Friday, October 9, 2015

Daily Fantasy Sports - The Offensive Lineman for Gambling

Make no mistake about it, Daily Fantasy Sports (DFS) is popular and it's here to stay. Even with recent allegations of "insider trading" and an overall lack of regulation of the industry, this doesn't change the simple fact that America is yearning for something greater - the legalization of Sports Gambling.

It’s been well reported, and often complained about, that DraftKings and FanDuel were two of the largest companies spending on Television Ads this year. Nomura reported that the two companies spent $150 million in the third quarter alone. If you think the Advertising and Marketing for both companies has been overkill and wreckless, I disagree, wholeheartedly. Just before the start of the NFL season, DraftKings was reportedly running one ad every 90 seconds, this wasn't done by mistake. The fact that every person knows who these companies are is a testament to the fact that we need to look at the bigger picture. DraftKings and FanDuel have created a rivalry and competition that we'll be following and talking about for years to come because their product is so easy to identify with, Sports. They have positioned themselves to profit off of the excitement in Sports, it’s kind of brilliant.

Currently, DFS operates under the legal loophole that it is a 'game of skill' and therefore people with the skill will win with a greater success rate than those without this 'skill'. Keeping the bigger picture in mind, while I do think DFS is some form of gambling – I think that it’s good for the industry overall because the general population is embracing the conversation. DFS is essentially doing all of the blocking and tackling for the Gambling Industry as a whole. So how do DraftKings and FanDuel guarantee that they get a piece of the billion dollar pie once all of the regulations and legislation are in place? They adapt.

My prediction is that DraftKings and FanDuel will no longer be a one-trick pony focusing on the 40 million fantasy players. Once gambling is legalized, presumably in the next 3-5 years, I expect that they will be able to pivot their companies into the largest online providers of access to gambling on sports. They already have an avid customer base and have created a reliable product that is user-friendly and easy to navigate. Implementing access to an online sportsbook would be easy for them to do since they already have a 3 year head start on traditional brick and mortar casinos / sportsbooks.

Next they negotiate deals to establish themselves in arenas. Yep, that’s already started to happen. This year, DraftKings, FanDuel, DraftOps, and Yahoo will have Fantasy lounges in 17 NBA/NHL/NFL/MLB arenas that include Madison Square Garden (Knicks/Rangers), AT&T Stadium (Cowboys), Wrigley Field (Cubs), Verizon Center (Wizards, Capitals), Barclays Center (Nets, Islanders), and the Staples Center (Lakers, Clippers, and Kings) just to name a few. These lounges are currently for the daily fantasy player to come in, place their lineups for the night, and hang out while enjoying the live excitement of the sporting event. This is great because now fans are engaged, they are purchasing food and beverages, staying in their seats longer – and if they win it will create memories. Conversations will begin to shift from “do you remember when Steph Curry hit that three at the buzzer to give the Warriors the win?” to “do you remember when Steph Curry hit that three at the buzzer to win me $20 in my fantasy pool?” So when you take it a step further, isn’t a fantasy sports lounge essentially the same thing as a sportsbook that takes bets?

Daily Fantasy companies have essentially started to establish casinos right in the stadium and it’s not generating buzz because it’s just for fantasy purposes, for now. Soon, I could see this being the main reason that I decide to go to the stadium on a night in which the unwatchable Philadelphia 76ers are playing. Not to watch the 76ers, but primarily to place my legal sports bets. It would be an added bonus if the 76ers game was of any interest.

To further prove the sentiment that this is only a matter of when, not if – NBA Commissioner, Adam Silver penned an Op-Ed in the New York Times back in November 2014 stating that there is an estimated “$400 billion illegally wagered on sports each year” and “Gambling has increasingly become a popular and accepted form of entertainment in the United States”. So why not embrace this? I’m sure the NBA has looked at the models overseas in Europe and Australia to research the best ways to incorporate gambling while maintaining the integrity of the game. But what’s so apparent and tough to ignore is that this industry will bring in real money in for the government. In 2012-13, the United Kingdom government generated £1.7bn in tax revenue.

...If only gambling were legal.

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