Reviving Sports: Exploring Fantasy Sports as a Solution
Introduction
In the following article, we will explore the captivating world of fantasy sports and its potential to revolutionize the Japanese sports scene.
Murasaki, along with our partner Mynet, is deeply involved in this exciting industry and together we aim to shed light on the promising prospects the sports fantasy scene holds. Our focus in this write-up is to provide a comprehensive overview of Japanese fantasy sports, revealing its capacity to offer innovative solutions to challenges within the local JP sports landscape.
Please note that all exchange rate calculations and financial data are based on publicly available information as of November 6, 2023.
Challenges in the Japanese Domestic Sports Market
To put it plainly, the fan base is getting smaller, but the proportion of people attending games is on the rise. Much like a smaller population can slow down a town’s growth, a shrinking fan base can affect the sports industry. Detailed statistics will be provided below to illustrate this point.
As depicted in this graph, the domestic fan base has been gradually declining over the medium to long term. For instance, the fan base of the Japanese national soccer team has dwindled by half in approximately a decade.
On the other hand, the number of spectators at professional baseball games has been increasing since the COVID-19 pandemic.
Before the COVID-19 pandemic, attendance in the J-League showed consistent growth, and it is currently in a swift recovery phase after the pandemic. In regular circumstances, it can be noted that the number of spectators continues to rise.
A comprehensive analysis of the factors contributing to the decreasing fanbase could fill an entire notebook. And while there are multiple reasons for the decline in each professional sport, a general overview of the causes can be provided.
The following statistics illustrate the reduced viewing time for professional sports and include a survey on the underlying reasons.
When we add qualitative details to the statistics, we can discern the following context:
- Format Changes
Sports enthusiasts tend to acquire sports-related information through streaming platforms, social media, and other online sources. Nevertheless, local television continues to be the main source for accessing the latest sports info.
For instance, the live broadcast of the J-League soccer league on television ceased a while ago, and this change directly impacted the statistical outcomes.
In other words, the type of format changes when the supply side surpasses the demand side’s ability to adapt, thus resulting in a structural issue where obtaining information becomes increasingly challenging.
2. Aging Fanbase
This shift in format aligns with the changing hobbies and entertainment preferences of young individuals and the working population. Remarkably, this transformation has not effectively reached the elderly demographic which constitutes the largest group of content consumers.
As proof of this, Kazuyoshi Miura, widely known as King Kazu, has consistently held the title of the most popular soccer player for the past three years. Despite the presence of active superstars like Kubo and Mitoma who participate both internationally and in the Japanese national team, King Kazu remains more popular.
Additionally, Shohei Ohtani has secured the top position for the third consecutive year, primarily due to his engagement in the “baseball + TV” format. Other top players have been selected mainly for their substantial television exposure as well.
This suggests that athletes who participate in individual competitions on television tend to receive more recognition and popularity.
3. Competition with Foreign Sports Content
For instance, approximately two decades ago, soccer fans showed a preference for watching J-League clubs, followed by the Japanese national team, and foreign clubs, predominantly Serie A. However, today’s emerging fan base has easy access to high-quality foreign content.
(J-Club > Japanese National Team > Foreign Club (Series A) vs High-Quality Foreign Content)
Their support is now directed toward Premier League and La Liga clubs known for their competitive standards, financial backing, and the presence of top Japanese players.
Therefore, the current scenario is about a lack of local teams to support, and that the famous players they do want to support have now relocated overseas.
4. Global Competition for Disposable Time
In modern society, individuals spend more and more time pursuing recreational activities and entertainment. The content that takes up their leisure time is consistently exposed to global competition, given the widespread availability of diverse content.
Holiday hobbies like camping, hiking, and nature-tripping are diversifying. People who engage in activities like camping, visiting saunas, enjoying home-style ramen, and then returning home to watch anime often find limited time for sports viewing.
Therefore, the trend of declining fan bases in sports markets is influenced by a multitude of factors.
What is Fantasy Sports?
Fantasy Sports is an online game in which players form and manage virtual teams based on the performance of real-life athletes. Participants create their own virtual teams by selecting players through a draft or auction. Points are then added based on their performance in actual games. For example, if a soccer or baseball player scores a goal, assists, or strikes out in a real game, it will affect the score of the fantasy team.
