The purpose of this Business Plan and proposed DRAFT is intended only as
information so as to ... Fantasy Sports Tournaments is speculative, involves risk,.
BUSINESS PLAN AND PROPOSED DRAFT PPM
NFL Fantasy Sports Games
2
312-WINNERS www.LiveFantasySportsTournaments.com A Proposed Delaware Corporation Chicago, Illinois ____________________________________________________________________________________
Currently planned 1,250,000 Shares of Common Stock Proposed Offering Price:
500,000 shares at $1.00 per share 750,000 shares at $2.00 per share Minimum Purchase: $25,000 Minimum Aggregate Purchase: None Minimum Shares Sold For Closing: 500,000 ______________________________________________________________________
THIS BUSINESS PLAN AND PROPOSED DRAFT PPM DOES NOT CONSTITUTE ANY OFFER OR SOLICITATION. THE BUSINESS PLAN AND PROPOSED DRAFT PPM IS ONLY FOR GENERAL INFORMATIONAL PURPOSES AND SHOULD NOT BE REPRODUCED OR REDISTRIBUTED The Business Plan and proposed draft of the PPM are owned by LFST, INC., and provided only to selected audiences under strict conditions that neither this document nor any portion be produced without the express written permission of LFST. The purpose of this Business Plan and proposed DRAFT is intended only as information so as to supply a general idea of what a real PPM might look like. This is ONLY a DRAFT and is NOT in any way a final product. Many changes between this proposed draft and a real PPM are expected.
DISCLAIMER This document is for informational purposes only, is subject to change, does not constitute an investment solicitation, advice, or a recommendation of any kind to any person. This document does not constitute an offer to sell or the solicitation of an offer to buy Shares in LIVE … Fantasy Sports Tournaments, Inc. Such offer or solicitation may only be made by means of delivery of a confidential private offering memorandum or other appropriate disclosure which contains a description of the material terms (including, without limitation, risk factors, conflicts of interest, fees and charges, and tax implications) relating to such investment and only in those jurisdictions where permitted by applicable law. An investment in LIVE … Fantasy Sports Tournaments is speculative, involves risk, and should be considered only by persons who can afford to sustain a loss of their entire investment or to hold their Shares indefinitely without the possibility for resale. There is no secondary market for the Shares and none is expected to develop. The fees and expenses charged in connection with this investment may be higher than the fees and expenses of other investment alternatives and may reduce profits, if any. Past performance of LIVE … Fantasy Sports Tournaments or any of its, officers, affiliates, or projects is not a guarantee nor is it indicative of future results. LIVE … Fantasy Sports Tournaments does not warrant the accuracy, adequacy, or completeness of the information and data contained herein and expressly disclaims liability for errors or omissions in this information and data. No warranty of any kind, implied, express or statutory, is given in conjunction with the information and data. LIVE … Fantasy Sports Tournaments and its Principals expressly disclaim liability for any loss or damage arising out of the use or misuse or reliance on the information provided here, including without limitation, any loss of profit or any other damage, direct or consequential.
2
TABLE OF CONTENTS Summary of the Business and the Offering / Investor Notices Overview of Proposed Draft Memorandum 1) The Draft of Offering 2) Investor Suitability Standards 3) Terms of the Offering 4) Additional Information 5) How to Subscribe 6) Risk Factors 7) Use of Proceeds 8) Plan of Distribution 9) Capitalization Business Plan I. II. III. IV. V. VI. VII. VIII. IX.
Executive Summary Market Overview Business Description Management/Board of Directors Regulatory Three Year Financial Forecast Market Base & Estimations Startup Phase Financial Projections Full Fiscal Years 1, 2 & 3 Financial Projections
Pre-Subscription and Deposit Agreement
EXHIBITS GROUP A.
Press Kit (With recent articles regarding Fantasy Sports)
GROUP B. a. b. c. d. e.
Instructional Materials One Pager (Summary of Everything) Home Page with graphics showing functions Trading Pit Interface with graphics showing functions Frequently Asked Questions Graphical Interface with Television in center
GROUP C. a. b.
General Information History and Background of Fantasy Sports Prediction Markets – Market Research Study
GROUP D. a. b. c. d. e. f. g.
Executive Summary and Legal Executive Summary Legal Letter of Opinion Regarding Fantasy Tournaments Resume of Robert Luff Esq. Opinion Letter regarding the strength of patent # Resume of Philip Koenig Esq. Resumes of Planned Officers & Operational Personnel Patent # 7020632 (Available Upon Request)
GROUP E. a. b. c.
Reports Regarding LFST Software Architecture Doculabs – White Paper Software Analysis Focus Group Reports on Ease of the System
3
BUSINESS PLAN SUMMARY Problem:
Assumptions:
NFL Fantasy Football Sports fans have nothing to do while they watch NFL games except to watch them … passively.
This PPM is base on our belief that: • If we supply players with a fun way to make money during live NFL games. • If we maintain small entry fees with large cash prizes. • If contestants can demonstrate their considerable sports knowledge and expertise about the NFL by competing directly against each other in a 100% equal and transparent way. • If they can use their trading skills, • If they can create and run their own personal or private tournaments. • Compete against their friends. • Test their judgment. • Earn bragging rights. • Have lots of fun - trash talk. & Make Money in the process.
Solution: Provide something exciting for them to do … in addition … to watching the game.
Company: LIVE … Fantasy Sports Tournaments has created the first system played live … while … games are in progress. Players compete against one an other by buying and selling fantasy dollars in realtime. And just like a real stock or commodities market, the prices reflect what the buyers and the sellers believe about what is actually happening in the game. (LFST) Live Skill Fantasy competitions provide a whole new world of excitement, thrills, and non-stop action. Winners can earn up to $100,000.00 cash.
Business: The core of the business is to leverage the patented technology to offer live fantasy skill competitions. Millions of potential customers have no other way to participate or interact with live sports events during the game. LFST provides fans a way to earn money using their considerable sports knowledge, skill, and expertise … while … they watch their favorite NFL teams. LFST was not designed to compete against, but to complement existing old-fashioned fantasy products. It’s the only skill-based fantasy sports product designed to be played during live NFL events. Most on going expenses consist primarily of marketing, management and prize money. Tournaments are set up similar to golf tournaments. We will start operations in time for the 2010 NFL Season.
Private Competitions: In addition to the regularly scheduled tournaments LFST offers individuals and groups the ability to create their own private competitions for any event, including: sports, political elections, personal events, office games, etc. There are no limits to the types or sizes of private competitions. Private tournaments are expected to be especially profitable since the cost for hosting hundreds or even thousands of them are negligible.
Then we have good chance of success.
Fantasy Sports Market: It is estimated that over 30 million Americans play in some form of fantasy sports leagues today. The total fantasy sports market in the US is estimated at between $1-2 billion, according to the Fantasy Sports Trade Association. "The primary reason why fantasy sports should be taken seriously is its economic footprint," explains Professor Kevin G. Quinn of St. Norbert College, author of "Sports and their Fans.” "The average amount that each player spends is approaching $500 per year, more-over, these figures appear to be growing at double-digit annual rates."
Target Customers: The market for fantasy tournaments is huge. LFST initially will target the 30 million Americans who already play fantasy sports. Additionally, LFST’s market includes: • College students – 20M • Online traders – 26M • Skill Gamers – 30M • Adult Video Gamers • Overlap exists
Management - Marketing Current management has hired a company, The Turnaround Management Group, who specializes in assisting start-ups from the early stages through the first six months of the launching process. A qualified CEO will be found to run LFST after that point. LFS will market primarily via the Web. Given the multiplayer, peer-to-peer nature of the game, special emphasis will be placed on social media channels such as
Twitter and Facebook. It also will use search engine optimization and paid Adwords, as well as some traditional media and public relations. All of these efforts will be directed at driving traffic to the website, which will be designed to encourage FREE play. Most advertising will show the advantages to live action during the NFL games. Further we need show how current fantasy football products simply cannot deliver live competition during games.
Exit Strategies: LFST’s primary exit strategy is to sell the business to an existing sponsor of fantasy sports leagues (i.e., CBS Sportsline, ESPN and Yahoo Sports). LFST has had preliminary conversations with several such entities who expressed interest in owning LFST once the concept has been proven. Because of the strong cash flow dynamics of the business model, other exit scenarios are available as well, including IPO, leveraged recapitalization and/or simply running the business for cash
Offering: LFST is offering 1,250,000 shares of Common Stock, approximately 25% of the corporation on a fully diluted basis, to private investors. The first 500,000 shares (10%) of the Company will be sold at $1.00 per share and the remaining 750,000 shares (15%) will be priced at $2.00 per share (the "Shares") with a minimum subscription amount of $25,000, subject to LFST's right in its sole discretion to accept smaller investments from certain investors. We reserve the right to accept any aggregate subscription amount up to $2,000,000. LFST is authorized to issue a total of 5,000,000 shares of Common Stock, of which 3,750,000 were issued and outstanding as of Enter Date. We reserve the right to grant options and/or issue additional shares of Common Stock to employees in the future as the need arises. Capital needed now: $500,000 Minimum Investment amount: $10,000 Reason: Primarily sales & marketing Stage: Product is tested and ready to launch within 60 days - Investor roles: VERY welcomed! Total amount of money invested in product so far: $2,100,000.
4
BUSINESS PLAN AND PROPOSED DRAFT PPM
INVESTOR NOTICES THIS MEMORANDUM HAS BEEN PREPARED SOLELY FOR THE PURPOSE OF ENABLING EVALUATION OF AN INVESTMENT IN THE SHARES OFFERED HEREBY, AND FOR THE USE OF PERSONS INTERESTED IN MAKING SUCH AN INVESTMENT IN THE SHARES. THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY STATE OR ANY OTHER JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED. IN ADDITION, THIS MEMORANDUM CONSTITUTES AN OFFER ONLY IF A NAME HAS BEEN INSERTED IN THE “NAME OF OFFEREE” SPACE ON THE COVER PAGE. IN SUCH EVENT, THIS MEMORANDUM IS AN OFFER ONLY TO THE PERSON NAMED. ANY REPRODUCTION OR DISTRIBUTION OF THIS MEMORANDUM, IN WHOLE OR IN PART, OR THE DIVULGENCE OF ANY OF ITS CONTENTS, IS PROHIBITED. THIS MEMORANDUM AND ALL RELATED DOCUMENTS AND INFORMATION ARE THE CONFIDENTIAL PROPERTY OF LFST, INC., A DELAWARE CORPORATION (REFERRED TO AS “LFST” OR THE “COMPANY”), AND THE RECIPIENT ACKNOWLEDGES AND AGREES THAT HE OR SHE MAY NOT DIVULGE OR USE THIS MEMORANDUM OR THE OR THE INFORMATION CONTAINED HEREIN EXCEPT TO EVALUATE AN INVESTMENT IN LFST, AND MAY NOT REPRODUCE THIS MEMORANDUM OR THE INFORMATION CONTAINED HEREIN IN WHOLE OR IN PART FOR ANY OTHER PURPOSE. THIS MEMORANDUM IS FOR THE AUTHORIZED USE OF THE RECIPIENT AND HIS OR HER ADVISORS ONLY AND MAY NOT BE DELIVERED TO OR RELIED UPON BY ANY OTHER PERSON. BY ACCEPTING THIS MEMORANDUM, THE RECIPIENT AGREES TO RETURN IT TO LFST, AT THE ADDRESS SHOWN ON THE COVER PAGE, PROMPTLY UPON REACHING A DECISION NOT TO MAKE AN INVESTMENT. THE SHARES DESCRIBED HEREIN HAVE NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR QUALIFIED OR REGISTERED UNDER THE LAWS OF ANY STATE OR JURISDICTION. THE SECURITIES OFFERED HEREBY WILL BE OFFERED AND SOLD IN RELIANCE UPON EXEMPTIONS PROVIDED BY THE SECURITIES ACT AND LAWS OF INDIVIDUAL STATES AND/OR OTHER JURISDICTIONS. THE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD UNLESS THEY ARE REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, OR UNLESS EXEMPTIONS FROM SUCH REGISTRATION REQUIREMENTS ARE AVAILABLE. THE SHARES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. INVESTORS SHOULD BE AWARE THAT INVESTMENT IN THE SHARES INVOLVES A HIGH DEGREE OF RISK AND LACK OF LIQUIDITY AND THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THERE IS NO PUBLIC MARKET FOR ANY SECURITIES OF LFST AND NO SUCH MARKET IS EXPECTED TO DEVELOP FOLLOWING THIS OFFERING. IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUES AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. INVESTORS SHOULD CONSIDER THE INFORMATION SET FORTH UNDER "RISK FACTORS" BEFORE MAKING AN INVESTMENT DECISION. THE SHARES ARE AVAILABLE ONLY TO PERSONS WHO ARE "ACCREDITIED INVESTORS" AS SET FORTH IN RULE 501(a) OF REGULATION D PROMULGATED UNDER THE SECURITIES ACT. SEE THE FORM OF SUBSCRIPTION AGREEMENT ATTACHED AS AN EXHIBIT HERETO WITH RESPECT TO CERTAIN REPRESENTATIONS AND WARRANTIES THAT AN INVESTOR WILL BE REQUIRED TO MAKE. BY ACCEPTING DELIVERY OF THIS MEMORANDUM, THE RECIPIENT AGREES TO RETURN THIS MEMORANDUM AND ANY OTHER DOCUMENTS PROVIDED BY LFST TO LFST IF THE RECIPIENT ELECTS NOT TO PURCHASE ANY OF THE SHARES.
