker strategy, and Daniel Singer, senior adviser of the McKinsey & Company Global Sports and Gaming Practice, published a report which said that in the first half of the 2015 Major League Baseball (MLB) season, 91% of daily fantasy sport player profits were won by just 1.3% of players.
These 1.3% players also accounted for 40% of fees and the bulk of this top-tier spent an average of $9,100 on fees, on which they realised profits of $2,400, while accounting for 23% of all fees and 77% of the profits.
“I know a person who left his investing job after playing fantasy football for some time. He felt that he could statistically model a number of variables and keep on winning. It worked for him and he made some $600,000 in a year,” Sharma says.
But not all can afford to take such a risk in order to win.
Players on Dream11 seem to face the same problem. Both Somani and Chawla, who play mostly during the IPL season and place small bets which go up to Rs 100 ($1.39) per match, concur. They barely win, and on a net basis, their bets have resulted in losses.
When asked how much time they spend on selecting their teams, they say that they pick players based on recommendations given on various forums and sites.
And yet, losses mount. Why do only 1.3% make it?
The product manager explains that similar to poker, fantasy sport has a ‘fish and shark funda’. A fish is a player who does not know how to play poker too well. A shark, of course, is a pro. The shark not only knows the risk and ratios of various card combinations but is also skilled enough to read the opponents’ physical gestures to predict their next move.
“In fantasy sport, a fish is someone who will make one team, bet Rs 10 (~$0.14) on one match in the hope of winning Rs 1 lakh (~$1397). Whereas, a shark would make six teams—the maximum number of team combinations one can have for one single game—bet Rs 600 ($8.39) in the hope of winning Rs 900 ($12.58),” he says.
Unlike the real world, where sharks and fish don’t usually sit at the same table, in fantasy sport, the digital platform brings them together. This leaves the fish at a massive disadvantage.
I, an obvious fish, tried the app for a week. I participated in 12 matches. Barring two practice matches, the rest were for money. At times, I picked a team at random, and at other times, I used the recommendations from the sites Somani and Chawla mentioned. I lost every single match. It was fortunate that I was betting to experiment with Rs 20-25 ($0.28-0.35), unlike other players on the platform.
The Nielsen study mentioned above reports that 89% of the people who’ve ever played fantasy sport continue to play it. This means that even if they abandon a platform they tend to find themselves trying their luck on another. HalaPlay and others are trying to capitalise on this to snatch some market share from Dream11, Sharma says.
“Even I have played 10-odd games on Dream11 and I have never won,” Bhattacharya says.
“The universe of people who have actually won is very small,” he adds. “This came out as a huge pain point in this market.”
HalaPlay’s early adoption and traction came from people who were not winning on Dream11. The platform has different structures for risk-averse players. For example, they have a 2X league where 40% of the players get a guaranteed payout and a 5X league where 18% get a guaranteed payout.
Then there is also the problem of seasonality. “IPL is Dream11’s earning time. Rest of the year, they try to earn some money from tournaments like KPL [Karnataka Premier League] and they don’t add much to their revenue,” the product manager says. “The year-round cricket and diversifying into other sports like football and kabaddi has given them the answer to the question, ‘What do we do for the rest of the year?’ but it has not solved their profitability or seasonality problem.”
Walks like a duck, talks like a duck
Under our archaic and hazy gambling laws which date back to 1867, fantasy sport are interpreted as ‘games of skill’ and not gambling – this was the law that was quoted by Punjab and Haryana HC during their aforementioned verdict.
“In summary, Indian gambling laws are confusing, based on an outdated concept and have not lived up to the technological changes that have come up in the recent years,” says Jay Sayta, who is a sports lawyer and also reports on India’s gambling laws on his website glaws.in.
Besides, it’s not like they’re uniform either. In fact, far from it.
A ‘game of skill’ or not, Indian states have separate laws that may not work in the favour of fantasy sport firms. In Telangana, Odisha and Assam you can’t even play a game of skill for payment. This makes Dream11 and other fantasy sport platforms illegal in these states.
Then there are also states like Sikkim which have laid down some laws for online gaming but with a catch—the games can be played only in an intra-network and not a public network. Casinos, for example.
“It’s a question of boundary. At which point regulations become onerous,” says Abhinav Shrivastava, a lawyer engaged as a Counsel with Bengaluru-based firm LawNK.
“You have an industry that is relying on the expectation that it is legal, based on the judicial treatment of games of skill and fantasy sports in particular. And now, all of a sudden, you have a prohibition out of the blue which invalidates your entire business model, that’s not justified,” he says.
An unregulated and cash-rich business growing rapidly but underground, away from the government’s eye, could face a sudden clamp down. After all, in India, there are more examples of bad regulation than good, especially with new sectors that don’t fall under the ambit of our outdated laws.
“For example, the Andhra Pradesh government came up with regulations which are so restrictive around the microfinance sector that the industry severely contracted there. Regulations should support the industry by introducing standards and good practices, not kill it,” Shrivastava says.
“The answer should not be to ban everything. Regulations should be made in a manner which protects the interests of the users and also allows the industry to flourish,” Sayta says.
“Users should not be cheated or short-changed in these games, and as people are depositing their money on these platforms, it needs to be ensured that the company does not use these funds in its own marketing or promotion,” he adds.
The fantasy gaming companies have formed a self-regulatory body, but Sayta feels it is not enough. Formal regulations are in order, he adds.
Gambling enterprises, wherever they are legal, are regulated to protect people. That needs to happen here, albeit not as a knee-jerk, but steadily and with well-thought-out guidelines. A sudden decision, ironically, could prove a gamble.