It is quite fitting that FanDuel, the leading daily fantasy sports (DFS) provider, took the audacious risk of being the lone sponsor on Floyd Mayweather’s boxing trunks at Saturdays’ fight at the MGM Grand.
Sure, the company took some heat publicly last week for its decision to lend its name to a boxer with a documented history of beating women. But after Mayweather emerged victorious Saturday night, the move appears to have been a risk worth taking.
Though much of the banter Saturday evening was about some journalists that Mayweather’s camp supposedly blacklisted from the event, FanDuel’s bold move to endorse the world-class yet controversial Mayweather is emblematic of the high-risk, high-reward business model that DFS providers are pioneering.
Make no mistake – FanDuel and the DFS business have earned the right to be adorned on the boxing trunks of the heavy hitters. In an era of wishy-washiness by sports leagues and regulators as to the future of traditional sports betting, DFS companies are ambitiously developing and offering products to meet the demands of sports betting-crazed Americans.
Equally noteworthy is how DFS’s surge to prominence has left the big players in the casino business scratching their heads over how to respond.
“We don’t know for sure how many billions are being wagered on fantasy sports – clearly it can’t be ignored,” MGM CEO Jim Murren said at an American Gaming Association briefing last week. “MGM’s perspective is that we don’t know exactly what role we should play.”
The DFS subsector’s ability to establish itself in a murky regulatory area – known as the “fantasy sports carve-out” of the 2006 Unlawful Internet Gambling Enforcement Act, has relegated the traditional gambling powerhouses, including MGM, to the sidelines as consumers under 40 years of age ditch the slot floors in favor of fantasy sports contests.
“We haven’t engaged in it because we haven’t gotten comfort from our regulators,” added Murren. “We can only conduct ourselves in an industry that’s going to be highly regulated because we have huge reputational risk.”
The AGA, for which Murren is also the board chair, is launching a task force aimed at developing a cohesive industry position on how to approach DFS, with its findings scheduled to be delivered at the upcoming November AGA board meeting.
All indications are that this could be a sticky business for the gaming industry to wrap its head around. Calls to abstain from involvement until a proper regulatory framework is in place may fall on deaf ears should FanDuel, DraftKings, and other upstart fantasy websites continue their explosive growth over the course of the year.
As with the online poker industry, clout in the DFS world is based on the amount of liquidity – the size of the player base – a company possesses. This predisposition to an oligarchic competition model is rumored to interest companies like Yahoo, PartyPoker, and William Hill, which already possess large player bases. If one or more of these jump in soon, the DFS ship may have set sail well before November arrives.
The legal and regulatory foundation could also change significantly by November. Fantasy sports are currently unregulated in most jurisdictions, but at least eight states are exploring new rules that would govern the games. Because no set definition yet exists of what fantasy sports is and is not, it is difficult to predict how lenient or punitive new rules might be towards DFS.
The key question is whether or not DFS is gambling, and if so, whether the games qualify as legal or illegal forms of online gambling.
Many sports league and DFS executives adamantly insist that fantasy sports are not classic gambling because of the UIGEA carveout. However, MGM’s Murren has a different view: “It is gambling. You can’t tell me that people filling out a team is not gambling when they’re trading players on a daily, hourly basis and money is changing hands.”
He added that sports league officials who insist that DFS is not gambling are “absolutely, utterly wrong”. “I don’t know how to run a football team, but I know how to run a casino – and this is gambling.”
Any person that’s being honest will surely agree with him – especially after looking at how many of the DFS sites market themselves. Of course, even if DFS is deemed to be gambling, that doesn’t make it inherently illegal – that all depends on the regulations of each state and the specific rules of the contests.
Marc Edelman, a sports law attorney, breaks the games into three separate buckets – each of which appear to have varying degrees of legality under the UIGEA language and any future individual state regulations. The traditional, full-season duration fantasy leagues that have existed for decades do not appear to pose any risk in most jurisdictions. DFS games like those operated by FanDuel and DraftKings toe the line but will likely past the legal smell test. But DFS games that allow players to wager against the house or allow wagering on match outcomes are treading in dangerous water.
Which of these game types will be affected, who will be allowed to participate, and how the DFS space will evolve more broadly if regulations are introduced or a legal challenge is raised is anyone’s guess at this point.
One thing we can say for sure is that the many calculated risks taken by DFS sites, whether it be sponsoring Mayweather’s trunks or exploiting an obscure carve-out that larger casino industry would not touch, have created a new giant in the gaming business.
