October 01, 2015

World headquarters for the daily fantasy site Draftpot is a bedroom in a New York City apartment a few blocks from Columbia University.

Joey Levy and his two fellow Draftpot co-founders sleep in the apartment, too, making for an easy commute.

''It's very convenient and very cost effective,'' Levy said. ''And it allows us to work day and night.''

The story is a familiar one: College student with an idea creates a website and the money starts rolling in. Draftpot may not be the next Facebook, but in the first few weeks of the NFL season there was money rolling in - and out.

''We paid out $220,000 in prizes our first football weekend,'' Levy said. ''We're well on our way by the end of December of paying a million dollars.''

Levy's company is doing it by tapping into a daily fantasy sports market dominated by DraftKings and FanDuel, which both spent huge amounts of money leading to the opening of football season promising to make millionaires of some of their best players.

Draftpot - at least so far - is promising no such thing. The company does believe, however, that the niche it has found in the marketplace - essentially games with no salary caps - gives players a far better shake than contests that are dominated by the bigger and more sophisticated players.

''It levels the playing field and gives casual players more of a chance,'' Levy said. ''That $220,000 we paid out the first week didn't just go to five people.''

Paying out $220,000, of course, means the company took in more than that. Draftpot charges a ''rake'' of between 8 percent to 10 percent, so there is some room for profit, even after paying rent and utilities at the company's apartment headquarters.

Not bad for a 20-year-old fantasy sports junkie who just a few months ago was quietly pursuing a history degree at Columbia.

''I've promised my mother that I will go back to school when this is over,'' Levy said by phone.

Levy hopes to postpone that return after taking an idea and turning it into an operating company in such a short time. It was in January when he and fellow students Joshua Hughes and Jessica Vandebon launched a prototype and went on the social media app Reddit to ask people to test it.

Within 15 minutes, a Reddit user was asking how he could invest in the company, eventually putting in $20,000. A few months later, with help mostly from angel investors, Draftpot has raised $2.2 million to fund operations.

With only 7,200 registered users, Draftpot is tiny compared to the industry powerhouses, which spend tens of millions of dollars to get customers. It's also in a business where customer loyalty is fleeting and there's no guarantee the next week will be better than the last or the company will survive at all.

''There's a lot of operators out there trying to get a piece of the pie,'' said Cory Albertson, a top fantasy player who studies the industry. ''Ultimately, most of them will fail.''

But Levy believes Draftpot can succeed by enticing players to stay longer than on the major sites, where player ''churn'' is high. The main reason people stop playing fantasy sports, he said, is they don't like losing money to players who may flood contests with multiple entries and use computer algorithms to turn profits.

Those big players win a big majority of the money in daily fantasy play, forcing the daily sites to keep replacing the smaller players who drop out after losing.

''Casual players will consistently lose money in that system,'' Levy said. ''And losing money consistently is not good for user retention.''

By eliminating the salary cap, Draftpot allows players to pick whomever they want on their teams. The contests are still a game of skill, Levy contends, but not so much tilted in favor of big players who might win other contests by consistently finding obscure players who might add a few points to their scores.

''High-volume players still may have a little bit of advantage with us because they put more time in studying players,'' Levy said. ''But casual players have more of a chance.''

Draftpot may have a chance, too, though the daily fantasy market can be a treacherous one. A number of companies have already gone belly-up, with some taking customer money with them.

Unlike sports betting in Nevada, there is no regulation and no guarantee that any of the sites are entirely transparent with players.

Levy said he believes his company has a chance to become one of the top five to six sites once the daily fantasy industry shakes out. Right now he's in for the long haul, despite his promise to his mother to finish school.

''Columbia is good for this because if you're successful they will still give you readmission,'' he said. ''Right now, we're all just taking time off to do this.''

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