We Learned Absolutely Nothing From Daily Fantasy Sports Version 1.0
It’s been a very not good week or so for the daily fantasy sports 2.0 industry, aka the companies that offer “fantasy vs. the house” or player prop parlays, or whatever you want to call it. The category includes companies such as PrizePicks, Underdog Fantasy, Boom Fantasy, Sleeper and Betr, the last of which announced its presence last week.
I wasn’t in the DFS space from the beginning, but I got here pretty early, and this week conjures the aphorism “Those who cannot remember the past are condemned to repeat it.”
To catch you up, here’s what has happened of late:
I write about the “new DFS” industry a lot, and since the last time I wrote, we’ve learned that three different states have identified player vs. the house fantasy to be the same thing as sports betting. The biggest of those is New York. Well, duh, of course it is betting. It might also be DFS depending on how you interpret the law, but it’s also definitely just parlay betting.
We also have a company that is in the DFS 2.0 industry, No House Advantage, that is not paying players. We are stopping short of saying the company is insolvent, but they aren’t talking to anyone and have locked their Twitter account. It doesn’t look good.
Second verse, same as the first
The crazy part of all this is that we have lived through a similar arc in DFS 1.0. Here’s what happened then:
In the early 2010s, FanDuel and DraftKings started offering real-money fantasy sports based on the carveout in the Unlawful Internet Gambling Enforcement Act and game of skill laws around the country.
State attorneys general and regulators started taking notice of the companies circa 2015-2016, and questioning how their fantasy games were legal. That led to a nationwide lobbying effort that was largely successful at passing DFS laws. (Side note: I would love to know how many of the lawmakers who voted for these laws think that parlay pick’em is a thing they thought they were authorizing.)
We also had the unregulated DFS space see a company (Fantasy Aces) go bankrupt that used player funds to cover operational expenses.
So if you’re surprised by what’s going on in DFS 2.0, you are the proverbial ostrich with its head in the sand, hoping that history wouldn’t repeat itself.
A lot of this was predictable, and the script is playing out the same way:
Companies use fantasy sports and game skill laws to push the envelope on what is fantasy to emulate sports betting.
They start getting big and attracting attention, while also attracting attention to themselves.
States take a closer look at it and say it’s gambling.
Companies that are in the space face little to no regulation and we get the lid blown off of bad actors.
Where this goes next, who knows. Maybe the category survives all of this. After all, if they keep doing fantasy vs. the house in the three largest states — California, Texas and Florida — a lot of what is happening of late is noise. They probably survive without one of those states calling into question the category’s legality. (That’s assuming payment processing continues for these platforms, which is another thing that could make it come crashing down.)
If you like to listen to me rant about all this stuff in addition to reading about it, we get into it at length on the Legal Sports Report podcast.
Before I go, I also want to set a few things straight about the narrative around all of this.
No, the law isn’t changing
The states that took action aren’t changing anything. They looked at the product DFS 2.0 is offering and said, “That’s sports betting.”
And while I understand the legal argument (which is pretty good!) for player prop parlays against the house as fantasy, it’s also 100% a form of sports betting. It can be both things! In the Venn diagram of sports betting and fantasy sports, these products are in the overlapping sections. But just because you’re both doesn’t mean you only get treated as fantasy.
Here’s the important part: It doesn’t appear that the states cracking down so far explicitly told any of these companies that player parlays were fine under state law.
If these sites/apps have explicitly engaged with a state about their legality, they should say that out loud! But to date all we have gotten is vague assurances that they are legal and they work with regulators. At this point, it’s in their best interest to be very clear where they have gotten explicit authorization for the parlay product. We’d all very much like to know where those places are.
I am not going to go state by state today, but know that some states have DFS laws where these companies don’t offer the parlay/pick’em product. I wonder why that is? (It’s noteworthy that DFS state laws as a group are being used for cover when they are used in practice only sometimes to offer against the house fantasy.
I also hear, “Why now?” Well, because no one knew! Again, it’s the same as DFS 1.0; it was a niche industry and suddenly there was a lot of buzz and virtual ink about these companies. Recently, the Wall Street Journal wrote about PrizePicks. Betr did a press release about offering parlays in 20-some states.
I really don’t care that DraftKings and FanDuel are behind the push
It’s a badly kept secret at this point that DraftKings and are FanDuel are at least in part behind some of the push to classify DFS 2.0 as sports betting.
Yes, it’s extremely funny and hypocritical. After all, DK and FD are responsible for the variety of state laws that helped give rise to and embolden the fantasy parlay category. And they did all this first, creating the database and branding that led to them leading the early US sports betting industry.
But that’s noise, too. Who cares who is behind it? Casinos were calling out DraftKings and FanDuel in 2015 and later.
You’re shocked that DraftKings and FanDuel will challenge you when you can offer something that they can’t in the three largest states? “I never thought the leopards would eat MY face.”
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