The appeal of this game lies in the fact that it requires knowledge of real sports and strategic thinking. The success of the team depends on the players’ decisions, including when to select, trade, and use players. Throughout the season, the participants compete against each other, and the final winner is the one with the highest points.
Through this, fantasy sports have become popular in many countries as an opportunity for sports fans to test their knowledge and strategies, and because of this, we believe that fantasy sports could help solve a number of problems in domestic sports.
An Article That Conveys The Atmosphere Of The Time
“…the early ‘90s’ version of fantasy football. I know because I was there. When I was a high school nerd in 1992, pre-internet, I read a magazine about this strange new concept and I convinced my friends to try it. No one else understood what we were doing. We were ahead of the Dork Curve. I used actual newspapers — they once came in print — to manually tabulate scores. My friends and I were obsessed, and I had a hunch that the world would eventually catch up.”
Source: Coin Desk
Fantasy sports have existed since the 1960s, before the Internet, and have been popular in the United States and the United Kingdom, particularly in the realms of baseball and soccer.
Initially, they were typically played over the span of a single season. However, with players’ increased mobility and the rise in the number of games played for cup competitions, the format has evolved to include daily fantasy sports, where participants engage on a section-by-section or game-by-game basis.
Even though a single season makes active engagement challenging for all but the most avid fans, the introduction of U.S. giants like DraftKings into daily fantasy sports and Sorare in NFT fantasy sports has reduced the barriers to participation, resulting in swift expansion.
The State of Fantasy Sports in the United States
The previous sections have highlighted how the fantasy sports market initially existed, and how its growth has accelerated in recent years with the legalization of sports betting. Next, we would like to introduce a case study from the U.S. — the largest emerging market where sports betting has recently been lifted (although it has been around for a long time in Europe).
As detailed in our other article, sports betting has been lifted in six of the major G7 countries except Japan.
Among the countries that have lifted the ban, France, Germany, the United States, and Canada only did so in 2010. The legalization of sports betting has followed suit in recent years and has led to a notable surge of reward-based fantasy sports games, where you can create your own favorite team and get rewards based on its performance.
Among them, DraftKings and FanDuel in the United States are currently the benchmarks for fantasy sports in the world.
In the United States, the Sports Protection Act of 1992 (PASPA) was enacted, banning sports betting in all but four states (Delaware, Oregon, Montana, and Nevada). However, due to the large number of citizens participating in sports betting outside the U.S., along with the nationwide financial difficulties, the U.S. Supreme Court ruled in 2018 that the legalization of sports betting would be left to each state.
Here is a list from Flutter Entertainment’s IR materials, which operates FanDuel, regarding the status of legalization in each state.
Looking ahead, the fantasy sports sector is anticipated to become an $11 billion industry by 2023. In the U.S. market, DraftKings and FanDuel currently dominate with an 80% share. DraftKings, in particular, has seen a substantial rise in recent quarterly sales, reaching $790 million (market estimate: $699 million) and commanding a 33% market share.
This remarkable growth rate is noteworthy, especially when compared to last year’s sales of $500 million for the same period.
The following data is extracted from Flutter’s semi-annual investor materials. Their monthly active users (MAU) count stands at 12.3 million people. Notably, Flutter is a conglomerate with various entities beyond fantasy sports, yet it manages to generate $1bn in quarterly sales in the US market, inclusive of FanDuel. Their groupwide sales reached £4.8 billion, reflecting a remarkable 38% increase from the previous year.
Beyond the U.S., India witnessed the rise of Dream11, which boasts an expanding fan base, particularly in cricket, and has achieved sales of $480 million.
India features several other fantasy sports platforms alongside Dream11, collectively contributing to the growth of this emerging industry.
Source: ENTRACKER
The Rise of NFT Fantasy Sports
Our discussion now shifts to the emergence of NFT fantasy sports, with a primary focus on Sorare as a case study. It’s worth noting that Murasaki has entered a strategic partnership with Mynet Inc. in this field.
Sorare gained significant recognition through Europe’s largest Series B funding round, which generated a valuation of $4.3 billion and secured $680 million in funding with Softbank as a major contributor. Notably, several soccer players, including Messi, invested in the company during its recent angel round.
Currently, Sorare offers NFT-based fantasy sports for major soccer leagues across the globe, along with the NBA and MLB. Although it is now drawing attention as a unicorn company, it took until its third year to exceed 100,000 monthly active users.
The annual average auction volume has consistently averaged around 100 ETH per day, with recent trends showing a notable increase in volume.