NO OFFERING LITERATURE OR ADVERTISING IN WHATEVER FORM SHALL BE EMPLOYED IN THE OFFERING OF THE SHARES EXCEPT FOR THIS MEMORANDUM AND DOCUMENTS INCLUDED HEREWITH. NO PERSON HAS BEEN AUTHORIZED BY LFST TO MAKE ANY REPRESENTATIONS OR TO FURNISH ANY INFORMATION WITH RESPECT TO LFST OR THE SHARES, OTHER THAN THE REPRESENTATIONS AND INFORMATION SET FORTH IN THIS MEMORANDUM OR OTHER DOCUMENTS OR INFORMATION FURNISHED BY LFST UPON REQUEST. LFST WILL NOT BE RESPONSIBLE FOR REPRESENTATIONS OR INFORMATION FROM OTHERS. AUTHORIZED REPRESENTATIVES OF LFST WILL, HOWEVER, IF SUCH INFORMATION IS REASONABLY AVAILABLE, PROVIDE ADDITIONAL INFORMATION THAT A PROSPECTIVE INVESTOR REQUESTS FOR THE PURPOSE OF EVALUATING THE MERITS AND RISKS OF THIS OFFERING. WHILE THE INFORMATION HEREIN IS BELIEVED TO BE ACCURATE, LFST EXPRESSLY DISCLAIMS ANY AND ALL LIABILITY FOR ANY INFORMATION, PROJECTIONS OR REPRESENTATIONS (EXPRESSED OR IMPLIED) CONTAINED HEREIN, FOR OMISSIONS FROM THE MEMORANDUM OR FOR ANY OTHER WRITTEN OR ORAL COMMUNICATION TRANSMITTED TO ANY PARTY IN CONNECTION HEREWITH. THE PROJECTIONS CONTAINED IN THIS MEMORANDUM ARE BASED ON NUMEROUS ASSUMPTIONS. ALTHOUGH LFST BELIEVES THAT THESE ASSUMPTIONS ARE REASONABLE, NO ASSURANCE CAN BE GIVEN AS TO THE ACCURACY OF THESE PROJECTIONS SINCE THEY ARE DEPENDENT TO A LARGE EXTENT UPON UNFORESEEABLE FACTORS AND EVENTS. AS A RESULT, THE ACTUAL RESULTS ACHIEVED MAY VARY FROM THE PROJECTIONS AND SUCH VARIATIONS COULD BE MATERIAL AND ADVERSE. PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THE CONTENTS OF THIS MEMORANDUM AS LEGAL OR TAX ADVICE. EACH INVESTOR SHOULD CONSULT SUCH INVESTOR'S OWN COUNSEL, ACCOUNTANT, OR BUSINESS ADVISOR AS TO LEGAL, TAX AND RELATED MATTERS CONCERNING HIS OR HER INVESTMENT. FOR RESIDENTS OF ALL STATES THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS OFFERING HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF ANY STATE AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERTION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPTED FROM QUALIFICATION BY SECTION(S) OF A STATE’S CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS OFFERING ARE EXPRESSLY CONDITIONED UPON QUALIFICATION BEING OBTAINED, UNLESS SALE IS SO EXEMPT. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
FORWARD-LOOKING STATEMENTS THIS DOCUMENT INCLUDES STATEMENTS THAT ARE, OR MAY BE DEEMED TO BE, ‘FORWARD-LOOKING STATEMENTS’. THESE FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY, INCLUDING THE TERMS ‘BELIEVES’, ‘ESTIMATES’, ‘PLANS’, ‘PROJECTS’, ‘ANTICIPATES’, ‘EXPECTS’, ‘INTENDS’, ‘MAY’, ‘WILL’, OR ‘SHOULD’ OR, IN EACH CASE, THEIR NEGATIVE OR OTHER VARIATIONS OR COMPARABLE TERMINOLOGY. THESE FORWARDLOOKING STATEMENTS INCLUDE MATTERS THAT ARE NOT HISTORICAL FACTS. THEY APPEAR IN A NUMBER OF PLACES THROUGHOUT THIS DOCUMENT AND INCLUDE STATEMENTS REGARDING MANAGEMENT’S CURRENT INTENTIONS, BELIEFS OR EXPECTATIONS CONCERNING, AMONG OTHER THINGS, RESULTS OF OPERATIONS, FINANCIAL CONDITION, LIQUIDITY, PROSPECTS, GROWTH, STRATEGIES AND SKILL CONTEST INDUSTRY.
6
BY THEIR NATURE, FORWARD-LOOKING STATEMENTS INVOLVE RISK AND UNCERTAINTY BECAUSE THEY RELATE TO FUTURE EVENTS AND CIRCUMSTANCES. A NUMBER OF FACTORS COULD CAUSE ACTUAL RESULTS AND DEVELOPMENTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS INCLUDING, WITHOUT LIMITATION, THE LEGAL AND REGULATORY RISKS RELATED TO SKILL CONTESTS, AND THE FACTORS RELATING TO LFST’S FINANCIAL PERFORMANCE AND PROSPECTS. FORWARD-LOOKING STATEMENTS MAY AND OFTEN DO DIFFER MATERIALLY FROM ACTUAL RESULTS. ANY FORWARD-LOOKING STATEMENTS IN THIS DOCUMENT REFLECT MANAGEMENT’S CURRENT VIEW WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO RISKS RELATING TO FUTURE EVENTS AND OTHER RISKS, UNCERTAINTIES AND ASSUMPTIONS RELATING TO LFST’S OPERATIONS, RESULTS OF OPERATIONS, GROWTH STRATEGY AND LIQUIDITY. PROSPECTIVE INVESTORS SHOULD SPECIFICALLY CONSIDER THE FACTORS IDENTIFIED IN THIS DOCUMENT WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER BEFORE MAKING AN INVESTMENT DECISION. OTHER THAN MAY BE REQUIRED BY LAW, LFST UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS TO ANY FORWARD-LOOKING STATEMENTS IN THIS DOCUMENT THAT MAY OCCUR DUE TO ANY CHANGE IN MANAGEMENT’S EXPECTATIONS OR TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OF THIS DOCUMENT. EXPIRATION DATE THIS OFFERING WILL EXPIRE AT THE EARLIER OF (i) 5:00 P.M. (CST) APRIL 30, 2010 UNLESS EXTENDED BY LFST, OR (ii) ANY EARLIER DATE WHICH SUBSCRIPTIONS FOR ALL SHARES HAVE BEEN ACCEPTED.
7
OVERVIEW OF MEMORANDUM 1. The Offering LFST is offering 1,250,000 shares of Common Stock, approximately 25% of the corporation on a fully diluted basis, to private investors. The first 500,000 shares represents 10% of the Company and shall be sold at $1.00 per share. The remaining 750,000 shares represents 15% of the Company and shall be sold at $2.00 per share. The minimum subscription amount is $25,000, subject to LFST's right in its sole discretion to accept smaller investments from certain investors. The Shares are only being offered to investors that qualify as "Accredited Investors" under the Securities Act and that meet certain suitability standards established by LFST. There is no minimum aggregate subscription amount for this offering and we reserve the right to accept any aggregate subscription amount up to and including $2,000,000. The proceeds of this offering will be added to working capital of LFST and utilized for general corporate purposes. This offering will expire at 5:00 p.m. CST, on the earlier of (i) April 30, 2010, unless extended by LFST, or (ii) any earlier date upon which subscriptions for all of the Shares have been accepted (the "Expiration Date").. LFST is authorized to issue 5,000,000 shares of Common Stock, of which 3,750,000 were issued and outstanding as of Enter Date. We reserve the right to grant options and/or issue additional shares of Common Stock to employees in the future as the need arises and as approved by the Board of Directors. The 1,250,000 shares of Common Stock offered pursuant to this offering, if and when sold, would represent approximately 25% of LFST’s outstanding capital stock as of Enter Date. The Shares are only being offered to investors that qualify as "Accredited Investors" under the Securities Act and that meet certain suitability standards established by LFST. See "Investor Suitability Standards." An investment in LFST pursuant to this offering involves a high degree of risk. Potential investors should carefully review the entire Memorandum, including the information under the heading "Risk Factors," prior to making an investment decision. Even if all of the Shares offered hereunder are sold, LFST may need significant additional financing to meet working capital needs. Investors should be prepared to lose their entire investment. See "Risk Factors." Company Formation and Contact Information LFST was formed in 2010 by Jared Kosoglad and can be contacted at 7729 N. Eastlake Terrace, Chicago, IL 60626. More detailed information concerning our Company, its products and services, strategies, and management is presented in this Memorandum. Phone 800.761.2490.
2. Investor Suitability Standards Each subscriber will be required to satisfy the investor suitability standards established by LFST. An investment in Shares is only suitable for those investors who have adequate means to provide for their current needs and personal contingencies and who have no need for liquidity in this investment. Furthermore, investors must demonstrate an appropriate level of financial sophistication. Investors should recognize that the suitability standards set forth herein and in the Qualified Purchaser Questionnaire are minimum requirements and that the satisfaction of these standards does not necessarily mean that investment in the Shares is suitable for an investor meeting such standards. LFST reserves the right to reject any subscription for any reason whatsoever. Investment in the Shares involves a high degree of risk. The Shares are being offered pursuant to an exemption from the registration requirements of the Securities Act for non-public offerings. This offering is intended to be conducted as a private placement in accordance with Regulation D promulgated by the Securities and Exchange Commission (the "SEC") under the Securities Act. Shares will be sold only to investors whom LFST reasonably believes are accredited investors meeting the suitability standards discussed herein ("Accredited Investors"). An investor is deemed to be "accredited" if (i) he or she has a net worth (as hereinafter defined) in excess of $1,000,000; or (ii) he or she has had individual annual income in excess of $200,000 in each of the two most recent years and reasonably expects individual income in excess of $200,000 in the current year; or (iii) he or she has had joint income along with his or her spouse in excess of $300,000 in each of the two most recent years and reasonably expects joint income in excess of $300,000 in the current year; or (iv) he or she is a director or executive officer of LFST; or (v) the investor is a tax exempt entity, a corporation, a trust or a partnership not formed for the specific purpose of the investment and having total assets of over $5,000,000; or (vi) the investor is a corporation, partnership, trust or other entity and each and every equity owner is an Accredited Investor. 8
In determining whether an investor is accredited, the term "net worth" means the excess of total assets at fair market value, including home and personal property, over total liabilities, including mortgages and income taxes on unrealized appreciation of assets, and the term "individual income" means adjusted gross income as reported for federal income tax purposes, less any income attributable to a spouse or to property owned by a spouse, increased by the following amounts (but not including any amounts attributable to a spouse or to property owned by a spouse): (i) the amount of any interest income received which is tax-exempt under Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"); (ii) the amount of losses claimed as a limited partner in a limited partnership (as reported on Schedule E of Form 1040); and (iii) any deduction claimed for depletion under Sections 611 et seq. of the Code. Each investor will be required to represent, among other things, that he or she has received all information requested by him or her with respect to LFST, that he or she is acquiring the Shares for investment for his or her own account and not with a view to the resale or distribution of the Shares or underlying securities, that he or she is aware of the limited transferability of the Shares and that he or she has no need for liquidity in this investment. See "Risk Factors." Acceptance of any subscription will be at the sole and absolute discretion of LFST. In addition, each investor will also be required to represent, among other things, that: (i) his or her overall commitment to investments which are not readily marketable is not (and his or her acquisition of Shares will not cause such overall commitment to become) disproportionate to his or her net worth; (ii) he or she has adequate net worth and/or income and means of providing for his or her current needs and personal contingencies to sustain a complete loss of his or her investment in LFST; and (iii) he or she has carefully evaluated the risk of investing in the Shares. LFST will require each investor to complete a Qualified Purchaser Questionnaire, in the form attached hereto as Exhibit L for individual investors and Exhibit M for non-individual investors, relating to the suitability of an investment in the Shares for the investor. LFST may also make or cause to be made such further inquiry as it deems appropriate. LFST, in its absolute discretion, may reject subscriptions, in whole or in part, or allot to a particular investor fewer than the number of Shares for which the investor subscribed. LFST reserves the right to modify or increase the suitability standards with respect to certain investors, in order to comply with any applicable state or local laws, rules or regulations or otherwise. INVESTOR SUITABILITY STANDARDS REPRESENT MINIMUM REQUIREMENTS FOR INVESTORS AND THE SATISFACTION OF THESE STANDARDS DOES NOT NECESSARILY MEAN THE SHARES ARE A SUITABLE INVESTMENT FOR ANY INVESTOR.
