Yesterday’s news that New York may become a no-go zone for daily fantasy sports companies came as a significant shock to the industry. As I have written previously, daily fantasy sports are a massive growth area and New York represents the largest market in the USA, with more than 500,000 players already. How might this event affect the industry in the longer term?
Let’s first frame exactly what has and has not happened here. Despite what some news sources have claimed, this is not a ‘ban’ because it is neither a legislative change nor a final judicial ruling. Rather, it comes in the form of cease-and-desist orders issued to FanDuel and DraftKings (the two biggest market players by some way) from New York State Attorney General Eric Schneiderman, which are open to legal challenge.
As such, the short term impact of the action is uncertainty, as it signals the start of what will probably be a lengthy legal battle with the two brands taking the issue to court. This may stem some of the flow of investment into the industry, which has already seen hundreds of millions of dollars invested by everyone from sports influencers like NFL team owners and Major League Baseball to giant corporations like Google and Comcast. One result of this uncertainty may be an acceleration of existing plans by FanDuel and DraftKings to expand into clearly regulated overseas markets. Both companies reportedly have an eye on the already well-served and lucrative UK sports betting market, in which there are already big players in fantasy sports but daily fantasy has not yet caught on.
It may also have a wider impact on the sports industry, as many major sports teams have secured lucrative partnership deals with FanDuel and DraftKings, including the New York Yankees, New York Giants, and New York jets. This case may even have an impact on February’s Super Bowl advertising, as these two companies have dominated NFL related TV spots in 2015.
The longer term impact will depend entirely on the outcome of the likely court case. Whilst daily fantasy sports operators have up until now relied on the federal UIGEA legislation, which specifically exempts games of skill from the federal ban on remote gambling, the nature of the Attorney General’s opinion is that daily fantasy sports involve much less skill and much larger similarity to gambling than their seasonal cousins. The outcome will hinge on a detailed debate over the amount of skill and luck involved in the games being offered, which does not have a clear cut answer.
Is this just a battle over New York? It certainly isn’t the only state in which the issue of daily fantasy sports’ legality has been raised – and this is an area in which state law carries precedence over federal law. Nevada moved to license daily fantasy sports in October, there is currently a regulation bill going through the Illinois legislature, and news sources claim judicial and legislative reviews may be underway in Florida, New Jersey, and Pennsylvania. Whatever the outcome, this high profile New York case is likely to sway opinion in other undecided states, so the impact could be felt nationally.
The daily fantasy sport industry will continue to grow globally, that much is almost certain, as many jurisdictions are licensing this activity. Just as with poker and casino games a decade ago, however, it seems that the world’s single largest prospective market – the USA – represents something of a risky gamble for investors that may end up with a complex patchwork of restrictions and permissions.
If you would like to discuss this topic with me, I will be attending MiGS in Malta 16-19 November and would be happy to set up a meeting.