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Scott Longley, Editorial Director of Regulus Partners, takes a look at the upheaval in the dream sports industry triggered by recently's arrival of Disney.

News reports that the Walt Disney Company was a $250m investment in DraftKings set the seal on the rumours that had actually been running around the world of dream sports that the owner of the ESPN sports network was about to put its own stamp on the nascent market.

According to the story in the Wall Street Journal - to date the only source of details on the yet-to-be-announced offer - the financial investment will value DraftKings at simply under $1bn. This dramatically raises the stakes for the DFS market overall. The last time DraftKings went to investors remained in August last year when it raised $41m in a series D financing round. This was trumped the following month by DFS market leader FanDuel which tapped its financiers for an additional $70m in a series C funding round.

The size of the Disney financial investment - if it comes to pass - modifications the understanding of the worth of the DFS market as far as investors are worried but it isn't simply the appraisal that was notable. According to the report the deal also dedicates the number 2 in the daily dream sports market to a whopping $500m in advertisement spend on ESPN alone over the next three and a bit years.

To put this costs commitment into perspective this is greater than the marketing and advertising expenditure of the entire of the DFS market in 2014, which Adam Krejcik, expert at Eilers Research, approximates to have actually been around $70m.

For all the enjoyment generated by the news of the proposed Disney investment and the concomitant marketing campaign, DFS is still a fairly little market in revenue and for now a reliable duopoly. According to Eilers Research, FanDuel attained earnings in 2014 of $57m while DraftKings notched up $30m and the remaining market participants struggled to make $3m in between them.

Not surprising that, then, that some sceptics have actually questioned the $500m ad spend figure. One industry expert went as far as to suggest that if true, such a costs commitment makes it almost inevitable that DraftKings will be looking for another round of financing earlier instead of later.

But the heading figure does raise problems for any potential new entrants, consisting of Amaya and the other name often tipped as waiting in the wings, Yahoo. "The advertising offer that DraftKings is apparently going to make with ESPN essentially sets the bar in regards to just how much cash you will require to spend to successfully compete against the huge guys in the US in 2015/16," states Krejcik.

He mentions that PokerStars invest in consumer acquisition globally in 2013, the last full year before the Amaya buyout, was $180m. "We believe Amaya/PokerStars would likely need to invest at least US$ 100m in year one to be competitive, which would be exceptionally dilutive to its earnings," he states. "They definitely have the money circulation, balance sheet, and infrastructure to go head-to-head with DraftKings and FanDuel, but it boils down to whether management is prepared to compromise margins in order to get to this new market. We anticipate Amaya to take a much more measured and conservative approach to DFS."

The illusion of connection

In a teleconference with financiers at the announcement of Amaya's 2014 results, president David Baazov particularly made reference of the 86 million total signed up PokerStars gamers, recommending they were a ready market for a DFS offering. "A lot of the US players that were previously PokerStars gamers want to see us release dream sports," he included.

But the claim of a large poker/DFS crossover capacity is challenged by those on the within existing DFS operators. One source recommended there was the "optical impression of connection" between DFS and poker, recommending that at many 5% of the current DFS gamer swimming pool had actually played online poker at any point online. "The individuals who play fantasy are sports fans," states one DFS expert. "They desire to view sport once they have gotten in the competition. They will see six hours of sport, normally. The mindset is various."

What is certainly real is that PokerStars has the capability to develop a competitive DFS platform. But with Baazov claiming recently that his business would be up-and-running with its own DFS offering before the start of the next NFL regular season, it would suggest the company will have to pursue the second of the "parallel tracks" mentioned on the call, that of "strategic acquisition".

Says Krejcik: "Amaya is really smart when it pertains to M&A. I'm not sure if it knew all of the details relating to ESPN/DraftKings, but it made it understood that it was looking at acquisition targets in this sector, so interpret that as you will."

DraftKings and FanDuel control near adequate 90% of the DFS market between them. In this sense it resembles the car-sharing market where Uber and Lyft are competing for supremacy. But still in DFS there are at least 20 more companies in the minors which Amaya may look at in order to go into the market. While the cost of completing will still be high, the rate of entry might not be all that expensive if all that was needed was a platform from which Amaya could build on.

Amaya aside, the next huge news from the DFS sector is most likely to come from FanDuel which is rumoured to be close to securing its next round of financing, this time with PE attire KKR, and is expected to value the firm at around $1.5 bn. "That will provide it with a war-chest to go head-to-head with DraftKings," says Krejcik.

For those that follow the world of VC investing in mostly US-based tech companies, this is unicorn territory - business that deserve over $1bn pre-IPO. Appropriate, maybe, because dream sports is quite a kind of safeguarded species in the US, exempt from UIGEA, for circumstances, and specifically legal in all but a handful of states. But while the activity itself might not be classified as gaming, those that are fronting up the cash to capture market share are quite punters of the high-roller variety.