3. Terms of the Offering LFST is offering hereunder a maximum of 1,250,000 shares of Common Stock at a price of $1.00 per share for the first 500,00 shares and $2.00 per share for the next 750,000 shares. A minimum purchase amount of $25,000.00 is required for each subscription hereunder, subject to LFST's right in its sole discretion to accept smaller investments from certain investors. There is no minimum aggregate subscription amount for this offering and LFST reserves the right in its sole discretion to accept any subscription regardless of whether any other subscriptions have been received. Other than for certain officers for whom LFST has been accruing compensation in contemplation of issuing shares in lieu of cash, the purchase price must be paid in full in cash upon execution and delivery of the subscription documents. All subscriptions tendered by investors are subject to acceptance by LFST, and LFST reserves the absolute and unqualified right to reject or reduce any subscription for any reason prior to acceptance. Furthermore, LFST reserves the right to cancel this offering, for any reason whatsoever at any time prior to the time LFST deposits subscription funds. LFST will have the right to reject any subscription, in whole or in part, for any reason, including, among other things, if it determines that a prospective investor fails to meet LFST's suitability standards. See "Investor Suitability Standards." Subscriptions not accepted by LFST within sixty (60) days after receipt by LFST shall be deemed rejected. Except as required by certain state securities laws, once a subscription is accepted by LFST, it cannot be withdrawn by the subscriber. Subscriptions, or any portion thereof, which have been rejected by LFST, will be refunded by mail, without interest, within ten (10) days of the date of rejection. Subscribers will be notified in writing upon acceptance of their subscription by LFST. Certificates representing shares of the Common Stock of LFST, duly authorized and fully paid, will be issued upon completion of this offering. The certificates will bear appropriate legends with respect to certain restrictions on transferability of the securities represented thereby. The Shares offered hereby will be sold without registration under applicable federal or state securities laws and, accordingly, will be subject to certain restrictions on transfers. See "Private Placement." Accordingly, investors should purchase the Shares as a long-term investment only and should be prepared to bear the economic risk of their investment for an indefinite period. 9
This offering will expire at 5:00 p.m. (CST) on the Expiration Date. LFST may extend the Expiration Date without providing notice to subscribers.
4. Additional Information Each prospective investor may, at any time prior to the purchase of Shares, have access to the same kind of information with respect to this investment as is specified in Regulation D promulgated by the SEC for delivery to Accredited Investors to the extent that LFST possesses such information or can acquire it without unreasonable effort or expense. Prospective investors may at any time during normal business hours prior to the purchase of Shares submit questions to the appropriate officers of LFST in writing with respect to the terms and conditions of this offering and may request in writing additional information necessary to verify the information contained in this Memorandum. Investors should send such requests to the company’s attorney, Simon Edelstein, at the contact information below. The appropriate officers of LFST will provide written answers to such questions and provide such information to the extent such answers and information are possessed by LFST or can be obtained without unreasonable effort or expense.
5. How to Pre-Subscribe and Reserve Shares If an Accredited Investor desires to pre-subscribe for Shares, he or she should deliver the following to LFST: (a) (b)
an executed copy of the Pre-Subscription Agreement; a deposit check payable to " LIVE … Fantasy Sports Tournaments " in the amount of $500.00.
Send the agreement and check to: LIVE … Fantasy Sports Tournaments, c/o Simon Edelstein, Esquire, Law Offices of Simon Edelstein, 939 W. Grace St., Chicago, IL, 60613. LFST will hold all deposits in escrow by and through Simon Edelstein, Esquire, an attorney licensed in the State of Illinois. Mr. Edelstein will established and maintain the escrow account under the name of “Live Fantasy Sports Tournaments Escrow”. LFST will refund the $500.00 deposit to Investor within five days if any demand for such to the escrowee is made either by email or verbally. At the time of the final offering, Investor and LFST must agree to the final subscription agreement in full.
RISK FACTORS In addition to the other information in this Private Placement Memorandum, the following risk factors should be considered carefully in evaluating LFST and its business before purchasing the shares of Common Stock offered hereby. An investment in the shares of Common Stock offered hereby is speculative in nature and involves a high degree of risk. Government Regulations and Legal Uncertainties. LFST and its officers claim that relevant authorities will consider the Company’s tournaments as an offer to compete in skill contests. There is uncertainty as to whether LFST’s activities qualify as skill contests under the laws of all 50 United States. In several states, relevant authorities may consider LFST’s tournaments to qualify as unlawful under the gaming, sweepstakes, or lottery statutes. In states and countries where LFST is unlawful, LFST and its officers and directors will make reasonable attempts to prevent citizens from those states and countries from participating in LFST’s tournaments. In jurisdictions where online gaming, skill gaming, or casual gaming is illegal, authorities have taken indirect steps to restrict such gaming by seeking to prevent or deter payment processors, media providers and other suppliers from transacting with online businesses. There is no guarantee LFST will be considered a lawful enterprise under any jurisdiction. The application or enforcement of existing laws or regulations, a change in sentiment by regulatory authorities or the enactment of new legislation prohibiting or restricting skill contests, or prohibiting or restricting services used by LFST, could severely and adversely impact LFST’s business and financial position. LFST will depend upon banks, credit card companies, payment processors and other financial institutions, networks, and suppliers to enable funds to be paid-in and withdrawn by its customers. Disruption of those relationships through, for example, the enactment of any legislation prohibiting or restricting the use of credit cards or other bank instruments for skill contest transactions, the tightening of money laundering regulations or the relevant authorities taking action against or exerting pressure on banks, credit card companies, payment processors and other financial institutions, networks and 10
suppliers to cease transacting with LFST or like companies could severely and adversely affect LFST’s business and financial position. Need for Additional Financing. We anticipate that currently available funds will be sufficient to meet anticipated capital requirements only through July, 2010 (assuming no other revenue), and that even if we raise all $2,000,000 that we seek to raise in this offering, we will be able to continue operations for only an additional twenty-four months beyond July 1, 2010 (assuming no other revenue). As a result, we may need to raise significant funds, in addition to the funds raised in this offering, to continue to operate and expand our business. There can be no assurance, however, that any additional funds will be available on acceptable terms or at all. If we obtain capital through the issuance of additional equity or convertible debt securities, there can be no assurance that the securities will be issued at prices or on terms equal to the offering price and terms of this offering. Any such future financing could be dilutive to holders of the Shares offered hereby. Furthermore, such securities may include rights senior to those of the Shares, including, with regard to voting, dividends, liquidation, conversion and redemption, and may restrict our ability to merge with or sell assets to a third party. If adequate funds are not available or are not available on acceptable terms, we may not be able to fund current operations or any future expansion of our operations, develop or enhance products or services or respond to competitive pressures. Each of these would have a material adverse effect on our business, results of operations and financial condition. Absence of Operating History; Anticipated Losses. LFST was incorporated in 2010 and has no operating history upon which an evaluation of its business and prospects can be based. To date, LFST has not generated any revenues, and there can be no assurance that our product development or operating plans will be successful or that we will achieve or maintain profitability. Our business is subject to all of the risks inherent in the establishment of a new business enterprise including, without limitation, limited capital, possible delays in the development or acquisition of products, unanticipated costs, uncertain markets for our products and services, adverse changes in technology and the absence of an operating history. In addition, we are subject to the risks, expenses and uncertainties frequently encountered by companies in the new and rapidly evolving markets for online products and services. These risks include, without limitation, the development of equal or superior products or services by competitors, potential reductions in market prices for Internet-based services as a result of competition or other factors, failure to successfully offer our Internet-based services to our customers without errors or interruptions in service, and the inability to continue to identify, attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing these risks. The absence of an operating history and the uncertain nature of the markets we address make the prediction of future results of operations difficult or impossible. We currently expect to significantly increase our operating expenses to complete the development of and to commercialize our initial products and to expand our sales and marketing efforts. As a result we expect to incur significant losses on a quarterly and annual basis for the foreseeable future. Developing Market; Unproven Acceptance of the Internet and LFST's Products and Services; As is typical for new and rapidly evolving industries, demand and market acceptance for recently introduced services and products are subject to a high level of uncertainty. Accordingly, it is difficult to predict the size, stability and extent of growth, if any, in this market. There can be no assurance that the market for our products and services will develop or that demand for our products and services will emerge or become sustainable. If the market fails to develop, develops more slowly than expected or becomes saturated with competitors, or if our products and services do not achieve or sustain market acceptance, our business, results of operations and financial condition will be materially adversely affected. Inadequate development of the necessary Internet infrastructure, such as a reliable network backbone, may also hinder the growth of the Internet-based skill contest market. The Internet has experienced, and is expected to continue to experience, significant growth in the number of users and in the amount of traffic. There can be no assurance that the Internet infrastructure, or new services and products that are used with the Internet, will continue to be able to support the demands placed on them by this continued growth. In addition, the Internet could lose its viability due to delays in the development or adoption of new standards and protocols to handle increased levels of Internet activity or due to increased governmental regulation. Moreover, critical issues concerning the commercial use of the Internet (including security, reliability, and cost, ease of use, accessibility and quality of service) remain unresolved and may negatively affect the growth of Internet use. If critical issues concerning the use of the Internet are not favorably resolved, if the necessary infrastructure and related services and products are not developed, or if the Internet does not become a viable means of delivering skill contest services, our business, financial condition and operating results will be materially adversely affected. Rapid Technological Change; Delays in Introduction of New Services and Products. The market for Internet-based products and services is characterized by rapid change, changes in customer requirements and frequent new service and product introductions and enhancements. The introduction of services or products embodying new technologies can render existing services or products obsolete and unmarketable. Our future success will depend, in part, on our ability to develop leading technologies, enhance our existing services and products, develop new services and products that address the 11
increasingly sophisticated and varied needs of our prospective customers, and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis. The development of new services and products or enhanced versions of existing services and products entails significant technical risks. There can be no assurance that we will be successful in effectively using new technologies, adapting our services and products to emerging industry standards, developing, introducing and marketing service and product enhancements or new services and products, or that we will not experience difficulties that could delay or prevent the successful development, introduction or marketing of these services and products, or that our new service and product enhancements will adequately meet the requirements of the marketplace and achieve market acceptance. If we are unable, for technical or other reasons, to develop and introduce new services and products or enhancements of existing services and products in a timely manner in response to changing market conditions or customer requirements, or if new services and products do not achieve market acceptance, our business, financial condition and operating results will be materially adversely affected. Intense Competition Expected. Although LFST has limited competition today, the market for Internet-based skill contest services is new, rapidly evolving and subject to rapid technological change. Many of our potential competitors are wellestablished enterprises with longer operating histories, greater name recognition, installed customer bases and significantly greater financial, technical and marketing resources that could be leveraged, thereby gaining market share to our detriment. In addition, many of these potential competitors already offer a wide range of products and services and thus, may be able to respond more quickly to new or changing opportunities, technologies and customer requirements. Some of these potential competitors may be able to undertake more extensive promotional activities, offer more attractive terms to customers and adopt more aggressive pricing policies, possibly even sparking a price war in the delivery of skill contest services electronically on the Internet. There can be no assurance that competitors will not develop technology that is superior to ours or that achieves greater market acceptance. To compete effectively in our targeted markets, we will need to grow and attain sufficient size to have the resources to timely develop new products and services in response to evolving technology and customer demand. Risk of Limited Subscriptions. There is no minimum aggregate subscription amount for this offering and we may receive and accept aggregate subscriptions from this offering in an amount far less than the $2,000,000 we are seeking. In the event we receive and accept aggregate subscriptions in an amount less than $2,000,000, the aggregate proceeds from the offering may be adequate to fund LFST's development and operational activities for only a limited period of time. See "Need for Additional Financing." Risk of Product Defects. Software products and services utilizing those products, such as those we offer, frequently contain errors or bugs, especially when first made commercially available. There can be no assurance that, despite testing, errors or bugs will not be discovered after new products are installed and used by our customers, which could result in delay or loss of revenue, delay in market acceptance, diversion of development resources, damage to our reputation, or increased service and warranty costs, any of which could have a material adverse effect upon our business, operating results or financial condition. Risk of Capacity Constraints and System Failures. The performance of our products is critical to our reputation and to the market acceptance of our products and services. Any sustained or repeated system failure that causes interruption or increases our response time could reduce the attractiveness of our products and services. An increase in the volume of use/or users of our products and services could strain the capacity of the software and hardware we have deployed, including server and network capacity, which could lead to slower response time or system failures, and adversely affect the market acceptance of our products and services. We intend to rely on several companies to provide data communications access to its services. Any damage or failure to these service providers that causes interruptions in our operations could have a material adverse effect on our business. Our operations are dependent on our ability to protect our computer equipment and the information stored in our data centers against damage by fire, power loss, telecommunications failures, unauthorized intrusions and other events. We do not presently have a disaster recovery plan or redundant, multiple site capacity in the event of any such occurrence. The occurrence of any of these events could result in interruptions, delays or cessations in service to our customers, which could have a material adverse effect on our business, operating results and financial condition. Dependence on Sales and Renewals of Contracted Services. We plan to offer our Internet-based gaming services on a per transaction basis. Accordingly, a large part of our revenue prospects will depend on our ability to attract a significant number of users and transactions, and to sustain high transaction rates among our customers. No assurance can be given that we will be successful in doing so. Our ability to secure customer contracts and to sustain a high transaction rate is dependent upon, among other things, our ability to deliver consistently secure, accurate, user-friendly and accessible products and services, and the willingness of our customers to pay for those products and services. There can be no 12
