FANTASY SPORTS, REAL MONEY: THE RISE OF DRAFTKINGS & FANDUEL

by BROCK KOLLER

I have a new friend. His name is Dave Gomes.

I know a few things about him. He likes watching football. He likes the Patriots. He likes fantasy sports. And he recently won a million dollars. Plus, I’ve seen him multiple times over the past few months of my life.  I haven’t seen my best man that many times and he’s my brother.

The truth is, though, Dave Gomes and I have never met. But it sure feels like we have.

If you have turned on ESPN in recent weeks (or any other channel for that matter), you will more than likely know about my friend Dave Gomes and you most likely have seen him as many times I have – whether you were watching NFL games or the Late Show with Stephen Colbert.

Dave Gomes is that nervous looking backward hat wearing face rubbing dude in the DraftKings television commercial who goes crazy when his fantasy players lead him to a million bucks.

“This is the feeling of turning a game you love into a lifetime of cash.”

You know what I’m referring to - because it plays constantly on rotation during any sporting event on television.

Like many of you, that TV spot was my introduction to DraftKings. (Sure I’ve heard of it prior, but never really paid attention until the 75th viewing of the commercial.)

After seeing the ad, I started seeing DraftKings pop up more and more, especially surrounding Major League Baseball properties. 

From MLB announcing a new mini fantasy game from DraftKings to Greg Amsinger, Harold Reynolds and the MLB Tonight crew making DraftKings daily picks.

It turns out DraftKings and MLB – at least MLB Advanced Media – have had a deal since 2013.

In April 2015, Jason Robins, CEO of and co-founder of DraftKings, told Sports Business Daily, “Two years ago, MLB and DraftKings signed the first league deal in daily fantasy history, and we are excited to deepen that ground-breaking relationship through this new, league wide, exclusive partnership. MLB has long been at the forefront of embracing new technologies to create superior fan experiences, and DraftKings couldn’t be happier to partner to continue that tradition of innovation.”

DraftKings has become the official daily fantasy game of MLB, but America’s pastime is not alone in wanting to be part of this phenomenon.

Delving into the world of DraftKings and its competitor FanDuel – you’ve seen those commercials too, admit it – you will find a plethora of businesses and sports leagues either owning a portion of these daily fantasy companies or striking deals to make sure they are in the game.

The NBA is part owner of FanDuel. ESPN struck a deal making DraftKIngs the only daily fantasy gaming site allowed to advertise on their network in 2016. NBC Sports and Comcast Ventures own part of FanDuel. The NHL invested into DraftKings.

In November of 2014, NHL Executive Vice President of Global Partnerships Keith Wachtel told Forbes’ Darren Heitner, DraftKings is no different than any of their other “big partners [who] embrace the NHL.”

“In addition to all the content that we are embedding DraftKings in across the league, they are supporting the Winter Classic, All-Star Game, Stadium Series and the NHL Awards in Las Vegas.  They are using those events like Pepsi does, Bridgestone does and Coors Light does.  It’s rare that you get in sponsorships partners that are organic to the sport,” Watchel said.  

Pepsi. Bridgestone. DraftKings. This is the new Americana.

This year, Time Warner, Google, and venture capital firm KKR joined in a $275 million investment into FanDuel.

While the Kraft Group which owns the NFL's New England Patriots has a stake in DraftKings, as does Fox Sports who invested $150 million - this after Disney backed out of purchasing equity, but is still in a relationship with the company in their ESPN deals.

While the topic is fantasy, this is some real big money we are talking about. In fact, according to a July 2015 Re/code article, after the Fox deal, DraftKings was valued at $1.2 billion. That’s billion with a B – as in By gawd that’s a lot of money. Re/code points out that rival FanDuel raised $275 million just two weeks prior.

The Wall Street Journal - who else - has all the numbers

FanDuel, credited with starting the industry in 2009, generated $57 million in revenue in 2014 and awarded $564 million in cash prizes. The company has said it would dole out $2 billion in prizes this year, implying it hopes to more than triple its revenue to about $200 million in 2015. DraftKings, founded in 2011, made $30 million in revenue last year and gave away $300 million in prizes. It has pledged to give away at least $1 billion in prizes this year.

