It has been a weird year in the daily fantasy sports (DFS) industry.
The two leading companies in the space, DraftKings and FanDuel, canceled their planned merger, eight months after announcing it, and after their lead executives spent many more months working together behind the scenes to pull it off. It was supposed to be a synergistic combination of two close competitors into one dominant platform.
Perhaps most important: On Dec. 4, the U.S. Supreme Court will at last hear the New Jersey sports betting case, Christie et al v. NCAA et al, which will determine whether New Jersey can allow sports betting despite the existing federal ban, PASPA (Professional and Amateur Sports Protection Act of 1992).
While DFS isn’t specifically an issue in the New Jersey case per se, it is seen as a factor that has helped drive the general momentum toward repealing PASPA. Geoff Freeman, president of the American Gaming Association, told Yahoo Finance that DFS, “has been the most significant thing when it comes to raising attention to the demand consumers have to no longer be passive, but to be engaged in these games one way or another.”
DraftKings CEO Jason Robins said recently that the company would weigh its options if PASPA is repealed, a suggestion that it might become a regulated sportsbook despite years of insisting that its contests do not constitute betting.
Alex Rikleen is a DFS NBA writer for RotoWire and other fantasy sites (including Yahoo). He says DraftKings, “has completely passed FanDuel in popularity. When people ask me for DFS advice, I just assume they are asking about DraftKings unless they specifically say otherwise. But FanDuel still has a large, loyal fan base.”
DFS operators, led by DraftKings and FanDuel, generated only $327 million in revenue from September 2016 to September 2017. (Their “handle,” which is the total amount of entry fees that users paid, was over $3 billion, but the $327 million is their revenue after paying out prize money—and they still aren’t profitable.) As Adam Krejcik of Eilers & Krejcik Gaming tweeted, “Unicorn status for DK and FD hard (or impossible) to justify.”
On the other hand, the year was a positive one in terms of the legal landscape. After fighting New York Attorney General Eric Schneiderman in court for a year, during a time of intense legal scrutiny on the industry, New York passed a bill expressly legalizing and regulating daily fantasy sports. More than 15 states followed suit.
It would appear, for now, that the regulatory momentum is mostly with, not against, this industry.
DraftKings CEO on 2017 regulation, IPO possibilities
Amidst all the sweeping change in the industry, Yahoo Finance sat down for an extensive interview with DraftKings CEO Jason Robins in October.
“Things have changed a lot” since the start of the 2015 NFL season, Robins said. “Two years ago, it was all crazy growth, people throwing money at us. It was this wild rocket ship and we were trying to navigate it as best as possible but also not do anything to slow it down. Now it feels more like I have room to navigate, and I like that better. But it’s also fun when you’re on the rocket ship, obviously. After that phase, how do you get it from good to great?”
Getting the business to “great,” for a tech startup, depends on innovation and product improvements, and Robins said that two years of focusing on compliance has impinged on tech innovation at DraftKings.
“There was a very deliberate shift for the last couple years to focus on compliance,” he said. “There was a lot of time spent on that, and I feel like we’re behind. I want to be farther ahead than we are in terms of everything that’s happened with technology in the last couple of years. We would have been right on the cutting edge, but we’re a step behind. We’ll catch up. I hate being behind.”
Robins answered this way: “Honestly, I don’t really ever think about that. I shouldn’t say never, people ask you about it, so it comes up. But day to day I don’t think about it. I don’t feel like we’re there right now. I think when you start to get there you know, and then you start preparing, but we’re not. Right now, it makes sense to try to grow the business, and I think when it gets time, whether it’s IPO or a sale, if that’s the right thing to think about, I’ll know. I have rough ideas in my head about when it could happen, but it’s hard because you can only tell so much of the future.”
In terms of the near future, the next major event is the New Jersey sports betting case. Robins referred to the case as one of “many different things going on in the backdrop right now that we’re watching.” Indeed, everyone who cares about DFS is watching too.
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Disclaimer: Yahoo offers its own daily fantasy sports product.
Daniel Roberts is the sports business writer at Yahoo Finance. Follow him on Twitter at @readDanwrite.