assurance that a significant number of prospective customers in our targeted markets will be willing to use our skill contest services delivered on the Internet and to pay for them on a per transaction basis. Even if we are able to sell our products and services to a significant number of customers there can be no assurance that we will be able to achieve and sustain high transaction levels. Any failure to secure a significant number of customers or any material decline in customer transactions rates could have a material adverse effect on our business, financial condition and results of operations. Dependence on Strategic Relationships. A key element of our current business and marketing strategy is to establish, maintain and develop relationships with large-scale Internet-based brand name operators in a variety of industries, depending on them to promote and distribute our products and services to their consumer customers. However, we have only recently begun to approach entities about potential strategic relationships, and there can be no assurance that we will be successful in establishing any relationships. In addition, there can be no assurance that any entity with which we may establish a strategic relationship, most of which are likely to have significantly greater financial and marketing resources than our own, will not develop and market products and services that compete with our products and services, discontinue their relationships with us or form collaborative marketing relationships with one or more of our competitors that offer alternative Internet services. Any failure to establish successful relationships with large-scale re-selling entities would have a material adverse affect on our business, financial condition and results of operations. Trademark and Proprietary Rights. We rely on trademark and copyright law, trade secret protection and confidentiality and/or license agreements with our employees, customers, partners and others to protect our proprietary rights. We pursue registration of our trademarks in the United States and we have applied for the registration of certain of our trademarks. There can be no assurance that the steps taken to protect our proprietary rights will be adequate or that third parties will nor infringe or misappropriate our copyrights, trademarks, and similar proprietary rights. In addition, there can be no assurance that other parties will not assert infringement claims against our Company. Any such claims, with or without merit, could be time consuming to defend, result in costly litigation, divert management's attention and resources or require our Company to enter into royalty or licensing agreements. There can be no assurance that such licenses would be available on reasonable terms, if at all, and the assertion or prosecution of any such claims could have a material adverse effect on the our business, financial condition and results of operations. Dependence on Key Employees. Our continued success will depend upon our ability to attract and retain a number of key employees. We have not yet filled several executive positions including, Chief Financial Officer, and executives to lead LFST’s divisions, and there can be no assurance that we will be able to hire qualified individuals to fill these important positions. Failure to motivate and retain our key employees or to fill these positions would have a material adverse effect. We believe that our future success will depend in large part on our ability to attract, motivate and retain other qualified personnel. Competition for such personnel is intense, and we compete in the market for such personnel against numerous companies, including larger, more established companies with significantly greater financial resources. There can be no assurance that we will be successful in attracting, motivating and retaining required personnel. Failure to attract, motivate and retain other qualified employees would have a material adverse effect on our business. Dependence on Technology Staff. Failure to motivate and retain key technology positions would have a material adverse effect on LFST’s operations. We believe that our future success will depend in large part on our ability to attract, motivate and retain technology staff. Competition for such personnel is intense, and we compete in the market for such personnel against numerous companies, including larger, more established companies with significantly greater financial resources. There can be no assurance that we will be successful in attracting, motivating and retaining required personnel. Failure to attract, motivate and retain other qualified technology staff would have a material adverse effect on our business.
Partial Dependence on EDI and E-Commerce. We intend to distribute our products and collect a portion of our fees over the Internet. There can be no assurance that the transmission of data or payments over the Internet will be secure. Any failure to alleviate concerns about the safety and reliability of transmitting data or making payments over the Internet may have a material adverse effect on our business, financial condition and results of operations. See "Developing Market; Unproven Acceptance of the Internet and LFST's Products and Services” Effects of Certain Charter Provisions. The Board of Directors has the authority to issue additional shares of our Company’s stock and to fix the rights, priorities, preferences, qualifications, limitations and restrictions, including dividend rates, conversion rates, voting rights, terms of redemption, terms of sinking funds, liquidation preferences and the number of shares constituting any series, without any further vote or action by the shareholders, which could decrease the amount of earnings and assets available for distribution to holders of our Company's stock or adversely affect the holders' rights and powers, including voting rights. Any amendment permitting issuance of Preferred Stock may have the effect of
13
delaying or preventing a change in control of our Company and may adversely affect the rights of the holders of our Company's Common Stock. Management of Growth. The rapid expansion necessary for us to fully exploit the market window for our products and services requires an effective planning and management process. Rapid growth, if it occurs, will likely place a significant strain on our managerial, operational and financial resources. To manage our growth, we must implement and improve our operational and financial systems and expand, train and manage our employee base. There can be no assurance that our systems, procedures or controls will be adequate to support operations or that management will be able to achieve the rapid expansion necessary to fully exploit the market window for our products and services. Arbitrary Price of Offering. The price of the shares of Common Stock offered hereby has been arbitrarily determined by management who will have broad discretion with regard to the expenditure of the proceeds from the offering. Moreover, there can be no assurance that any equity or convertible debt securities LFST may issue in the future will be issued at prices that are higher than the price of the Common Stock offered hereby. See "Need for Additional Financing." No Assurance Regarding Financial Projections. There are only limited financial projections contained in this Memorandum. Projections were not prepared with a view toward compliance with the published guidelines of the Securities and Exchange Commission or compliance with the guidelines established by the American Institute of Certified Public Accountants for the preparation of projections (the AICPA Audit and Accounting Guide for Prospective Financial Information). Future projections will be based on assumptions that we believe to be reasonable; however, there is no assurance that these projections will prove to be accurate. The assumptions underlying any future projections may be incomplete or incorrect, and unanticipated events and circumstances are likely to occur. Actual results achieved during any future period will vary from these projections, and the variations may have a material and adverse effect on our business and its operations. Further, the realization of any of the risks described in these "Risk Factors" could have a dramatic and adverse impact on the actual results. Broad Discretion in Application of Proceeds. The proceeds of this offering will be used for working capital and general corporate purposes. Accordingly, management will have broad discretion in the application of such proceeds. Estimated uses of proceeds may vary from actual needs and hence the uses of proceeds may be revised from time to time to reflect changing conditions. No Public Market for Common Stock. The shares to be issued to investors in this offering are restricted and have not been registered pursuant to the Securities Act. There has not been and for the foreseeable future will not be a public market for our Company's Common Stock. Also, the Shares will be subject to restrictions on transfer and resale and may not be transferred or resold unless such transfer or resale is registered under appropriate federal and/or state laws, or unless exemptions from such registration requirements are available. No Dividends. Our Company has never paid cash dividends on its Common Stock and has no plans to pay cash dividends in the foreseeable future. The policy of our Company's Board of Directors is to retain all available earnings for use in the operations and expansion of our business.
USE OF PROCEEDS We are seeking approximately $2,000,000 with this private placement of Common Stock and intend to use the proceeds for general working capital purposes, including, without limitation, advertising, marketing, software development and testing, and capital equipment leases and purchases and to purchase the exclusive worldwide rights to the technology and patent(s) from Convergence, Ltd. We reserve the right to reallocate the net proceeds of this private placement if, in management’s judgment, such reallocation is deemed to be in the best interests of LFST. PLAN OF DISTRIBUTION We plan to distribute five percent (5%) of the cash proceeds from this offering as a finder's fee, commission, or payment for securing investors in this offering. Such distribution shall be subject to individual written distribution agreements.
14
SUGGESTED CAPITALIZATION Proforma Capitalization Table
Investors Founder’s Group
No. Shares 1,250,000 1,750,000
% Ownership 25% 35%
•
Management*
TBD
•
Options*
TBD
Interest CVG (acquisition costs)
2,000,000
40%
Total:
5,000,000
100%
* Management shares and options shares will come from Founder’s Group shares. Investors must subscribe for a minimum purchase of $25,000, although LFST reserves the right to accept a subscription for less than the minimum purchase amount, in its sole discretion. The Offering will not close, and the Shares will not be sold, unless (1) checks or immediately available funds in the minimum aggregate amount of $500,000 have been delivered by one or more investors to LFST and (2) all conditions of Closing have been satisfied. Convergence, Ltd. owns the technology that forms the core of Live Fantasy Sports Tournaments. To acquire a license for the technology, Live Fantasy Sports will pay 40% common shares in LFST, 4 seats on the board of directors, and $250,000 advance royalty payment. Technical Support shall earn a low salary with the potential to earn 10% of LFST, upon completion of certain benchmarks fixed in the employment contract, with the majority of the equity distributed at the two year mark. (Bo Li & Mandel Ho, the equity beneficiaries, ordinarily bill at $150/hour). In addition to base salaries, each executive officer and certain staff personnel shall be eligible for bonus/profit sharing payments to be awarded at the discretion of the Board of Directors. Stock options and stock issuances as of April 1, 2010: Definitive terms controlling LFST's option agreements have not been finalized.
15
BUSINESS PLAN I. The Company: LIVE … Fantasy Sports Tournaments™ (LFST) will compete as an operator and as a technology services provider in the explosive fantasy football market. LFST will obtain an exclusive, perpetual, worldwide license for fantasy sports over US business process patent 7020632, issued March, 2006, from Convergence, Ltd., the owner of the patent. LFST will obtain from Convergence, Ltd. the rights to the developed software (see below graphic) for fantasy sports purposes in addition to the patent and acquire a copy of the source code and related rights to modify and improve the code. LFST intends to commence operations for the NFL season beginning in August of 2010. Current management has hired a company, The Turnaround Management Group, who specializes in assisting start-ups from the early stages through the first six months of the launching process. A qualified CEO will be found to run LFST after that point. TMG has a unique network of marketing, legal, computer programming, graphic artists, and executive staff many years of experience. LFST is a revolutionary new competition that empowers contestants to demonstrate their real-time sports knowledge, judgment, and trading skills against other contestants live, while NFL events are in progress. This business opportunity presents a revolutionary new way to compete in fantasy football.
Nothing like LFST exists today. Old-fashioned fantasy football products lack the ability and structure to deliver live human competition during NFL games. LFST introduces a “brand new World of football experiences” to fans everywhere. It’s filled with excitement and entertainment, that is a lot more fun than any old-fashioned fantasy football products.
16
LFST’s products synergize with old-fashioned fantasy football products. LFST was not designed to compete with old fantasy football products but to complement existing products, since the existing fantasy football market offers little or nothing to do during NFL games. Here is a totally new way for football fans to compete with each other using their knowledge of teams, contestants, sports, and trading, just like real-life commodities traders compete on the exchange. It functions in a similar way that regular Trading Pits function at the Chicago PRODUCT POSITIONING STATEMENT Mercantile Exchange, Chicago Board of Trade, or any number of Futures LIVE FANTASY OLD FANTASY Exchanges around the World. LFST SPORTS TOURNEYS FOOTBALL engages football fans to a level that has never been witnessed. BEFORE DURING BEFORE DURING LFST is a total immersion football experience bringing contestants from just watching the game into the game. Many contestants find that watching the buying and selling of FantasyContracts™ in the LIVE …trading pit during the game is more interesting than watching the NFL action take place on the field. While other competitor’s offer some rudimentary skill tournaments, the patented technology of LFST is easier to use and a lot more fun.