But what about stalwart old guard fantasy sites? You’re talking about Yahoo, right? Well, they are in this business, too. Forbes' Marc Edeleman argues that with its free advertising space on its search engine and its already popular “traditional fantasy sports website,” Yahoo has the possibility to become the number one daily fantasy site.

Edeleman points out - as anyone with a TV would to - that DraftKings and FanDuel have no problem at the moment advertising themselves, spending $9.2 million and $21 million in one week alone respectively.

With the proliferation of daily fantasy sites (and commercials), the question hovering over all of this is – wait, is this legal?

The answer, as it stands right now is yes.

DraftKings, FanDuel,  Hulk Hogan endorsed FanPicks.com, and whatever else comes next are legal because of a law called the Unlawful Internet Gambling Enforcement Act which views these sites as a “game of skill” and not a “game of chance.”

In April 2015, Business Insider took a deeper look at this:

In 2006, the federal government passed a law called the Unlawful Internet Gambling Enforcement Act that establishes fantasy sports as a "game of skill" and not a "game of chance." The law states that it's legal if it:

 (I) is not dependent solely on the outcome of any single sporting event or non-participant's singular individual performance in any single sporting event;

(II) has an outcome that reflects the relative knowledge of the participants, or their skill at physical reaction or physical manipulation (but not chance), and, in the case of a fantasy or simulation sports game, has an outcome that is determined predominantly by accumulated statistical results of sporting events, including any non-participant's individual performances in such sports events

So unlike regular sports gambling, where you purely bet on the outcome of games, the law is classifying fantasy sports as a form of game where actual skills matter to win.

Feel free to read the UIGEA for yourself – it’s a real page turner!

To prove their legality, both companies have explanations on their sites. DraftKings has a link marked “100% Legal” to read their reasoning, which is: 

The legality of daily fantasy sports is the same as that of season long fantasy sports. Federal Law and 45 of the 50 US States allow skill based gaming. Daily fantasy sports is a skill game and is not considered gambling.

 FanDuel goes into it a little longer:

Yes, Fantasy Sports is considered a game of skill and received a specific exemption from the 2006 Unlawful Internet Gambling Enforcement Act (UIGEA). FanDuel uses exactly same rules as season long fantasy sports game, the only difference is that our games last only a day. Thanks to fantasy sports being specifically excluded from laws affecting online sports betting, FanDuel is not illegal in any way. Trust us, our lawyers drive very nice cars so that we can keep it that way. We're also members of the The Fantasy Sports Trade Association (FSTA).

So the legality of this ‘game of skill’ seems to be decided, for now, which means the companies and their backers can continue to focus on getting more users, which there appears to be many of.

Wedbush Securities analyst Michael Pachter told the Wall Street Journal in July 2015,  “30 million participants, including one in three males over the age of 15, play some form of fantasy sports online in the U.S. alone. The daily segment is growing within that category.”

So what if you never played on DraftKings or FanDuel before? How does it work?

Here’s a good video explainer from the Journal on that one:

The daily fantasy sports business is fairly new, especially when looking at the top players in the field, but, as the NHL executive alluded to earlier, this is not unlike any other business.

DraftKings is a Boston based company started in 2012. FanDuel is a New York based company started in 2009.  Real companies in the business of fantasy sports. 

While both are growing because of investors and sponsorships, both are also doing a little buying of their own. Recently, DraftKings purchased the reportedly third largest daily fantasy company DraftStreet. FanDuel meanwhile acquired numberFire, a sports analytics company.

So it appears the fight is on. DraftKings vs. FanDuel. Boston vs. New York. That sounds like a good sports rivalry to bet on. Legally, of course.

While it’s anyone’s guess which site will prevail over the other, it's a safe bet we’ll be seeing this battle play out during every NFL timeout, NBA halftime, NHL intermission, and MLB pitching change.

And to my friend Dave Gomes, if you’re in the neighborhood, buddy, let’s grab a drink and talk about who you think will win.

You’re buying.