The previous year marked the World Cup season, with annual sales surpassing a threshold of $330m.
Here is an explanation of Sorare, focusing on soccer:
- Sorare operates on Ethereum’s L2 (Starknet).
- Users can purchase and collect NFTs of real soccer players.
- The performance of each player in an actual match is quantified and becomes the player’s score on Sorare.
- Users can form teams of five players from their NFT collection and compete in “Game Week Tournaments,” which occur twice a week. Scoring is based on the performance of these five NFTs during the tournament period.
- The top-ranked player in each tournament and all players who achieve a certain score will receive rewards in the form of ETH and NFTs.
- NFTs can be acquired through primary sales (auctions) or by purchasing, selling, and trading among users, allowing players to participate without incurring any fees.
Another essential feature of Sorare is that player NFT cards grow.
- Users can accumulate experience and level up their NFTs by entering Game Week.
- The maximum attainable level is 20.
- Newly acquired cards begin at Level 0.
- The level progression is structured in a way that, with consistent usage over one year, a card can reach Level 10, and with three years of use, it can reach Level 20.
- Levels decrease by approximately half when users engage in trading.
- Cards that attain higher levels receive a score bonus.
— For instance, approximately 10% at level 20.
— Therefore, cards at higher levels hold greater value in the market.
— As shown in the screenshot below, a 7% level bonus is applied.
Sorare takes the conventional fantasy sports gaming concept within its platform, seamlessly combining in-game components with external elements such as NFT-based ownership and game-like progression.
This game introduces three key aspects that enhance the player experience. First, it adds an exciting out-game/meta-game component. Second, it simplifies access by transitioning to a fully digital format. Lastly, it establishes an environment where numerous individuals can participate under unified rules, even without the need for initial investments.
Legal Arrangements
Four primary categories of fantasy sports can be identified, each with distinct reward structures:
- Non-Reward Engagement Tool Fantasy Sports: Fantasy Premier League
- Participation Fee-Sharing Fantasy Sports: DraftKings / FanDuel
- Sponsor-Based Fantasy Sports: B.LEAGUE#Live
- Other Fantasy Sports with Rewards: Sorare / Dream11
In the United States, sports betting has been legalized in every state, making it easy for people to participate in fantasy sports and earn rewards. These games are also managed in compliance with state laws.
B.LEAGUE#Live, an original Japanese service provided by Mynet, operates with the support of three sponsors who provide rewards.
Sorare, the NFT fantasy sports company, collaborates with the French government to ensure that the game does not fall under the category of gambling.
Given the absence of random number adjustments and a substantial number of players participating for free, they are in discussions with the government to implement a new model that would enable people to play without the initial purchase of an NFT card.
In India, the Supreme Court made a ruling in a case that considered whether the operation of Dream11 could be classified as gambling.
How Fantasy Sports Enhance Enjoyment for Users
1. Tools to Enhance the Sports-Watching Experience
Numerous users engage in fantasy sports as a means to amplify their enjoyment while watching soccer.
I can’t just watch a game without feeling something for it,” asserts Holly Shand, a veteran player and founder of the Fantasy Football Community, a community of FPL (Fantasy Premier League) fans. The FPL has completely changed the way I interact with soccer.
In the FPL, the rewards for good performance, if any, are relatively modest (weekly prizes for good performance from the official management include mugs and stress-relieving balls). But the lively interactions with friends, co-workers, family members, and other mini-league rivals are what keeps players hooked, Shand points out.
It’s all about scoring a lot of points and bragging about it,” he says. Most players in this game are men, and men are more competitive than women. They like to lighten each other up with their game scores.”
Many players are in a two-screen mode during the game. They check both the actual soccer game and the FPL updates they receive on their smartphones. It’s a deeper experience than just playing the game,” Griffiths explains.
It’s a deeper experience than just playing the game,” Griffiths explains, “You join forums and interact with other players. The excitement you get from the game is much greater if you put in the time and effort personally. But you also get more frustration when your player of choice gets replaced.
Source: Wired.JP
The key benefit of this approach is that it allows individuals to experience emotions of joy or disappointment not only based on their favorite team’s performance but also on the individual accomplishments of each player.
2. Embracing Sports through a “Data” Perspective
Historically, discussions revolved around David Beckham’s remarkable skill in delivering precise crosses from either flank to a teammate’s head in the center of the field.