THE GAME
THE GAME
THE GAME
THE GAME
Human Competition
YES
YES
YES
NO
Decision-Making
YES
YES
YES
NO
Interactive
YES
YES
NO
NO
Real-Time
YES
YES
NO
NO
Judgment
YES
YES
YES
NO
Acumen
YES
YES
NO
NO
Action
YES
YES
YES
NO
Speed
YES
YES
NO
NO
Skill
YES
YES
YES
NO
Industry Overview: It is estimated that over 30 million Americans play some form of fantasy sports league, a fact that has created an industry worth close to $1 billion a year according to the U.S.-based Fantasy Sports Trade Association. "The primary reason why fantasy sports should be taken seriously is its economic footprint," explains Professor Kevin G. Quinn of St. Norbert College, Wisconsin, author of "Sports and their Fans" who estimates that the market might be worth as much as $2 billion. "The average amount that each of these players spends on their hobby might be $500 per year or so, moreover, these figures appear to be growing -- even in a down economy -- at near-double-digit annual rates." The Internet is the fastest growing marketplace in the history of the world but the online skill gaming market is thought to be growing four times faster than the rate of overall Internet growth. Back in 2007 the online skill games market was worth $5.2 billion USD. In other words, $164 USD was being spent globally every second by individuals enjoying online skill based games. In just three years time this figure was forecast to grow to a staggering $412 USD per second. The amount of people involved in the gaming industry shot up by a record breaking 16% in 2006. In fact, the skill games market is growing roughly three to four times faster than the rate of overall Internet growth. With Internet usage and skill game play making such strides; it may come as no surprise that statistics on these sectors are now more readily available; as a result of this there are some truly amazing statistics coming to light. An emerging subset of the skill gaming market is the peer-to-peer exchange. A peer-to-peer exchange is a platform whereby individuals make transactions with each other, as opposed to with the house or bookmaker. The exchange allows for transactions to be placed before and during the game or event, thereby providing a much more robust environment than the old-fashioned method of fantasy sports products where participants generally, “wait and see” the outcome. Since the exchange itself doesn’t actually back either side of the event, it is not a player in the competition. The advantage for competitors is live, real time human competition while events take place on the field of play. Financial Summary: The below table describes the first full three years of LFST’s operations and the Startup Phase. The Startup Phase will last approximately nine months, ending at the Super Bowl, 2011, as described in the Financial Forecasts, below. Startup Totals Phase Total Year 1 Year 2 Year 3 Total Expenses ($1,152,250) ($4,017,000) ($10,467,000) ($52,362,000) Total Revenues
$388,300
$7,066,488
$19,716,500
$119,809,000 17
Profit/Loss
($763,950)
$3,049,488
$9,249,500
$67,447,000
Cash On Hand
$1,236,050
$4,285,538
$13,535,038
$80,982,038
*LFST's Financials are designed to permit operations for two full years without any income. **Prize awards are deducted from the Total Projected Income.
18
II. Market Overview A study conducted by the Fantasy Sports Trade Association in fall 2008 estimated that 27.1 million Americans participate in fantasy sports. 88% of players say that they use the internet to play fantasy sports and plan to continue playing for the foreseeable future. Most of American fantasy sports players play fantasy football.
Fantasy players, real (strong) buyers Fantasy sports players are stronger consumers of many goods and services than sports fans in general or the overall U.S. population, according newly compiled data. In the past 30 days, Fantasy Sports General purchased: players fans population Beer 73% 52% 47% Other alcohol*
68%
52%
48%
Fast food
92%
87%
86%
Soft drinks 94% In the past 12 months: Flown on an airline 52%
91%
89%
42%
42%
49%
48%
At least once per month: Read a sports 63% magazine General: Own a computer
97%
95%
96%
Have cable/satellite service
95%
91%
90%
Use a cell phone
93%
89%
88%
Own athletic shoes
90%
80%
77%
Own a video game 58% 42% 40% system * Includes wine, vodka, whiskey/bourbon, rum and tequila. Notes: Results from online polling of more than 1,200 fantasy sports players between Sept. 5 and Oct. 10. Source: IPOs Public Affairs study conducted for the Fantasy Sports Association
•
55% of fantasy sport players report watching more sports on TV since they started playing fantasy sports.
•
Fantasy sports players say that playing makes watching professional sports more fun.
•
Fantasy sports players buy tickets and spend money at stadiums at a much higher rate than general fantasy sports fans:
•
12% of Americans attended a MLB baseball game per year (78% of fantasy players)
•
9% attended an NFL football game (60% of fantasy players)
•
8% attended an NBA basketball game (28% of fantasy players)
•
4% of Americans attended a NHL Hockey game (27% of fantasy players)
TOTAL CONSUMER SPENDING - MARKET SIZE FOR FANTASY SPORTS PROVIDERS - $800M TOTAL MARKET IMPACT OF FANTASY SPORTS - $4.48 Billion
19
2008 Ipsos Fantasy Sports Research U.S. Fantasy Football
75%
20,325,000
Fantasy Baseball
40%
10,840,000
Fantasy Racing
31%
8,401,000
Fantasy Basketball
22%
5,962,000
Fantasy Hockey
14%
3,794,000
Fantasy Golf
13%
5,523,000
Fantasy College Football
12%
3,252,000
New research shows more women playing, and they represent 20% to 25% of the entire market. Thanks in large part to Fantasy Football, women make up a large percentage of overall fantasy sports players, as high as 25%. This has consistently shown up in Ipsos research for years. While they may be playing, on all combined spending categories they are out spent by males at a 4:1 ratio. In some categories, they are outspent by males as much as 10:1. This means that while women are playing fantasy sports, overall, they have far less than a 25% impact on the market. Men make up 90%+ of the Fantasy sports market. Fantasy players are involved in the NFL, MLB, NBA, NHL, PGA and other leagues
Total 2008 U.S. Market Size: 27,100,000
Who plays fantasy sports? AVERAGE FANTASY PLAYER · · · · · · · · · · · · · ·
Spend about 3 to 4 hours online per week Has played for 10 years Average of 6 leagues from various sports per year Spends an average of $467.60 per year playing fantasy sports Educated, professionals living in suburban USA Majority (55%) started playing offline 90% Male 68% Married Average Age: 37 86% Own Their Home 71% Have a Bachelor's Degree or Higher 92% Attended Some College 59% make $50,000 or more annually $94K Average Household Income
TYPICAL FANTASY PLAYER · · · · · · ·
37 year old male, married with kids Bachelor or graduate degree, own their home Average HH Income $94,000 Spend 3 to 4 hours per week online 86% will be playing in 10 years Manage 6 teams in various sports Spenders with high disposable income Drink beer, wireless, buy prescription drugs, logo hats, running shoes, liquor, magazines, laptops, flowers, and more. · More than 40% operate in two-screen environment (Laptop and TV) on Sundays.
Source: World Fantasy Sports, Inc. Competitive Analysis: There are no known competitors in our space that LFST is aware of at this time. A new company called StarStreetSports, which boasts a stock market for sports, seems to have begun Beta testing software, but also seems to be modeled itself differently from LFST to such a degree that they are not really competitors at all.
20
III. Business Description: Introduction LFST’s proprietary technology platform empowers sports enthusiasts to control a dynamic interactive football experience unavailable elsewhere. Contestants can escape to a world of large cash prizes and moment to moment action sharpened by a fierce competitive edge that all sums up to LIVE … Fantasy Sports Tournaments. The platform’s interactive, real time link up between LIVE NFL events and the “market” delivers non-stop unparalleled entertainment. Management believes that the entertainment value of its technology could become so pervasive that the commentary and reporting on football contests before, during and after they occur may soon include discussion and reference to the relative trading value of the teams and how events that helped shape the outcome influenced the market – just like financial commentators do today. LFST management will work in stride with The Turnaround Management Group (TMG). TMG is a network of professionals that pool their resources to help fledgling companies spread their wings to fly. In just a few months, TMG has provided invaluable assistance and guidance to LFST management through legal, technical, and computer support. TMG intends to stay with the company through the first six months of operations or so until such time as a seasoned chief executive officer and industry expert is recruited. Target Customers None of LFST’s target customers have much to do while football events are in progress except to passively watch and cheer their teams. The excitement, entertainment, and large cash prizes generated by LFST’s products will attract a wide customer base that spans an enormous sector of the population. Adults of all ages are prospective customers but LFST will target people that are engaged in on-line interactive football or trading. LFST expects to appeal to that portion of the general population that enjoys competing in exchange for the possibility of winning a monetary reward. The market games will be offered as contests of skill sponsored by LFST or private tournaments and will be malleable to advertisers seeking brand name awareness with their targeted customer audience. LFST intends to solicit responsible adults as customers and will be proactive in preventing underage individuals from registering as customers. LFST has identified the following market sectors as potential customers: 1) The Fantasy Sports market: Currently estimated at 35 million U.S. contestants and growing 7 to 10% per year. (Source: The Fantasy Sports Trade Association) fantasy sports contestants are very interested in sports, and have accumulated a wealth of information about their teams, contestants, and leagues. The demographics for this group are participants between the ages of 18 and their early 40’s who spend more than four hours a week on their computers and spend about $175.00 per year on fantasy sports tournaments. 2) University and College students: College students who are active in online communities will be targeted. For example, YouTube, MySpace, Facebook, etc. There are approximately 20 million college students in the U.S. 3) Online securities traders: Currently estimated to be 26 million and growing at a 7% rate per year. These individuals use online trading for their financial needs, and will now have a recreational outlet that combines their interest and skills in trading with their interest and knowledge of sports. (Source: U.S. Government Accountability Office) 4) Skill Gamers: Skill gaming web sites have in excess of 30 million contestants. These are contestants of online games, such as solitaire, puzzles, and mah-jongg, which tend to be older adults. While there is clearly some overlap with the other segments, this represents another category of potential customers who have demonstrated their wiliness to compete in skill competition on line. Fun Technologies (51% owned by Liberty Media) alone claims 27 million registered contestants for their site, skilljam.com. 5) Adult Video Gamers: Four in ten American adults play video games, men and younger adults especially. About two in ten American adults play video games online and half of them spend $200 annually, representing approximately $8 billion in revenue. (Source: Fox News & AOL) 21
6) Private Tournaments. There will even be a way for families, friends, church groups, school groups, and charity groups to set up their own “private” or “individualized” tournaments for their own events.
The Patent The technology is based on patent, U.S. Patent Number 7020632, “Trading System for Fixed-Value Contracts,” issued March 28, 2006. This patent protects the trading system described below, and in fact extends too many types of events beyond just football or even sports (e.g., political races, The Oscars, and an unlimited choice of events etc.). Jared Kosoglad has negotiated in principal an option for the rights to this patent for fantasy sports only, with potential to expand to non-sporting, “prediction markets” pending success with the current project. A prototype of the system was created and successfully tested. The prototype allowed the contestants to trade fantasy contracts in skill tournaments on four live games prior to and during the event. The intuitive interface provided a real-time graph with the market price, volume, contracts on offer and market trends. The following are some of the results: • • • • •
86% of contestants indicated that they traded fantasy dollars “somewhat actively” or “very actively” during the game. 95% said that the overall concept of trading was “easy” or “very easy” to understand. 100% said that the prototype interface was “somewhat easy” or “very easy” to use. 81% said that trading during the game was “very exciting” with the remaining 19% saying that it was “somewhat exciting.” 86% said that an average game would be “much more interesting” if they could use such an interactive system to trade during a game (14% said “somewhat more interesting”).
