The biggest TV ad blitz during the National Football League’s season-opening week wasn’t selling Budweiser or a big Ford truck. It came from DraftKings, a
billion-dollar fantasy-sports upstart asking, “Are your dreams big enough to cash a giant check?”
But as millions of Americans sign up for DraftKings, FanDuel and rival “daily fantasy sports” sites, lawmakers have increasingly raised a critical question dogging one of the Internet’s fastest-growing gaming empires: Is it legal?
The sites offer cash prizes in high-speed contests in which bettors can craft an imaginary team of real-life players, which is then scored on how well the athletes performed on the field.
DraftKings guaranteed winnings of $10 million during the NFL’s first week, including a $2 million top prize.
Classified by law as a game of skill, not chance, the business has been deemed legal under a loophole in the federal ban on online gambling. But this year a dozen states — including California, where one lawmaker has made demands for strict new licensing and regulations — have considered legislation that would affect the online games.
U.S. Rep. Frank Pallone Jr. of New Jersey, a state with a long history of gambling, called this week for a congressional hearing into the surging business, possibly setting the stage for the industry’s first true legal challenge.
“Anyone who watched a game this weekend was inundated by commercials for fantasy sports,” Pallone (D) said in a statement. “Despite how mainstream these sites have become, though, the legal landscape governing these activities remains murky and should be reviewed.”
The games were designed specifically to fit under the 2006 Unlawful Internet Gaming and Enforcement Act, which banned games such as poker online but carved out protections for the fantasy sports popular in workplace leagues. At that time, the lightning-speed daily version now clobbering the airwaves had yet to pocket its first bet.
DraftKings’ chief executive, Jason Robins, defended the games, for which entry fees range from
25 cents to more than $5,000, as a legitimate, skill-based and legally protected way for fans to show their love for the game.
For “anyone who has taken the time to understand the law as it relates to DraftKings’ offerings, and anyone who has seen the data . . . on the skillfulness of the game, it’s really, honestly not a debate,” Robins said. “It’s clearly legal. And we have a team of great lawyers who watch everything we do.”
The sites are young and unprofitable but spending wildly in hopes of dominating the potentially lucrative industry, which Eilers Research, a gambling-trade analysis firm, said could attract more annual player spending than Las Vegas’s sports books by 2016.
The three-year-old DraftKings has spent more than $80 million on national airtime since Aug. 1, according to data from industry tracker iSpot.tv, almost three times what the company made in total revenue last year.
The sites, valued by private financing deals at more than $1 billion, have been backed by some of media and sports’ biggest conglomerates, which see the fast-paced, quasi-addictive game play as a way to hook new viewers and keep them watching and spending on sports.
The New York-based FanDuel has signed sponsorship deals with the National Basketball Association and 16 NFL teams, and been boosted by investors including NBC Sports, Google and Comcast.
DraftKings has pocketed hundreds of millions of dollars in investments and has inked deals with ESPN, Fox Sports and the national pro leagues of baseball, hockey and soccer, as well as a dozen NFL teams. Last weekend, the New England Patriots’ home stadium started pouring beer for ticket holders at a new lounge, the DraftKings Fantasy Sports Zone.
The modern clash between the games and lawmakers “seemed inevitable,” said Adam Krejcik, managing director of Eilers Research. “They’ve become these very visible, trending targets, and clearly they’re on a very close line between what’s considered gambling and what’s not.”
Over the last week, DraftKings became America’s biggest TV advertiser, spending $20 million on more than 5,800 commercial airings, more even than Geico, Verizon and AT&T, according to iSpot.tv data. FanDuel has spent $20 million since Aug. 1, about the amount that one of the NFL’s top quarterbacks earns for an entire season.
The companies have added to their spending glut by guaranteeing huge rewards — a big gamble, considering they’ll have to pay out whether their games attract enough paying players or not.
But DraftKings’ Robins, whose site awarded $300 million in prizes last year, said the big bets were just a cost of doing business in an industry with seemingly skyrocketing appeal.
“The worst experience possible,” he said, “is you’re doing all this marketing and driving people to your Web site, and there’s nothing for them to play.”
The industry’s ad offensive seems to have worked. Hundreds of thousands of new players joined DraftKings during the first days of the NFL season, 10 times as many as signed up at the same time in 2014, Robins said.
Some analysts worried that the advertising flood threatened to drive potential players away. But Robins said that the company still has an onslaught of marketing planned for American airwaves, built to attract the 95 percent of fantasy-sports players who haven’t tried a hand at DraftKings’ game.
Traditional fantasy sports have for years attracted casual players across office and online leagues, and according to the Fantasy Sports Trade Association, more than 56 million in North America are expected to play this year, up from 12 million in 2005.
But DraftKings’ model ratchets up the speed by swapping the typical season-long commitment with a day-long sprint designed to keep players anteing up for new games and chasing glitzy rewards.
“The main reason people play these sites isn’t to make money,” said Krejcik, the industry analyst. “The overriding reason is for the entertainment value: that added thrill and excitement that it provides the player who’s already watching sports.”
The companies have also bulked up their empires beyond advertising. This year, FanDuel has expanded its roster by buying Kotikan, a Scotland-based
developer of mobile apps, and hiring most of the team at Zynga’s closed sports division in Orlando.
The company last month bought NumberFire, a sports-
analytics site that calls itself “the world’s most accurate predictor of sports performance,” an addition that chief executive Nigel Eccles said would help it “build a multiplatform sports entertainment company.”
Neither company seems that worried about a coming conflict on the legal gridiron. Robins wouldn’t speak specifically to lawmakers’ proposed crackdowns, but he swatted away the idea that his industry had anything to worry about in the months ahead.
“It’s easy for some people to say . . . ‘Hey, this is a question,’ ” Robins said. “It doesn’t mean they’re right.”