Are escrows good for fantasy football?

[Coltsfan]

Greg suggested that we start another thread addressing escrow accounts so I thought I would go ahead and start it.

Before this goes in further I want to state that for me this has absolutely nothing to do with a fear of the nffc paying prize money. I don't mean it to suggest that there might be a problem. The question is does it make sense for marketing purposes to attract new players plus to give you any kind of advantage over other contests? What do you think Greg? What are the pros and cons? (Hopefully the other thread will die now.)


Wayne

[Glenneration X]

Yes.

Glenn

[Roger]

The alternative to escrow is to be bonded. An insurance company would issue a surety bond that would guaranty payment of all prize money if the game operator fails to pay. Most construction companies on public projects are required to provide these bonds.

The bonds are fairly inexpensive to buy if the company has good credit, and they are easy to obtain from most insurance agents. The NFFC could then advertise that it is "bonded and insured."

Better alternative than having your lawyer run off to the Cayman Islands with the prize money!

[Coltsfan]

Originally posted by Trust In Bill:
Better alternative than having your lawyer run off to the Cayman Islands with the prize money! No wonder Jack Haan suggested that he should hold the escrow money for no charge!


Wayne

[TamuScarecrow]

This is in line with our conversation of the "feel good" aspect of escrow accounts, Wayne. I do like the bonding idea as having been in construction for 30 years, this is a guaranteed solution. Excellent point, TIB.

[mikeybok]

Bonding and Escrow cost money and this means less prize money ... so i am against it. Between the two ... bonding is better. The deep pockets of Liberty Media make this unnecessary for the NFFC IMO. I also would not fear the WCOFF because of their history with current management. Everything else is buyer beware. I think this is a case by case decision for the company that runs the game.

The NFFC should market the fact that they have a corporation with deep pockets behind them. This would put new players at ease.

[Greg Ambrosius]

Originally posted by Coltsfan:
Greg suggested that we start another thread addressing escrow accounts so I thought I would go ahead and start it.

Before this goes in further I want to state that for me this has absolutely nothing to do with a fear of the nffc paying prize money. I don't mean it to suggest that there might be a problem. The question is does it make sense for marketing purposes to attract new players plus to give you any kind of advantage over other contests? What do you think Greg? What are the pros and cons? (Hopefully the other thread will die now.)


Wayne Sorry I'm late to this one. I was working on some baseball stuff and the NFFC web site. Thanks Wayne for starting a separate thread on this topic and I think we can have a professional, healthy discussion on this topic. I agree, this is an important topic for our space right now because there is an air of distrust that I have never seen before. Give me a little time to do a historical perspective on this subject and then allow me to present some of my personal views. You might not agree or like some of my points, but hopefully you'll respect my position on this. I'll start on those very soon and others -- even other game operators -- can chime in.

[RiFF]

Originally posted by Ugly Yellow Tomatoes:
The NFFC should market the fact that they have a corporation with deep pockets behind them. This would put new players at ease. My experience has been that most parent companies are unwilling to make a blanket statement such as this unless the subsidiary company is an integral part of the parent's operations. In the case of Liberty it doesn't seem that an disruption in the operations of Fanball/NFFC would cause any material impact to Liberty.
The reasons are varied why a parent would maintain an "arms length" relationship with a subsidiary. They may include issues that may impact such things as Financial disclosure, credit ratings, borrowing costs, audit concerns and a myriad of other potential issues.
Although I don't have any issues with Fanball/NFFC and their ability to promptly pay out all contest winnings, I also wouldn't look past Fanball/NFFC for those payments. Undoubtedly having a strong parent is a plus, but it is NOT a guarantee.
And the issue with an independent bonded escrow agent/account (and independence is necessary or it would be nothing more than an illusion) or surety bond is cost. Would participants be willing to have payouts reduced a few percentage points to absorb this cost. Because there is a very real cost involved to the provider. Personally, I wouldn't want to see that reduction simply because I don't see similar circumstances here that existed at the failed operations. The thing to remember is, if a provider is going to provide escrow/ surety protection; the cost of that protection will ultimately be borne by the consumer.