The full product is now ready for market and deployment. Along the way, further product development will be required to upgrade and enhance the interface and add some additional features, but the fundamental principals underlying the approach have been demonstrated to have high consumer appeal. The full focus group results can be found in the Appendix. The Skill Tournaments: Skill tournaments challenge the depth of contestants’ knowledge, judgment, speed, acumen, and trading skills. Contestants tend to pay much more attention to details of the game down on the field then they ever did before and that means more fun. They really get into the Game. Skill Fantasy Tournaments enhance the football fans’ overall enjoyment of watching their favorite teams on television. It will even cause contestants to watch games that they are not particularly interested in because these tournaments add another dimension to football entertainment that can change a fan’s whole experience, just like old-fashioned fantasy football products did a long time ago. We hope to make LFST the next step in the evolution of fantasy football. LFST will sponsor pre-determined cash and non-cash prizes to encourage participation and create excitement, with a $100,000 reward to LFST’s Tournament Champion in the Playoffs. There will also be weekly, bi-weekly, and annual cash and non-cash prizes. If properly launched and marketed, it could become the fantasy football product of the future. Even better than prizes LFST delivers the “Entertainment Value” of competing in skill tournaments against competitors and friends during live sports events in real-time competition that never stops. The competition keeps score with fantasy dollars. Contestants seek to accumulate more fantasy dollars i.e. points by outwitting and outplaying other contestants by buying low and selling high using $10,000 fantasy dollars provided by LFST in exchange for a small entry fee. At a tournament’s conclusion, the contestants who have earned the most fantasy dollars will win the competition. Contestants can enter any number of tournaments simultaneously. Each tournament contest will have different propositions, such as, “Will the Chicago Bears beat the Indianapolis Colts?” or “Will Tom Brady gain more passing yards than Eli Manning?” etc. Additional value is added by the fact that the software will be used to create individualized contests between customers who can set up their own tournaments. It’s perfect for some charities, church groups, families, 22
friends, and school or office groups who want to set up their own “private” individualized tournaments with their own propositions, rules, and prizes. Contestants themselves set all the market prices of the proposition, which continually changes over the course of the game as the on-field situations change. Like a real marketplace, contestants will develop their own individual methods and strategies for trading. There is no middleman. The contestants will engage rapidly evolving strategies to defeat the competition based on their trading skills and knowledge about the on-field players, teams, and events. Contestants will employ scalping, arbitraging, and other forms of sophisticated trading techniques commonly used at the World’s Future Exchanges. Business Strategy: LFST will leverage its licensed technology to offer public and private contests between sports fans and internet gamers live over the internet in real time. The core of LFST’s business strategy is to offer skill tournaments to members of the United States public in which individuals compete against each other to win fixed prizes, as much as $100,000 in the Startup Phase. The contests provided by LFST are games of skill, not chance. The traders in a LFST contest are competing against each other based on their own knowledge, judgment, speed, acumen, and trading skills. Tournaments: A simpler approach – a simple decision: In a trading pit there is only one decision to make: Do you want to buy or sell? Contestants set the market price and after that the market prices either go up or down – simple as that! 1) Each “Fantasy Contract” is always worth $10 fantasy dollars. By combining multiple $10 positions, traders can trade as many fantasy dollars as the market conditions permit. 2) 100% control, no middleman – Contestants play and trade against each other; no one but the contestants is involved in ANY way. 3) The trading of FantasyContracts™ by contestants determines all market prices. 4) Longer trading horizon, greater flexibility. Contestants determine for themselves how and when they will trade on events that are days, weeks or even months into the future. 5) A liquid market. Because traders can buy positions on both sides of the market, fantasy profits can be taken, at any time - prior to the completion of the game. More advanced traders will earn more money by NOT trying to pick the winner of the game, but on predicting the direction of the price fluctuations during or before the game. At real future exchanges around the world this is called scalping. 6) 100% transparent, no one trader has an “edge”. There is a free flow of all information on the prices and volume of trades equally available to all traders at all times. All processes are 100% transparent. All of the current offers etc. are available for all traders to see. No one contestant can ever have a systematic edge over another. Initially, LFST will focus exclusively on professional football. Professional Football currently has attracted 35 million plus Fantasy Sports contestants. LFST will heavily advertise and market to contestants who already compete in fantasy football games over the internet, emphasizing public contests and the high potential payouts. All contestants receive $10,000 fantasy for each Tournament Entry. LFST will offer four types of public contests: 1.
Introductory: A contestant’s Introductory Tournament will be free of charge and will permit contestants to compete in a single NFL football game. The introductory level will attract new customers and provide an environment for contestants to learn how to win and “practice” new strategies. The top 10 Introductory Tournament winners will receive $85 in cash and free 3CT Entries. The $10,000 fantasy dollars is deactivated when the single NFL event concludes, at which time the Introductory Tournament ends.
2.
Three Contest Tournaments – (“3CT”): The 3CT tournament will cost contestants $4.99. At this level, contestants must compete in three different events during a given week. At the conclusion of the last event of the week, contestants who earn the most fantasy dollars will be awarded prizes fixed in advance. 10 23
Contestants will earn cash. To qualify for awards in the 3CT Tournament, contestants must compete in three contests during the tournament week. The Tournament Champion wins $500. The winner of each 3CT Tournament receives a free entry into the Playoffs Tournament. 3.
Five Contest Tournaments – (“5CT”): The 5CT tournament will cost contestants $9.99. At the conclusion of the last event of the week, contestants who earn the most fantasy dollars will be awarded prizes fixed in advance. 10 Contestants will earn cash awards. To qualify for awards in the 5CT Tournament, contestants must compete in five contests during the tournament’s two week period. The Tournament Champion wins $1000. The winner of each 5CT Tournament receives a free entry into the Playoffs Tournament.
4.
Playoffs: The Playoffs tournament will cost contestants $100 per entry and will provide the opportunity to win $100,000 for first place. Contestants must compete in seven events to become Tournament Champion, which ends at the Super Bowl.
See the prize charts below for additional award information for each Tournament. LFST will also offer private tournaments. Private tournaments empower customers to create their own competition over any event, including sports events, political events, personal events, and corporate matters. Because LFST will not award prizes for private tournaments, customers can use our products for single event competitions. Consequently, large corporations can sponsor prizes for single event competitions. E.g. ESPN could sponsor large cash awards for a Monday Night Football game. Registration for private tournaments will include a computerized process for tournament creation and user control. Everything except customer service, if customers need it, will be done by the customers and their credit cards. LFST is anticipating a significant amount of income from private tournaments. Since there will be very limited expenses to LFST almost all of the fees collected will be net numbers. There is an unlimited number of ways to conduct and structure LFST’s tournaments. LFST anticipates that its strategy may evolve as market demands warrant. How it Works With LFST, a trading pit can be established for literally any future event or dual-sided proposition with a yes or no outcome. Therefore, there is virtually no limit to the number of markets that can be created with LFST. A pit can be setup for a basketball game, a football game, or any number of other future events where an outcome is to be decided. Each pit operates the same way for all games or contests, and each provides all the information that any contestant would need to keep track of the relevant information on all contests for which he is competing, including: • • • • • • •
Complete history of the volume and prices of all events Complete lists of all outstanding offers Complete history of all each contestants’ transactions Complete accounting of all fantasy monies inside each contest’s TradingPit Continuous updates of top six offers on each side Display of projected Market Prices Dynamic price/volume TradingGraph with individual zoom controls
Below is an example of a TradingPit established for the Bears vs. Colts Super Bowl XLI. Assume it is now January and this game will take place in two weeks time. The Contest begins! To understand a contest at LIVE … Fantasy Sports Tournaments, one must first understand that at the end of the Super Bowl, a winner will be declared. There can be no tie. At the end of the Super Bowl, contestants earn $10 fantasy for each contract bought on the winning team. During live trading, contestants will try to “buy” positions through making and accepting offers to and from other contestants. Contestants at LFST use binary contracts.* But a contestant can’t just buy the winning team: contestants need to buy at the “best price.” As mentioned above, contestants can submit offers any time prior to or during the event. In the example below, the offers for each team are shown on each side in red and blue for the Colts and Saints, respectively. The trading activity will result in those prices moving up and/or down as the “market” of traders change their sentiment before and during the event.
24
In other words, as the on-field situation changes, the traders change their sentiment. As the traders change their sentiment, the market price changes, just like in a real exchange. The “best price” might be before the game begins, as when an injury could cripple a team and change sentiment, or at the games end, as when there’s an amazing comeback and sentiment moves fast, or any time in-between. Contestants could even find the “best price” on the losing team’s side, so long as that contestant buys the winning team back before trading expires.* *For a complete description of how contestants at LFST engage in trading, please see the attached Exhibit regarding binary contracts.
The top six offers for each team are posted. In addition, by simply clicking on the yellow “All Posted Offers” button everyone can see all of the other offers that have not been matched. There are no secret market makers who have better information than anyone else. The graph in the middle is the complete history of the price and volume for that contest’s trading activity from the moment the TradingPit was opened. There are also other buttons which any contestant can click on to see all of their transactions (i.e., offers which have been matched), details of where they stand in this TradingPit, and the aggregate position of all contestants. The TradingPit will inevitably be used by people with varying desires and sophistication regarding how active a “trader” they really want to be. Contestants can make as many offers as they would like provided they have available fantasy dollars. However, they can also at any time cancel some or all of their offers by simply clicking on the yellow “Cancel My Offers” button above and selecting which specific unmatched offers to cancel. This is an important feature given that a previously unmatched offer from one participant may suddenly be of interest to another participant due to a turn of events in the game. 25
The LFST system also provides for automatic clearing and settlement for trades made, and will therefore immediately calculate and deliver to the participant’s account the funds associated with a “locked-in” profit or loss. As the example above illustrates, LFST offers the following brand new features to fantasy sports: • •
• • • •
Much more competitive spread as compared to online and traditional offline sports betting because the contestants create the spread Ability to minimize losses or take profits prior to the outcome or even the start of the event, as opposed to waiting until the game has concluded – creating the ability to trade in larger volumes since contestants can continuously manage their risk Ability to set your own price, as opposed to taking the odds being offered by a bookmaker Ability to trade while the game is being played – real-time, interactive trading while the game is in progress which adds significant entertainment value Ability to trade, and even act as a market maker, if you choose, as opposed to just passively making choices No default risk since contestants win fantasy dollars from other contestants in the exchange
Strategy: LFST’s mission is to be the market leading sports product in the world, providing the most innovative and entertaining consumer experience, the most intuitive and sophisticated trading platform and the most liquid and inexpensive market in its chosen sports/events. The Prediction Markets industries continue to grow, and traders will continue to migrate from traditional fantasy sports to whatever market can provide the least costly, most entertaining, most profitable interactive experience. In addition, the LFST platform provides significant additional entertainment value to individuals watching sporting contests and as a result, an increasing number of people who might not ordinarily watch sports events will be glued to their televisions. In order to capitalize on this myriad of opportunities, LFST will initially focus on professional football. While management believes that there is significant opportunity in every sports association across the world, it may shift emphasis among sports as circumstances dictate. The intent is to maintain sufficient flexibility in order to adapt its strategic focus as opportunities present themselves within different sports. The first half of the Startup Phase will focus on marketing and promotional activities. Skill tournaments will focus almost exclusively on the National Football League. Major League Baseball, National Basketball Association, as well as NCAA football and basketball will follow into the third and fourth quarters of the startup phases, as LFST grows its customer base to sustain additional TradingPits. During the first full fiscal Year 1, LFST will add National Hockey League, Professional Golf, NASCAR racing, and International Tennis matches to its tournament lineup. The sports will be phased in on a seasonal basis. During Years 2 and 3, LFST will expand globally, to include the Summer Olympics as well as 20/20 League Cricket, Rugby Super League, Formula One racing, ATP Tennis, and English Premiere League soccer.
With the below diagrams, you can visually tour LFST's Proposed Home Page and TradingPits.
The buttons and links are explained.
26
MEMBER AREA PRIZES See list of predetermined prizes and tournaments that are available
Go to your personal trading account page where you have access to all your membership privileges, personal information and stats.
FANTASY DOLLARS CONTEST STANDINGS See where you stand, and see who the current leaders are.
SCHEDULED EVENTS View all upcoming events available. See which ones are most active.
Earn more fantasy dollars referring and signing up other contestants and friends.
MEMBER LOGIN Sign up to receive your initial FREE $10,000 Fantasy dollars and get quickly into the trading action!
SCHEDULED EVENTS Displays the current and most active Trading Pits and other events of the day.
Private Tournaments Can easily set up “private fantasy” or “personal fantasy” games – limited only to your family, church groups, charity, office workers, friends etc
ONLINE CHAT Chat with friends. Trash talk directly with other competitors. Discuss strategy and developing events.
Earn cash TOUR THE TRADING PIT Take the tour of the Trading Pit and learn how it work Practice on the free practice trading pits.
And other prizes: daily, weekly and monthly up to $500 a week, $10,000 per league and $100,000 Annual Prize.
BUDDY LEAGUES Create your own private tournaments.
VIDEO INSTRUCTION Get step-by-step tutorials, and sign up for tips and web seminars to improve your trading abilities
Make your own private games for just your favorite charity, Church groups, office groups, family or friends. Set up your own rules – and your own prizes!
“The only Skill Fantasy Sports competition specifically designed to be played …DURING … the game” STRATEGIZE Use knowledge, judgment, speed & skill to determine the likely contestant that earns the most FantasyDollars™
SKILL COMPETITION Contestants trade with each other through the trading pit. It’s a SKILL competition in sports.
The Live … TradingPit™
Market Price The market price is the current price to buy offers
INFINITE STRATEGY Contestants use scalping, arbitraging, other basic trading strategies, and new methods to be created by competitors.
Top Offers The Top Six Offers are posted and updated every 2 seconds.
FREE MARKET Contestants alone set the market prices based on their judgment of the “value” at any time before or during the game.
Spread The spread is the difference between the offers on the blue and red side. (Usually one of the 1st question real traders asks before submitting their offers.)
Fantasy Contracts
Submit Offers
When a blue offer and red offer equal $10, the software displays the trade on the Trading Chart and removes the offer from the offers list.
