Column: Fantasy sports and gambling
Last week we finally got to experience the long-anticipated excitement of the NFL season. We were also inundated with something few of us were prepared for: Non-stop ads for daily fantasy games.
According to the SportsBusiness Journal, the two behemoths in the daily fantasy business, DraftKings and FanDuel, have committed to spend a minimum of $200 million with the NFL's television partners - CBS, ESPN, Fox, NBC and the league's own NFL Network - this season. One unnamed source estimated that the two companies have already spent $500 million so far this year on advertising during sporting events across all channels. Their goal is to convert some of the more than 50 million fantasy sports players, as reported by the Fantasy Sports Trade Association, to the daily game. And those efforts have so far been successful.
Prior to the opening of the NFL season, approximately 4.5 million Americans were playing the daily fantasy game. According to data collected by iSpot.tv, FanDuel and DraftKings spent $27 million on approximately 8,000 ads to hype their get-rich-quick games during the league's first week of action. As a result, they added another million players to their menu of games. And why not? Who wouldn't want to win $2 million, as one ad suggested had already happened to one lucky winner?
But wait a minute. Why aren't daily fantasy games considered a form of online gambling and banned by law, similar to online poker? For that you can thank an odd couple: sports leagues, particularly the NFL, and the Christian right. Both are opposed to offshore betting and internet gambling. So they lobbied Congress to pass the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006 whose goal was to prohibit financial institutions from processing payments related to offshore gambling. But the law included a "carve-out" for fantasy sports, which sports leagues argued were "games of skill" and unlike games of chance, should not be considered gambling.
When the UIGEA was passed, daily fantasy games didn't exist. Fantasy sports were season-long games set up and administered among friends who anteed up a token amount. The winners received prize money at the end of the season along with bragging rights until the next season rolled around. While it could be argued that the games were actually gambling, they were viewed as harmless, similar to office pools or bingo games. But daily fantasy games have pushed the envelope and according to New Jersey Congressman Frank Pallone, Jr., it's time for Congress to revisit the issue.
As dominant as FanDuel and DraftKings appear to be, it should be noted that they constitute only 40% of the daily fantasy game market. Yahoo, Draft Ops and Fantasy Aces are among a number of other major players in the burgeoning marketplace. And additional entrants are likely. The daily fantasy sports industry is poised to experience meteoric growth. Eilers Research estimates that daily games will generate $2.6 billion in entry fees this year and grow 41% annually, reaching $14.4 billion in 2020.
It's no wonder venture capitalists, major media companies, sports leagues and individual sports team owners have all invested heavily in daily fantasy sports companies, swelling capitalization in FanDuel and DraftKings to $1 billion each. Investors in FanDuel include Comcast, NBC, Time Warner and the NBA. Rival DraftKings has raised money from the likes of Fox Sports, Major League Baseball, Major League Soccer, the NHL and Robert Kraft, owner of the New England Patriots.
There's an evolution in perception taking place regarding daily fantasy sports. Just two years ago, MLB was a staunch opponent of daily fantasy games. It has since reversed course, as its investment in DraftKings suggests. Why? Money, of course. Fantasy players tend to be more engaged than other sports fans. They are more apt to watch a lopsided game to follow their players, guaranteeing more viewership, which leads to higher ratings. And fantasy sports players constitute a younger audience, something MLB in particular has had difficulty attracting.
No one knows what Congress will do. It could eliminate fantasy sports' exemption from the UIGEA, maintain the status quo, or perhaps come up with a third option. But with so many sports leagues and media outlets invested in daily fantasy sports, and participation exploding, the sports betting boom seems destined to expand.
Jordan Kobritz is a former attorney, CPA, and Minor League Baseball team owner. He is a Professor and the Chair of the Sport Management Department at SUNY Cortland. Jordan maintains the blog: http://sportsbeyondthelines.com and can be reached at firstname.lastname@example.org.