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The unwillingness of FanDuel to take risks hurt their place in DFS




Fan Duel was the first daily fantasy sports site online, but the conservative approach of the CEO and company has left them in Draft Kings' wake.

When daily fantasy sports (DFS) was launched by FanDuel in 2010 it was the only DFS site in operation. CEO Nigel Eccles apparently took a close look at the (Unlawful Internet Gaming Enforcement Act) UIGEA and determined that fantasy sports was exempted from the law and there were no stipulations indicating that it had to be a season long rotisserie league. Consequently, he met with lawyers who agreed that DFS was perfectly legal and with that knowledge he attracted investors and launched the first DFS contest in 2010. The exact wording of the DFS carve-out in the UIGEA is as follows:

31 U.S. Code § 5362 (1) Bet or wager.—The term “bet or wager”— … (E) does not include— …

(ix) participation in any fantasy or simulation sports game or educational game or contest in which (if the game or contest involves a team or teams) no fantasy or simulation sports team is based on the current membership of an actual team that is a member of an amateur or professional sports organization … and that meets the following conditions:

(I)  All prizes and awards offered to winning participants are established and made known to the participants in advance of the game or contest and their value is not determined by the number of participants or the amount of any fees paid by those participants.

(II)  All winning outcomes reflect the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical results of the performance of individuals (athletes in the case of sports events) in multiple real-world sporting or other events.

(III)  No winning outcome is based— (aa) on the score, point-spread, or any performance or performances of any single real-world team or any combination of such teams; or (bb) solely on any single performance of an individual athlete in any single real-world sporting or other event.

Eccles wanted to ensure he was following the UIGEA carveout to a tee, however, so he created a site with contests that contained at least 2 different games, was based on statistical outcomes and required bettors to draft multiple players under a set salary cap to ensure that it was a game of skill. All prizes were also announced ahead of time as was required and contests were for as little as 25 cents to as much as several thousand dollars.vFanDuel was immediately successful and American sports bettors, who felt they were unable to wager on traditional sports betting because of the UIGEA and PASPA, had a new venture to fulfill their sports betting desires.

In 2013, Jason Robbins launched DraftKings, headquartered out of Boston, to compete with FanDuel and the two sites took all of the DFS action until Yahoo Sports launched a DFS site a few years later. DraftKings was successful, especially after purchasing Draftsheet, but it dwarfed in comparison to FanDuel. That all changed when DraftKings decided to offer non-team sports in 2015, first with golf and then with NASCAR. The thinking of the company was that because golf took place over 4 rounds it was essentially the same as betting multiple games, since each round was independent of the others. With NASCAR the thinking was similar in that a race is contested over multiple laps and broken up by pit stops so they believed it met the requirement II – i.e. Contested in multiple real-world sporting or other events. DraftKings also set up sponsorships with NASCAR to ensure they wouldn’t complain.

fantasy sportsNevertheless, Eccles wasn’t convinced that non-team fantasy sports was legal, so he chose not to offer either sport at FanDuel for almost 2 years, when it was already a popular offering at DraftKings. Golf has gone on to be the second biggest money maker for DraftKings behind only the NFL. But DraftKings didn’t stop there. The company also offered eSports, MMA and most recently tennis. And, while FanDuel eventually offered most of those events too, it was only in reaction to DraftKing’s innovation and willingness to take the risk.

But it wasn’t just with sporting options that DraftKings was more of a risk taker than FanDuel. When New York suggested DFS was illegal, FanDuel immediately withdrew their services to that state, while DraftKings continued to cater to New York residents pending a legal opinion, although they eventually left, and then both returned after the New York Governor declared DFS legal. And in other states, like Illinois and Missouri, FanDuel seemed ready to simply leave when their AGs stated DFS was illegal, while DraftKings was ready to fight. In the end both stayed. The one state where there was a difference in action, and still exists, is Texas. The Texas AG issued an opinion in 2006 that he believed DFS violates Texas law and upon issuing that statement FanDuel agreed to leave the state despite it being one of the company’s biggest geographical customers. DraftKings on the other hand said it would stay and fight, plus they doubled down by increasing advertising in the state and setting up partnerships with the Houston Astros, Dallas Cowboys and other Texas sports leagues. And recently in Texas I was told by a gambling analyst there that he is now confident that the state will give up the fight soon, because Texans have become accustomed to DraftKings and it will be political suicide to any politicians that kick them out.

DraftKings has also been more perseverant in attracting team sponsorships. FanDuel set up early sponsorships with various NFL and NBA teams but have let most of those sponsorships lapse and they really never pursued partnerships in other sports. DraftKings on the other hand set up a sponsorship with all of MLB and most of the NHL, all of which continue today and as a result of the recent venture into Europe they set up partnerships with three major Premiere League Teams. They also sponsored the Breeders Cup (even though they never offered horse racing as a contest), the WWE, UFC and the World Poker Tour, including the WSOP, although that sponsorship lapsed after Nevada declared DFS illegal and both sites withdrew from the state.

It’s no surprise therefore that in the last three years DraftKings has grown in leaps and bounds, while FanDuel has started going south. The two sites wanted to merge in late 2017, but were turned down by the FTC who declared it illegal per anti-monopoly laws. Still it is unlikely that DraftKings would have agreed to the merger anyways once they were given a new opportunity with the ability to offers sports betting and given the fact they recently reached the 8 million customer mark. Jason Robbins has gone on record saying that he believes the future for DraftKings is very bright. FanDuel on the other hand let go Eccles as CEO in 2017 after the failed merger attempt and after the company agreed to pay the Massachusetts Attorney General’s office for deceptive advertising. And only a few months ago Paddy Power-Betfair acquired the majority of FanDuel in order to use the popular name to offer sports betting in the United States. In fact, last month Paddy Power-Betfair opened the first FanDuel branded sportsbook at the Meadowlands Racetrack in New Jersey. Paddy Power-Betfair currently owns 61% of FanDuel, but are expected to take full ownership in the next 2 years. What Paddy Power-Betfair will do with the DFS product is uncertain. DFS really doesn’t fit in to the traditional sports betting products offered by the company, but they will likely keep it going as a spinoff, similar to TVG which the company also owns and with the right personnel could be a money maker going forward. But it’s almost certain that DraftKings, with its commitment to the product, will cement itself at the top of the DFS worldwide.

So the story of DraftKings and FanDuel is the quintessential story of two businesses with a similar product and vision, but which had a completely different plan in achieving that vision. One company kept a low profile and avoided taking too many risks for fear of breaking the law and attracting the notice of lawmakers, while the other company put its name out there at every opportunity and was willing to take some risks and face the consequences of those risks, realizing that doing nothing would almost certainly mean failure. It’s safe to say that unless Paddy Power-Betfair make an unlikely huge push to revigorate the FanDuel DFS brand, in a generation or two, DraftKings will be the company everyone knows and wagers with when they want to play daily fantasy sports. Meanwhile FanDuel will likely just be a name people associate with U.S. sports betting.

Read insights from Hartley Henderson every week here at OSGA and check out Hartley's RUMOR MILL!