Offer to buy one team or the other at a specified market price. Or just to do “Market Order” when you feel that the value is right.
Watch
Market Pricing
Follow the game live on the field and observe the Fantasy Sports Tournament’s market in real time.
Contestants determine the marking pricing through their collective trading. Market swings tremendously in unlikely comeback situations.
Powerful Trading System The powerful trading software allows Traders to trade different events simultaneously. Unlimited strategies can be customizable by each individual contestant.
Dynamic TradingChart Located in the center of the Trading Pit Displays all the market information that any contestant would ever want - including keeping track of each individual contestant’s positions in real-time
Live up – to - the – last tick accounting Updates everyone equally … Every 2 seconds
!
The above trading pit is completely updated individual trader every 2 seconds. No one has any edge over anyone else. Contestants can play both sides of the market as conditions change and can profit moment to moment by predicting the direction of the game.
Yellow buttons provide all the information that a contestant needs to keep track of all of their positions so that they can play effortlessly. • • • • • • •
Complete history of the volume and prices of all trades Complete lists of all outstanding offers Complete history of all your trades Complete accounting of all monies inside the Trading Pit Continuous updates of top six offers on each side Display of projected Market Prices Dynamic Trading Graph with individual zoom controls
Sales and Marketing Strategy: Because the target consumers are easy to identify and reach, it should be relatively easy and low cost to reach them with targeted marketing tactics. LFST envisions a multi-pronged approach: 1)
Low-cost, “viral” marketing tactics: LFST will establish a physical presence at and distribute marketing materials during sporting events, on college campuses and on trading floors. Eye-catching leaflets that reinforce the potential to win cash prizes (including $10,000, see below) will be handed out to passers by to drive traffic to the web site. Relevant legal inquiries about the marketing materials are in progress; the marketing materials may be altered to conform to the law. Win $100,000! So you think you’re an expert on sports?
Compete for $100,000 in real time – buy and sell your Favorite football teams … LIVE … during the game!
Front Side
Back Side
2)
Targeted advertising: LFST will advertise with industry-specific magazines, web sites and radio programs that target these consumers. For example, the “big three” web sites for Fantasy Sports alone (Yahoo, ESPN and CBS’s Sportsline), have more than 7 million users during the peak of the Fantasy Sports “season” (October to December, when the NFL, NBA and NHL are all active). A targeted marketing effort to these three sites alone, along with positive word of mouth, could generate strong growth. CPC rates on google.com for the key words “fantasy sports,” for example, are currently about $0.50 to be placed in the top five ads on the first search result page.
3)
Referrals: LFST benefits from the fact that the more traders that are involved, the more exciting the action becomes. A referral program will be established to encourage traders to get their friends to sign up, with “trading points” given for each referral that is signed up.
4)
Prizes: LFST will sponsor cash and non-cash prizes to drive participation and create excitement, as outlined above.
5)
Instructional seminars: LFST will sponsor seminars hosted by trading professionals that discuss various trading strategies as an additional means to generate interest and registration. i.
ii.
6)
In-office seminars: These will be hosted in LFST’s down-town Chicago Loop offices. Refreshments will be provided, and LFST™ staff will provide hands-on instruction. These seminars will take place each evening and during key sporting events. While participation will necessarily be a smaller number of people, the goal is to create active contestants and “apostles” who will be motivated to get other contestants signed up. Web seminars: These events will be hosted on the LFST™ web site, as a means of reaching a broader audience who do not have access to or do not wish to travel to the Chicago office. They will coincide with the in-office seminars. Celebrity spokespeople: LFST will contract with two celebrities to be their spokespeople to the general public, one male and one female. For the female spokesperson, LFST is making arrangements with Kavitha Shah, a hero in the casual gaming world who won $1,000,000.00 on the internet playing games, the most ever awarded. Partnerships with popular sports figures in the major sporting leagues will lend further credibility to the endeavor and generate press and excitement. For the male spokesperson, LFST is in current discussions with various celebrities in the sports world, including internationally recognized athletes such as Dwight Howard, Pete Rose, Eric Dickerson, various PGA golfers, and various NFL stars.
29
LFST’s product is a natural monopoly, like EBay. The first company to take the product to market will likely dominate the industry. This phenomenon is especially likely here because the more users LFST recruits the more liquid the market will be. The more liquid the market becomes, the cheaper the contracts become. LFST expects LFST’s initial marketing push to be intense and recruit a concrete user base quickly. Leapfrog Online will service LFST’s internet and social media marketing efforts through Google, Facebook, Twitter, and other prominent online media outlets. Leapfrog Online is one of Chicago’s fastest growing companies and is a world-class marketing firm. From the firm, Thomas Yagger-Madden will be the bridge to LFST. Thomas Yagger-Madden is fluent in the internet and using its resources to deliver customers and revenue. A mobile application will be developed for popular platforms around the middle of the LFST’s Startup Phase. Several candidates already stand by willing to participate in development of the application for equity. Operations: Customer Support: LFST plans to operate a global business and will provide customer support services around the clock, seven days a week. This will require a customer service staff of representatives who are proficient in a number of areas including technical support and payment processing of funds to be paid-in and withdrawn. LFST is planning to have sufficient staff for both transaction and customer service departments and, through these departments, be able to eventually handle millions of individual customer contacts. LFST has acquired the rights to use (312) WINNERS (“312-946-6377”) for its customer support telephone number. To ensure high levels of customer satisfaction, LFST will establish various service level targets, and will monitor them on a time and quality basis. Time targets will include: • • • •
Timeliness of TradingPit maintenance Timeliness of cash out verifications; Timeliness and percentage of calls being answered (vs. being abandoned); and Timeliness of response to incoming emails
LFST will arrange for ongoing training, development, quality assurance and review programs to ensure that staff will be fully versed in customer support issues as well as with telecommunication, email and customer relationship management systems. It is anticipated that a two tier system to handle the majority of customer inquiries will be established whereby customer issues and questions will initially be routed through a first-layer customer support person and, if necessary, passed on to a customer support specialist. In addition, LFST intends to establish and maintain a senior layer of customer support management and staff to provide proper controls and quality assurance, as well as to handle escalated calls and all difficult and/or technical gaming queries. Technology: Systems Overview LFST believes that one of its key strengths is its robust information technology infrastructure, which will be set up to handle 1,000,000 overall users, with the ability to accommodate 10,000 users at any one time across 5,000 TradingPits. The platform may be scaled to accommodate any number of users at any time with simple hardware upgrades. LFST’s information technology infrastructure will include numerous servers in the locations of its operations capable of supporting a wide range of technologies including web systems, proprietary platforms, back-office accounting, and customer relationship management and advanced telecommunication systems. The information technology team will be responsible for the coordination of LFST’s information technology security policies, guidelines and procedures, administration of its information technology and service infrastructure and will work to optimize and upgrade information technology capabilities. LFST’s information technology team will include a monitoring team dedicated to constantly monitor the performance of its network, web-servers, back-office systems and
30
databases utilizing proprietary technologies and will have the responsibility to test, alert and report any abnormalities or malfunctions. Exchange System Architecture: Built for speed and with minimal overhead, the LFST system was designed specifically to furnish thousands of concurrent users with a direct connection to TradingPits. All system components consist of off-the-shelf hardware and software. Nothing other than the design is proprietary. However, many components have been highly customized to deliver the performance and redundancy required by this unique application. The system is made up of a 64-bit, four-tier architecture that has been optimized for both speed and redundancy. Each tier has specific roles and functions that enable multiple distribution options for managing system traffic. Scalability LFST recognizes the importance of having scalable information technology systems. Therefore, the IT systems have been designed to ensure sufficient scalability in order to manage volume increases in usage as the business grows. In addition, LFST’s IT systems are flexible and will allow the efficient implementation of upgrades as well as the introduction of new products. This will alleviate the need for major redesigns as the business evolves. The systems will be constantly monitored in order to ensure adequate redundant capacity to facilitate future growth and to minimize the number of operational disruptions as LFST expands its business. Security and Disaster Recovery The security of LFST’s information technology will be essential to manage its anticipated growth and maintain credibility with its customer base. Therefore, maintenance of systems integrity will be a high priority and management will be constantly reviewing and upgrading its security measures and policies. LFST will employ professional external advisers as needed to supplement the expertise of its in-house information technology personnel. LFST’s internet connection will be protected by dedicated hardware systems designed to prevent attacks by individuals or groups seeking to deliberately disrupt online services in distributed denial of service attacks (‘‘DDoS’’). The hardware systems will be located at the facilities of a leading firm providing telecommunication services to LFST. In addition, LFST will develop a disaster-recovery plan and will implement it following the start of its operations. The disaster-recovery plan will provide for the duplication of all critical systems. Also, in accordance with Visa and MasterCard’s international standards for information storage, LFST’s security and data protection systems will be subject to regular checks by Security Research & Consulting GmbH, including periodical security penetration scans on the database where credit card information is stored to ensure that the information in its systems is secure. Data Protection All of LFST’s online products will maintain a privacy policy, which will explain how LFST intends to deal with individuals’ personal data. LFST will carry out all processing of its customers’ personal data in-house. LFST will carry out the processing of its customers’ personal data as if such legislation were already in full force and effect. Mobile Application LFST plans to develop mobile applications for popular platforms after the first stage of LFST’s marketing development. LFST has lined up various potential partners willing to work for equity. Payment Processing To appeal to as wide a variety of customers as possible, LFST believes that it will be important to have an array of methods for funds to be paid-in and withdrawn from player accounts. In addition, all customers will likely want to be able to make deposits and withdrawals quickly and easily. LFST intends to offer a wide range of options for its clients to pay-in and withdraw funds through contracts with a number of financial institutions and payment processors supplying various customer pay-in and withdrawal methods. Options will include credit cards, online wallets, bank drafts and pre-paid cards. Funds will be able to be withdrawn on request, and paid-out through one or more of these methods. LFST may also develop its own proprietary online wallet to effect electronic funds transfers, which would have the advantage of enabling funds transfers, but would not be easily portable to competitor sites.
31
Risk Management: LFST’s risk management team will be based in Chicago and will develop stringent risk management and fraud control procedures in order to target potential risks faced by LFST, including: Reputational risk: Matters which could affect the reputation of LFST and its operations, such as: collusion between contestants in the hope of gaining advantage over their opponents; contestants deliberately losing to another player in an attempt at competitive advantages; situations where video gaming becomes a compulsion for some individuals, known as problem gamers; or a situation where data of an individual is stolen or used in an online transaction; or Financial risk: Situations that present a financial risk to LFST and its operations include: unauthorized use of credit cards and other means of payment; charge backs or fictitious transactions whether due to the unauthorized use of credit cards, members who reverse transactions in bad faith or where there is insufficient credit available to allow a particular transaction; or bonus abuse whereby members attempt to open multiple accounts in bad faith in order to exploit promotional activities; or Legal risk: Situations related to legal issues which could affect LFST and its operations could be the use of LFST’s product by the age of majority. LFST’s risk management personnel will undergo external training from credit card and payment processing experts, who will provide consultancy services to LFST on payment processing and risk management best practice. LFST’s risk management team will be set up to handle any cases which arise and will make use of external and internal systems to manage the risks faced by its operations. External systems: LFST will use a number of proprietary and third party systems to detect suspicious activities by members. These will include credit card verification, address verification, the cross-checking of information provided by members against electronic references provided automatically by internet infrastructure, transaction risk rating (cross-referencing personal data against databases provided by third parties) as well as credit information testing. These processes will allow LFST to check the unauthorized use of credit cards and contend with individuals who subsequently claim not to have authorized credit card transactions. These methods also provide LFST with ‘‘know-your-customer’’ comfort as well enabling LFST to cross-reference accounts in order to identify problem gaming or bonus abuse. Exit Strategy: LFST has two exit scenarios: IPO or acquisition. Due to the amount of free cash generated, LFST stock has the potential to be a high value dividend stock. Additionally, numerous current fantasy sites, both domestically and internationally, would be very interested in adding this to their portfolio. For these reasons alone, the management feels that many types of exit scenarios are possible. The value proposition of any or all of these exits will be very dependent on marketing execution, equity market opportunities and the actual value proposition to an acquirer. Because of the large untapped potential of the target market, the strong economics of the business case, and the attractive nature of the target consumers, this business and its contestants base will be attractive to many companies. While an IPO would certainly represent an attractive exit strategy for any investor, an even more attractive opportunity may be to sell LFST to an existing online ad-based company such as CBS Sports, Yahoo! or Google. Yahoo! alone has over five million fantasy sports contestants currently with little reason to visit Yahoo.com during a sporting event, except to passively watch the scores. LFST will give consumers a reason to stay online, generating additional ad revenue. Fox Sports, CBS Sportsline, Yahoo! Sports, NBC/Universal, and ESPN, among dozens of others, have already opened a dialogue with LFST and expressed interest on various levels. ESPN or Sportsline, with about one million fantasy sports contestants each, would benefit greatly by offering online trading as a means to gain market share and drive additional revenue.
