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How many times have you seen that DraftKings commercial on TV this year? One . . . maybe two million times? Ever wonder why they are advertising so aggressively? It is because Draftkings spent more on television commercials than any other company in the U.S. this past week.
DraftKings is one of the new generation of hyper growth, well-funded gaming startups in daily fantasy sports rapidly changing American sporting culture. These companies want you to bet on your favorite players or team through their app each night when you turn on your TV. Here’s a spoiler alert . . . people like betting. These TV ads are exposing more and more people who may casually bet on games to try daily fantasy sports, which means those ads are working.
With hundreds of millions in venture capital and hockey-stick growth in users and revenue, daily fantasy sports (“DFS”) companies like DraftKings, FanDuel and their competitors are challenging federal gambling laws and shedding light on the billions of dollars bet illegally by Americans each year in the shadows. These DFS companies are pushing the conversation about how we watch sports and what constitutes gambling in the age of mobile .
A bit of background
According to an
While traditional fantasy league play is centered around drafting a team once prior to the start of the season, DFS offers daily drafts with the added benefits of immediate cash prizes that are available the same day. Even though the industry is less than five years old, market leaders FanDuel & DraftKings are expected to pay out over a billion dollars each in prizes to fantasy-obsessed players this year while spending tens of millions of dollars on advertising to keep building the market. Only a small subset of traditional players play daily fantasy, but Eilers Research CEO Todd Eilers estimates “that daily games will generate around $2.6 billion in entry fees this year and grow 41% annually, reaching $14.4 billion in 2020.”
The growth has investors racing to get in on this new legal goldrush too. VCs and major media companies have bet big on both FanDuel and DraftKings, investing over $300 million into each company over the last year. FanDuel has raised $361 million from media companies like
While fantasy sports have experienced a meteoritic rise in growth and investment, not everyone is enthusiastic about its impact on culture and business - and we are not just referencing politicians and social conservatives.
Gambling is gambling . . . right?
“Of course (DFS is) sports betting. It doesn’t mean that it’s subject necessarily to the same laws. You’re risking money on something of an uncertain outcome, and to me that sounds like gambling,” said Joe Asher, US CEO of one of the world’s largest betting and gaming companies, William Hill in a USA Today article earlier this year. It is clear Mr. Asher would like to see DFS companies play by the same laws his company has to service. It is not hard to understand why bookmakers and Las Vegas casino operators are worried about the impact of millions of customers making bets daily from their phones and not in their casinos and sportsbooks.
Fantasy sites can legally pay their players, because the federal government does not define fantasy sports as gambling. DFS companies like FanDuel, DraftKings and others operate under legal law because fantasy sports are largely classified as a game of skill and not chance. The Unlawful Internet Gambling Enforcement Act of 2006 included "carve out" language that clarified the legality of fantasy sports. It was passed by Congress and signed into law in 2006 by President George W. Bush. Lobbyists from the professional leagues successfully pushed to have fantasy sports classified as a “game of skill.” The Act has opened the door for daily fantasy sports companies to offer a faster paced, higher stakes fantasy game. As long as daily fantasy companies make prizes known in advance and the results are based on real statistics - not outcomes (including point spreads) - it may be deemed legal to play in all but a few states.
While established gambling entities struggle with where and how consumers gamble, the people who actually make the sporting entertainment are reexamining their relationship with gambling . . . specifically their relationship gambling revenues.
Just look at the evolution of Robert Bowman, head of MLB Advanced Media, who was slow to adopt daily fantasy. Just two years ago, Bowman was a vocal opponent of daily fantasy, but Bowman has since reversed his position and Major League Baseball signed a sponsorship with DraftKings as the “Official Mini-Game of MLB.”
So why the sudden change of heart? Kenny Gersh, EVP of Business at the MLB’s media branch said, “Expanding our exclusive partnership with DraftKings will bring new and exciting ways for fans, particularly younger fans, to play daily fantasy baseball.” Leagues recognize they can leverage consumers' cravings for fantasy content into higher ratings, more viewership and engage fans during non prime-time games. For a sport that is having trouble attracting a younger audience, it seems like a natural move for MLB to make.
The FTSA data supports this position as well, stating that daily fantasy sports players consume 40% more sports content after becoming players. The theory is that it no longer takes a prime-time game to engage a fan if, for example, DFS players now have an exciting reason to watch the Sixers play the Hornets on a Tuesday afternoon.
Other league officials like NBA Commissioner Adam Silver went full monty on betting by advocating for full legalization and regulated sports gaming in the New York Times. Silver first called for Congress to find better ways to capture lost revenues through the estimated “$400 billion illegally wagered on sports each year,” which is a cause both Congress and the leagues could care about. Then Silver got a bit more myopic, stating, “Gambling has increasingly become a popular and accepted form of entertainment in the United States,” making a not-so-subtle claim that betting on sports is just derivative revenue made off the intellectual property they (all sports leagues) create.
Follow the money and the laws will follow
Ultimately, we are just playing catch up with the United Kingdom and most of Europe. Take the The English Premier League, which has embraced gambling by running a legal sports book in Wembley Stadium. There are also thousands of sports betting shops regulated on behalf of the government's Department for Culture, Media and Sport. Soccer stadiums contain gambling kiosks. Publicly traded United Kingdom companies make legal online gaming easily accessible from home, via a computer or on the go with mobile apps. The United Kingdom government generated £1.7bn in tax revenue from gambling in 2012-2013, with the the gambling industry in the United Kingdom employing over 100,000 people. In total, gambling generates more than $9.6 billion in revenue -- close to 0.5% of the nation's GDP.
It is not hard to discern why politicians can get behind changing the law with these kind of tax revenues at stake for their constituents . . . not to mention the campaign donations from all the people and companies that could benefit from a change in the law.
As changes in American culture and policy continue to evolve, the illegal sports betting market could bring hundreds of billions of dollars into the gaming business. With the professional sports leagues embracing daily fantasy sports, consumer interest exploding, and entrepreneurs bringing new game types of game play to this emerging market, we have only begun to scratch the surface of the upcoming sports betting boom.
This article was co-authored by Toni Gemayel, the CEO of FanJam, a mobile daily fantasy basketball game where you can play your friends in head to head contests for cash. Connect with him on twitter @tonigemayel
Darren Heitner is a lawyer and the Founder of South Florida-based HEITNER LEGAL, P.L.L.C., which has a focus on Sports Law and Entertainment Law.
