Daily fantasy sports is more than a game

Many fantasy sports enthusiasts are no longer satisfied with winning bragging rights from their friends. Now they're increasingly vying for cash prizes from leagues that don't require them to wait an entire season to get a payout. And the surging popularity of daily fantasy leagues run by DraftKings and FanDuel has caught the attention of big media companies.

DraftKings recently secured $300 million in a funding round lead by Fox (FOXA) Sports along with Major League Baseball, the National Hockey League and Major League Soccer. The closely held company plans to give away $1 billion in prizes this year, more than triple the $300 million it awarded in 2014. FanDuel, which pays out more than $10 million in prizes every week, recently raised $275 million from investors including affiliates of Google (GOOG), Comcast (CMSCA) and Time Warner (TWX).

The number of people participating in fantasy sports is expected to hit 56.8 million this year, a gain of 37 percent from 2013, according to the Fantasy Sports Trade Association (FSTA).

Not surprisingly, competition for the fantasy dollar is intensifying. As of the end of last year when both companies reported numbers, FanDuel led DraftKings in both entry fees ($620 million to $300 million) and paying users (1 million to 300,000). Eilers Research estimates that the daily fantasy sports market will hit $1.18 billion by 2020, indicating a compound annual growth rate of 55 percent.

"DraftKings argues that they have closed the gap considerably and are even ahead of FanDuel if you use the most recent monthly or quarterly data," Adam Krejcik, an analyst with Eilers Research, which tracks the fantasy spots market, told CBS MoneyWatch. "That being said, I still think FanDuel is the largest ... DraftKings has said they will pay out over $1 billion. The rest of the market will pay out at most $100 million in prize money."

The rise of daily fantasy sports has created challenges for media companies such as Walt Disney's (DIS) ESPN and Yahoo (YHOO), which have the two largest bases of players in traditional season-long fantasy leagues. The companies have taken different strategies in dealing with the upstarts.

ESPN, the leading cable sports network, has formed a partnership with Draft Kings and has named the company the official provider of daily fantasy sports games across all its platforms. According to Re/Code, this was a change from an earlier plan where the all-sports network would have invested $250 million in Draft Kings. Draft Kings would have spent $500 on advertising on ESPN in return for the investment, Re/Code says. The company declined to comment on the report.

Yahoo, whose No. 1 position in the fantasy market was usurped in 2013 by ESPN, recently announced plans to launch an offering to compete with Draft Kings and FanDuel, called Yahoo Sports Daily Fantasy.

The fantasy sports market is a desirable one for advertisers. According to demographic data compiled by the FSTA, players are mostly college-educated with annual household income topping $75,000. A survey of more than 1,400 players by Eilers Research found that more than 40 percent of daily fantasy players said they had reduced the amount off time they devoted to traditional fantasy leagues.

"Instead of being in 2, 3, 4, 5-plus leagues, maybe they're in just one now," according to Eilers' Krejcik.

The latest FSTA data show that 66 percent of players were male and 34 percent female, though the female numbers have been climbing in recent years, particularly in the traditional, season-long leagues. Women are so far shying away from the daily games, which are nearly 100 percent male and tend to attract more hard-core, statistics-driven fans.

"I do think that the daily space and the operators need to do a better job in figuring out how to make this game more attractive to women," said Krejcik, "because otherwise, you're basically cutting in half your future addressable market."

Correction: An earlier version of the story incorrectly reported that Disney had agreed to invest $500 million in DraftKings. Disney is not an investor in the company.

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