32
IV. Management and Officers: Advisory Board/Board of Directors/Management: (See Exhibit Group B for resumes of all Officers) The Turnaround Management Group The Turnaround Management Group (TMG) is a unique group of specialists who have devoted their lives to building startup businesses and turning around troubled businesses by providing whatever is necessary to achieve success. TMG’s specialists have pledged to put everything they can into the project, including their reputations, and a total commitment to LFST’s success. TMG will assist the Company’s CEO in every possible way as the Company grows, including replacing the CEO with a seasoned professional executive when the time is right. Founder Jared Kosoglad Jared Kosoglad founded LIVE … Fantasy Sports Tournaments and led the Company to its current state. A licensed attorney, Jared founded his own law firm in 2008, after successfully prosecuting various complex litigation matters throughout the Midwest. In his first case as a licensed attorney, Jared participated as trial counsel and partially led discovery efforts that led to a landmark verdict in federal court of over $4 million. The Seventh Circuit Court of Appeals complemented the trial team’s efforts. His firm just two trials later won a $7.9 million verdict. Jared obtained a J.D. from Washington College of Law, American University in Washington, D.C, where he co-founded the law school’s trial competition team and earned a B.S. from Illinois State University. Marketing Director - Thomas Ygger-Madden | Leapfrog Online Thomas Yagger-Madden is an expert business intelligence architect, combining more than twelve years' experience in database design and development with a solid understanding of data-driven, consumer-focused digital marketing. Thomas served for over four years as an enterprise data architect for Leapfrog Online. Thomas left for Leapfrog from Thomson Reuters where he performed data modeling services, designing conceptual, logical, and physical data models for marketing and planning. Prior to Reuters, Thomas served as a database engineer for Bellevue, Washington based Solucient. Spokesperson/Marketing- Kavitha Shah For a small entry fee, Kavitha won $1,000,000 playing casual games online, the most ever awarded at one time. She went on to serve as an intern in the Business and Legal Affairs Department of the Game Show Network and is now scheduled to graduate with a law degree from the University of Michigan. See below links for her press and qualifications. Headshots: http://www.hirezmediagroup.com/gsn/kavitha/WorldWeb_Kavitha_048.jpg http://www.hirezmediagroup.com/gsn/kavitha/WorldWeb_Kavitha_014.jpg Radio Interview by ABC’s Larry Jacobs: http://www.funtechnologies.com/images_fun/press/061121cybershake.mp3 Television Interview by Forbes.com Anchor Annalisa Burgos: http://video.forbes.com/fvn/lifestyle/ab_gamer120706 Additional information can be found via traditional search methods under her maiden name “Kavitha Yalavarthi.” Customer Service Manager – Jim Kwasek Jim Kwasek served on the Board of Directors of Convergence, Ltd. and worked to open Convergence’s products in Australia and England. Currently, Mr. Kwasek operates the larges flight training facility in the Chicago land area, where he systematically drove 4 competitors from the marketplace through superior customer service efforts. Mr. Kwasek is a graduate of Southern Illinois University and no longer has any interest in Convergence, Ltd. IT Department Mandel Ho Mr. Mandel Ho has over than 10 years of experience in system analysis and programming for an architectural engineering and construction corporations, a strong background in corporate desktop and networking infrastructure support, and experience in major programming languages, operating hardware, and software. With Mr. Li, Mr. Ho developed nextgeneration software in the advanced deposit wager industry. Mr. Ho graduated from the University of Illinois with a degree in computer science.
33
Yuan Bo Li Mr. Yuan bo Li has over than 10 years of experience in system analysis and programming for an architectural engineering and construction corporations, a strong background in corporate desktop and networking infrastructure support, and experience in major programming languages, operating hardware, and software. With Mr. Ho, Mr. Li developed nextgeneration software in the advanced deposit wager industry. Mr. Ho graduated from the University of Illinois with a degree in computer science and electrical engineering.
34
35
V. Regulatory: LFST has retained legal assistance regarding the structure of LFST and its contests to ensure compliance with relevant law. LFST has determined that its operations will be allowed under the laws governing skill tournaments of most U.S. jurisdictions. However, there is no guarantee that the legality of LFST will not be challenged. See Appendix – Legal Opinion Letter. Although LFST has no known international limitations, LFST will operate in the U.S. states and territories listed below as “L” where skill tournaments are considered legal. LFST will not initially operate in states where the legality of skill tournaments is uncertain, listed below as “P” skill tournaments probably legal or “I” skill tournaments probably illegal. Age Restrictions and Limitations on Use: Contestants must be at least 18 years of age to open an account, participate in contests, or earn prizes offered by the Web Site, and be an eligible Legal Resident of the United States or Canada, as defined by the chart below. In jurisdictions, territories, and locations where the minimum age for permissible use of the Web Site is greater than 18 years old, contestants must meet the age requirement in the local jurisdiction or territory. Contestants must be at least 19 years of age at time of contest registration if contestants are a legal resident of Alabama or Nebraska. Legal residents of the excluded states are ineligible for prizes offered by the Web Site, and are not allowed to open or maintain accounts on the Web Site. Legal Residents of Canada, excluding Quebec, are eligible to open an account and participate in contests offered by the Web Site.
SKILL TOURNAMENTS STATE BY STATE LEGAL SURVEY LEGEND L = SKILL TOURNAMENTS CONSIDERED LEGAL P = SKILL TOURNAMENTS PROBABLY LEGAL I = SKILL TOURNAMENTS PROBABLY ILLEGAL U.S. States Alabama
L
Louisiana
I
Ohio
L
Alaska
L
Maine
L
Oklahoma
L
Arizona
I
Maryland
I
Oregon
L
Arkansas
I
Massachusetts
L
Pennsylvania
L
California
L
Michigan
L
Rhode Island
L
Colorado
P
Minnesota
L
South Carolina
L
Connecticut
L
Mississippi
L
South Dakota
L
Delaware
P
Missouri
L
Tennessee
P
Florida
I
Montana
P
Texas
L
Georgia
L
Nebraska
L
Utah
L
Hawaii
L
Nevada
L
Vermont
I
Idaho
L
New Hampshire
L
Virginia
L
Illinois
I
New Jersey
L
Washington
L
Indiana
L
New Mexico
L
West Virginia
L
Iowa
I
New York
L
Wisconsin
L
Kansas
L
North Carolina
L
Wyoming
L
Kentucky
L
North Dakota
L
D.C.
L
36
Financial Forecasts
37
VI. Three Year Financial Forecast: Revenue Structure LFST will operate on fiscal years starting and ending at the Super Bowl. The “Startup Phase” consists of the period from startup to the Super Bowl of 2011. • • • •
Between Startup and the Super Bowl, LFST will only have three fiscal quarters. Year 1 is from Super Bowl 2011 through Super Bowl 2012. Years 2 is from Super Bowl 2012 to 2013 and Super Bowl 2013 to 2014 respectively.
LIVE … Fantasy Sports Tournaments will offer skill tournaments on public sporting events. LIVE … Fantasy Sports Tournaments will offer four different public tournaments to contestants. Accounts: Contestants first open accounts with LIVE … Fantasy Sports Tournaments for free. Each account keeps separate balances for real money and fantasy dollars. Each new account is provided one free Introductory Tournament Entry and funded with $10,000 fantasy dollars. Introductory Tournaments are associated with individual events. When contestants open their account, LIVE … Fantasy Sports Tournaments will suggest the next available sports event for an Introductory Tournament. At the conclusion of the Introductory Tournament, Contestants can choose to deposit real funds in their accounts to purchase 3CT Entries or 5CT Entries to enter LIVE … Fantasy Sports Tournaments. Contestants may not deposit more than $99.99 in their accounts between the first and last day of any month. Contestants collect contest earnings and refund surplus balances through the same method they deposited funds initially.
•
Introductory: A contestant’s Introductory Tournament will be free of charge and divide among the the top 10 winners $85 in cash prizes and free 3CT Entries. Three Contest Tournament – (“3CT”): The 3CT tournament will cost contestants $4.99. The Tournament Champion wins $500, with a total payout of $1,000. The winner of each 3CT Tournament receives a free entry into the Playoffs Tournament. Five Contest Tournament – (“5CT”): The 5CT tournament will cost contestants $9.99. The Tournament Champion wins $1000, with a total payout of $2,000. The winner of each 5CT Tournament receives a free entry into the Playoffs Tournament. Playoffs: The Playoffs tournament will cost contestants $100 per entry and will provide the opportunity to win $100,000 for first place and over $300,000 in cash prizes. See the prize chart below for additional award information for each Tournament.
VII.
Market Base & Estimations
• •
•
•
The size of the market for LIVE … Fantasy Sports Tournaments is estimated at 96 million in the United States alone, including over 30 million fantasy sports players, over 20 million college students, over 26 million online securities traders, over 30 million skill gamers, excluding 4 in ten American adults that play video games. There is obvious overlap between these groups. With no competition in the space, LIVE … Fantasy Sports Tournaments figures that during the startup phase of operations, LFST will attract 625 thousandths of a percent of the market. After re-investment of initial revenues into marketing and promotions combined with a team of people qualified to make the tournament model successful, LFST can attract participation of around 3% of the target market or more by Year 3. LFST expects to attract 40,000 users at the conclusion of the startup phase. After the first full year of operations, Year 1, LFST expects 200,000 users. After “the word” travels throughout the fantasy sports, securities, and casual gaming world, LIVE … Fantasy Sports will reach 500,000 people by Year 2. After Year 2, LIVE … Fantasy Sports will be over the hill and on its way to becoming a “game changer” in the skill contest/fantasy sports world and a national institution in the United States. In Year 3, LFST expects to reach 3,000,000 contestants or more.
38
VIII. STARTUP PHASE (Approximately 9 Months)
39
VIII.
Startup Phase (approximately 9 months) A. Revenue Assumptions
The startup phase will focus on marketing and promotional activities. The projections assume that LFST will begin full operations of its skill tournaments during the second quarter of the startup phase, focused almost exclusively on the National Football League and Major League Baseball. National Basketball Association games as well as NCAA football and basketball will follow into the third and fourth quarters of the startup phase, as LFST grows its customer base to sustain additional TradingPits. LFST expects the following number of Public Tournaments during the Startup Phase. Public Tournaments Introductory 3CT 5CT Playoffs Total
Month 3 48 11 5 0 64
Month 6 72 13 7 0 92
Month 9 90 13 6 1 110
Based on the number of users projected during the startup phase,
Users At End
Month 3 5000
Month 6 15000
Month 9 40000
LFST conservatively predicts that users will participate in four tournaments per year. While a core fan base will develop around the product that uses the product "around the clock," the casual user will participate much less per year. Because of the larger rewards in 5CT, LFST expects three entries in 5CT for every one entry in 3CT. LFST also predicts that one in one hundred users will pay $100 to purchase entries and compete for the $100,000 grand prize, while Tournament Champions receive free entries into the Playoffs Tournaments. Therefore, LFST predicts the following number of Tournament Entries in the Startup Phase: Number of Tour. Entries Introductory 3CT 5CT Playoffs Total
Month 3 5000 1250 3750 66 10066
Month 6 10000 3750 11250 120 25120
Month 9 25000 10000 30000 269 65269
Based on the number of tournament entries, LFST predicts the following Startup Phase revenue from Public Tournaments: Public Tournament Revenues 3CT
Month 3 $6,238
Month 6 $18,713
Month 9 $49,900
5CT
$37,463
$112,388
$299,700
$5,000
$10,000
$25,000
$48,700
$141,100
$374,600
Playoffs Totals
LFST expects to earn a significant amount of revenue from on-line advertising once LFST develops a solid user base in its first full year of operations, Year 1. Fantasy Sports contestants are in a very highly sought-after demographic: 18-29 year old males. Additionally, old-fashioned fantasy sports websites have proven to be very ‘sticky’ holding onto viewers for over 4 hours/week. However, LFST does not expect much revenue from advertising during the Startup Phase, as follows:
40
Revenues Advertising
Month 3 $0
Month 6 $0
Month 9 $10,000
Private Tournaments LFST will offer customers private tournaments. Private tournaments empower customers to create their own competition over any event, including sports events, political events, personal events, and corporate matters. Because LFST will not award prizes for private tournaments, customers can use our products for single event competitions. LFST will offer the following private tournaments at the following prices: Cost/Tour.
Private Tournaments 1 Contest Tournaments (1CT)
