Financial Impact of Daily Fantasy Sports: Part Two

Posted on by Jacob Saslow

The first part of this two-part blog series discussed the legal distinction currently in place that allows daily fantasy sports sites such as DraftKings and FanDuel to operate. Although sports’ gambling is illegal in most states, the Unlawful Internet Gambling Enforcement Act legalizes fantasy sports gambling when the winnings “reflect the relative knowledge and skill of the participants” and are determined by the real-world performances of individual athletes in multiple sporting events.1 Given its legal position, daily fantasy sites are currently booming in the United States. This blog post will discuss the financial implications of daily fantasy sports’ rising popularity and will focus solely on DraftKings and FanDuel, as they represent the near entirety of the daily fantasy sports market (together, FanDuel and DraftKings control ninety-five percent of the daily fantasy sports market).2 First, I will note the current endorsement deals between these daily fantasy sites and professional sports leagues. Next, I will discuss the recent profit growth of these two sites and the parallel increase in traffic. Finally, I will discuss a recent public relations disaster with DraftKings and FanDuel, and what this suggests about their future prospects. Ultimately, I hope to show that the majority of the sports industry, as well as many other industries, are financially implicated with the success and failure of daily fantasy sports and its legality.

As noted above, professional sports leagues such as the National Football League (NFL) and the National Basketball Association (NBA) have recently partnered with DraftKings and/or FanDuel. The NFL now has endorsement deals with daily fantasy sports sites, and some franchises in the NFL have individual deals with such sites.3 Currently, twenty-eight of the thirty-two NFL franchises have endorsement deals with the two top daily fantasy websites, and the League itself has made clear that it supports this activity.4 These endorsements run directly counter to the NFL’s policy on normal sports betting, which they explicitly denounce.5 Similarly, the NBA recently announced a four-year sponsorship deal with FanDuel.6 Further, FanDuel has multi-year partnerships with thirteen NBA teams.7 These deals provide advertising opportunities, in-arena advertising, and in-game promotions.8 It is worth noting that this is only a breakdown of FanDuel’s sponsorship deals: DraftKings has similar deals with many of the remaining seventeen NBA franchises.9 Finally, the other two major United States professional sports leagues, National Hockey League (NHL) and Major League Baseball (MLB), have multi-year partnership deals with DraftKings.10 In fact, not only do they have deals that provide for advertising opportunities, the MLB actually owns equity in DraftKings.11 This means that the MLB profits when a daily fantasy site becomes more popular. This example perfectly highlights the interest major professional sports leagues have in the continued success and popularity of daily fantasy sites.

Recently, there was a report of insider dealing between the two sites. Specifically, employees at each company were betting on the other site, potentially with insider information that would give them a distinct advantage.12 In the aftermath of this story, revenue of the two sites actually increased noticeably.13 Currently, DraftKings generates roughly $2.6 million in profits per week, while FanDuel generates roughly $3.5 million in profits.14 These numbers lead to two conclusions. First, even in the wake of scandal, these two sites continue their upward climb in terms of profits, participation, and market control. Second, with sponsorship deals with the four major sports leagues, these sites have partnered with the entities that they depend on for success. As long as these four sports leagues have a stake in their success, DraftKings and FanDuel have the resources and power behind them to continue to fight scandals and cries for regulation. The NFL, NBA, NHL, and MLB are large, powerful, money-generating entities. Partnering with them bodes well for the success of DraftKings and FanDuel moving forward.

Last week, the New York State attorney general determined that FanDuel and DraftKings constitute illegal gambling, and will not be allowed to continue in New York.15 This could represent a decision that other states follow. Or, New York could remain an outlier. However, in either case, the market-hold that FanDuel and DraftKings have, as well as their partnerships with powerful leagues (who have significant leverage, financial and political) suggests that they will not go down without a fight. The fact that these sites have enough of a financial impact to garner attention from the New York State attorney general suggests that there are many economic, political, and social implications tied to the legality (or illegality) of daily fantasy sports.

  1. 31 U.S.C.A. § 5362 (2006). ↩

  2. Sarah E. Needleman, Storm of Criticism Engulfs DraftKings, FanDuel, Wall St. J., http://www.wsj.com/articles/storm-of-criticism-engulfs-draftkings-fanduel-1444107475?alg=y (Oct. 6, 2015, 12:57 AM). ↩

  3. Alex Reimer, The NFL’s Embrace of Daily Fantasy Sports is Beyond Hypocritical, Forbes, http://www.forbes.com/sites/alexreimer/2015/09/29/nflpa-draftkings-partnership-is-hypocritical/ (Sep. 29, 2015, 3:32 PM). ↩

  4. Id. ↩

  5. Will Hobson, Sports Gambling in U.S.: Too Prevalent to Remain Illegal?, Wash. Post, https://www.washingtonpost.com/sports/sports-gambling-in-us-too-prevalent-to-remain-illegal/2015/02/27/f1088e4c-b7d3-11e4-9423-f3d0a1ec335c_story.html (Feb. 27, 2015). ↩

  6. Darren Heitner, FanDuel Signs Multi-Year Partnerships with 13 NBA Teams, Forbes, http://www.forbes.com/sites/darrenheitner/2015/06/23/fanduel-signs-multi-year-partnerships-with-13-nba-teams/ (June 23, 2015, 8:54 AM). ↩

  7. Id. ↩

  8. Id. ↩

  9. Id. ↩

  10. Id. ↩

  11. Id. ↩

  12. Sarah E. Needleman, Storm of Criticism Engulfs DraftKings, FanDuel, Wall St. J., http://www.wsj.com/articles/storm-of-criticism-engulfs-draftkings-fanduel-1444107475?alg=y (Oct. 6, 2015, 12:57 AM).  ↩

  13. Cork Gaines, Draftkings’ Profit Jumps Nearly 40% After Scandal Rocks Daily Fantasy Sports, Business Insider, http://www.businessinsider.com/draftkings-revenue-daily-fantasy-sports-2015-10 (Oct. 12, 2015, 11:19 AM). ↩

  14. Id. ↩

  15. Brent Schrotenboer, New York AG Classifies Fanduel, Draftkings as ‘Illegal Gambling’, USA Today, http://www.usatoday.com/story/sports/2015/11/10/daily-fantasy-fanduel-draftkings-new-york-illegal-gambling/75543644/ (Nov. 10, 2015, 9:10 PM). ↩

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