But now, contemporary sports analysis terms it as “expected assists”.
For more information about this topic, click here.
3. Increased Communication Opportunities
Users will be able to enjoy a different kind of communication with fellow soccer fans. Their engagement extends beyond merely supporting their favorite teams to include friendly competition in predicting game outcomes.
The fact that the players support each other on a player-by-player basis and play under common game rules makes it easier for fantasy sports users to match common topics of conversation with other soccer fans.
This can be a bridge for communication between fans of domestic and international leagues, as there are many opportunities for fantasy sports users to become interested in leagues that they have not followed before.
In this context, a personal anecdote is illustrative, Murasaki’s CEO, Shinnosuke Murata shares:
“This is my experience, but I have two European soccer buddies who are Sorare geeks, and they are more interested in checking out young promising players from Japan and Korea than I am. Since the European leagues are not held during the summer months, serious Sorare players participate in game weeks of the J-League, K-League, MLS, etc.
‘Shin, I have 8 Rare Suzuki Zion tickets, but when will he transfer to a big club? After the Paris Olympics?’ or ‘Matsuki was participating in Lille’s practice, but is it likely that he will transfer overseas in the winter?’
I get advanced questions like these.”
Shin also participates in several fantasy sports, such as FPL and Sorare, and it has become a tool for spreading awareness about global and domestic sports and giving fans like him to communicate.
4. Fan Engagement and Rewards
Many users initiate their participation in fantasy sports due to their passion for sports and the potential rewards it offers.
For some, possessing in-depth knowledge and analytical skills in sports can lead to clearer victory prospects and increased expected rewards. In comparison to activities like horse racing, fantasy sports provide a wealth of information and exhibit a more open nature. Additionally, they involve a stronger element of skill, with a significant, direct link between information and profit.
5. Expression of Support for a Player + Investment in That Player
In the case of models like Sorare, and similar models where users purchase digital player cards for gameplay, the user experience revolves around “owning a player they think is promising, with the potential for their asset value to increase if the actual player performs well.”
For instance, one of Shin’s Belgian friends acquired 10 cards of Doku, who currently plays for Manchester City F.C., every year for several years. When Doku decided to move to Man. City, the value of those cards skyrocketed more than 80 times. He still holds half of them.
He says that watching soccer has become more enjoyable for him due to the dual gaming nature of the game, where he genuinely wants to support the team and the value of his holdings will increase if they play well. This serves as a means to continue cheering for favorite players, even when they transition from the J-League to overseas.
Benefits for leagues and clubs — Potential for Developing Minor Sports
Leagues and clubs, as part of their licensing agreements, share in the proceeds from NFT sales, akin to broadcast rights. It’s challenging to provide a one-size-fits-all ratio, as it differs from league to league. In addition, acquiring sports rights in the United States is both costly and complex. For Sorare, securing deals with the MBA and MLB likely entailed substantial professional fees, amounting to millions of dollars.
Nevertheless, the returns are significant. For instance, if just 10% of sales were earned as royalties, as seen with FanDuel’s sales scale, it could exceed $6m. This increase in prize money distribution enriches each club, strengthening their commitment to development and community initiatives.
Another notable aspect is the adaptability of NFTs for minor sports. Consider sports like volleyball or rugby, which possess substantial market potential but have limited broadcasting reach and promotional resources.
By incorporating revenue-sharing agreements, hidden fans and new users are given the opportunity to explore players and teams, potentially making the league more captivating.
As previously noted, a goal in the J-League is equivalent in value to a goal in the Premier League. As more young players move to top overseas leagues, this could generate considerable interest. It’s worth noting that dedicated Sorare enthusiasts in England frequently explore not only the Premier League but also the J-League and K League.
Summary
One of the pressing challenges facing the Japanese sports industry is the decline in its fan base. The introduction of fantasy sports presents a promising solution.
To tackle the issue of content formats (television, streaming, etc) misaligning with viewer preferences, innovative approaches can be developed, allowing fans to enjoy sports without watching the games directly.
This strategy aims to bridge the gap and encourage engagement, particularly in attracting new fans and competing with foreign sports content. Furthermore, by returning sales to the leagues in the form of licensing fees, there is an opportunity to contribute to the long-term development of the sports industry.
In Japan, our partner, Mynet Inc., offers sponsored fantasy sports, making it accessible for those who wish to give it a try.
For more information, please visit: https://bleaguelive.jp/