[Greg Ambrosius]

Let me just give you my historical perspective of my 21 years in the industry and just start from there.

For my first 15 years, I was nothing more than a magazine editor who actually worked with our advertisers to promote their games and services. We actually had a "Manager's Marketplace" in Fantasy Sports Magazine that listed all of the commissioner products, salary cap games, software, apparel, etc., for every company in every segment. We promoted ALL aspects of the industry. The number of companies got so big that I think we stopped trying to stay on top of this in 1998 or 1999 when search engines could do this better on the Internet.

The fantasy games business continued to grow throughout the 1990s and you really didn't hear much about games folding without paying prizes. A few smaller ones did in the early 1990s that will go without mention and I remember some problems with even some of the stat services. But for the most part this wasn't an issue.

Then we saw a trend in the late 1990s as bigger companies jumped into this growing industry. One of the biggest new companies to enter was Replica Corporation, which I believe used Bob Uecker as a spokesman. They had a salary cap type of game that promised big prizes and planned for thousands of players and it folded in the first or second year without, I believe, paying all prizes.

It was at that point where even "too big will fail" seemed to be a concern and we formed the Fantasy Players Association to address this problem. This was at the top of our agenda, along with licensing and legislation. We didn't have a foolproof method to stop games from folding, but we felt that we could do our best to regulate our own house and the FSTA seal would be like the Good Housekeeping seal of approval. That was the plan.

We never made our FSTA members escrow revenue because each individual company operates differently. How could we MANDATE that USA Today or The Sporting News or Sportsline escrow their prizes? We couldn't as a non-profit association. But we felt that by approving each new member they were agreeing to a code of ethics that other industry companies agreed to.

I took part in the first 2002 WCOFF and loved that whole live event contest, even proposing a baseball game to Lenny and Emil before running it myself in 2004. I was in the games business, like hundreds of other companies.

Did we escrow our prize money with Krause Publications and then later F+W Media? No. Did we guarantee the prize money? Yes, every time. We paid in full on time when we lost money in the early years and when we've made money. With that company -- and now with Liberty Media -- we weren't backed so much by the revenue as we were by a company with many, many more resources than the NFFC or NFBC. Trust me, in 2004 baseball and football we needed more funds than the NFFC and NFBC brought in to pay off prizes and we did so with the help of our big company. We don't need additional funds anymore, but as a player it's good to know who is backing the contest and it helps when it's a publicly traded company rather than, let's say, one entrepreneur.

Trust is a valuable commodity and sometimes that's all we have. 552 teams trusted Lenny and Emil in the debut 2002 WCOFF when they guaranteed a $200,000 grand prize. I loved that and admired their customer base for that. 195 teams trusted me in 2004 for the NFBC and 224 teams trusted me in 2004 for the NFFC when I guaranteed $100,000 in each contest. I haven't failed you yet.

Now that isn't my answer to whether we should escrow or not, just factual background. If one contest escrows the grand prize but nothing else, is that comforting for the consumer? Why would that comfort you? If a game operator escrows ALL of their prize money, how do they operate functionally as a business? Do I go back to the parent company and ask for operating revenue if needed because all of my prize money is in escrow? And if I pay for that added expense and my competitors don't, how can I pay the same percentage of prizes? Don't I now have an additional expense that nobody else does?

I'll give some opinions soon, but these are just thoughts on the past and a little on the present. This is something that needs to be done either industry wide or the choice of each business. Do I need to ensure that trust to sell out my event even if my past history and everything else shows that I'll pay in full and on time?

Good questions to answer. Thanks for starting this thread and jump in with answers for me.

[ May 11, 2010, 10:44 AM: Message edited by: Greg Ambrosius ]