The repeal of PASPA by the Supreme Court in the U.S. has given rise to great excitement about the potential for regulated sports betting across the country. A few states have already rushed to launch sportsbooks, with many other states in the process of passing legislation to allow licenses for sportsbooks.
The ruling opened up a Pandora’s box in the gaming world, but with it came some questions that still need answering. One of the main unanswered topics up for debate is what the future holds for Daily Fantasy Sports in light of regulated betting in the country. DFS rose very quickly in stature over the last few years, giving gamblers a chance to bet real money on some sort of daily sporting events. The government didn’t like how quickly DFS grew and how it seemingly came to be an industry born from a loophole in the UIGEA bill of 2006. The leaders in the space spent millions of dollars in legal fees to stay in business, finally getting some states to agree to regulate the business only to find out a couple of years later that sports betting itself would no longer be illegal.
Let’s have a look at the world of DFS and some scenarios that could transpire in the years to come.
Where the industry stands now
After the launch of the industry back in the early 2010s, the space was dominated by two major players: Draft Kings and FanDuel. Both of these firms raised tens of millions of dollars and then spent just as much advertising in an attempt to attract as many players as possible. Although their ad campaigns had to be adjusted to avoid shady themes, the end result was clear: in 2016, the two sites combined for over 3 billion USD of handle, earning 10% of that in revenues.
With the changes to the sports betting climate in the U.S., both Draft Kings and FanDuel found themselves in an excellent position to take advantage. SThe two companies both decided to get into the game. However, they both went separate ways. Draft Kings decided they wanted to run their own sportsbook, raising capital to build out the sportsbook side of their business. FanDuel’s owners decided the time was right to get out, selling the company to UK sportsbook powerhouse Paddy Power Betfair. The FanDual brand will be the lead brand for this company’s foray into the United Staes.
What happens to each company’s DFS business? Well, for the time being, they will continue to operate as is, allowing Americans to play where it is not illegal. As there won’t be legal sports betting in many states for a couple of years, there is still a need for the company to generate revenues from Daily Fantasy, even if they aren’t pouring the same kind of money into acquisition campaigns. However, the moves that these companies have made indicate that their future is in sports betting, not DFS.
Will other companies step up?
Draft Kings and FanDuel are not the only companies in the DFS world. There are several other smaller firms that make up a small percentage of the monthly players from the U.S. There is one theory that says that some of these companies, which aren’t likely to get into the sportsbook business, acquire the databases of the two leaders, or at the very least try to market to their players to move them over to their sites. There is still a demand for DFS, even in the wake of the Supreme Court decision. Also, there are over 40 million fantasy players in the U.S. and only a fraction of those players in the DFS game, so there is still potential to convert these players to the DFS model.
So, what’s going to happen?
Well, if we knew the answer to that question, we’d be investing in some of these companies! What we do know is that Draft Kings and FanDuel seem to have moved on from DFS as a priority, and over the coming years, as they bring on new sportsbook customers, they will let their fantasy business dwindle. If they are smart, they will find buyers for the DFS arms, as there should still be some demand for these databases. Smaller firms in the DFS industry may want to consider merging so they have the capital to make a purchase like this, and then they can take over the fantasy revenues in the U.S. while DK and FanDuel continue to march towards being leaders in the regulated sportsbook market.