OK, so we are over a month into the post-PASPA repeal period, and the dominos are now falling far more slowly than before. Some smaller states have passed sports betting legislation, but critical states like New York haven’t quite found the mark and will now have to wait months for another chance to vote on the topic.
During all this, software companies and land-based gambling operators in the U.S. have continued to pick dance partners, and this includes the two most prominent names in U.S. sports gambling over the last few years – Draft Kings and FanDuel. Each company has chosen a different path to legalized sports betting. FanDuel has gone down the acquisition route by being swallowed up by European giant Paddy Power Betfair, while Draft Kings has opted to raise more funds in order to launch their own sports betting platform with assistance from Kambi. One look at the Draft Kings site shows just how committed they are, with several job postings listed.
The one question that hasn’t been asked, as far as we can tell, is what the future holds for the Daily Fantasy side of their businesses. Clearly, that has been the sole focus of both DK and FanDuel over the last five years (and also the focus of the Department of Justice), but in light of the changing legislation, what does the future hold for DFS? We looked at this from angles and came up with a few scenarios.
Scenario 1: They abandon DFS
The challenge that both companies have had in the space is competition – they blew hundreds of millions of dollars on acquisition campaigns only to be shut down in multiple states. Now, we do know that Paddy Power Betfair plans to use the FanDuel branding for its U.S. sportsbook presence, and Draft Kings will also be offering sports betting under their brand. However, will the gold rush of adding sportsbook players leave no money to promote their DFS offerings? For sure each company has no plans to spend like drunken sailors as they did in the past, but the shiny new toy that is legalized sports betting may be too bright to avoid.
Scenario 2: They continue to push DFS as an operator
This one may prove to be a bit tricky. Both Draft Kings and FanDuel will be looking to partner with land-based casinos as these are the likely choice for licenses in a new gaming environment. However, both companies offer B2C services in Daily Fantasy, and if they continue to do so, then they could be creating a conflict of interest with potential clients. It is hard to say if they plan to operate their own sportsbooks if they can get standalone licenses, but in either scenario, they will be competing with their customers for the disposable gambling income of U.S. customers. We have seen this play out before, and it doesn’t typically have a happy ending.
Scenario 3: They sell off the DFS portion of their businesses
This scenario, however unlikely it seems now, may be something the company decides to do after the launch of traditional sportsbook clients across the United States. It is possible that similar to what happened with poker in the mid-2000s, that the companies sell off their U.S. DFS business and focus on global expansion for that product. This is all more likely if they notice a drop in DFS GGR as a result of sports betting being legal. If that is the case, then finding an adequate suitor would be challenging as the
numbers would be trending in the wrong direction. Still, it is possible that companies like Scientific Games and GTECH could be interested as a product they could roll out to the lotteries, as many of them seem to be on the outside looking in when it comes to licenses.
So….what’s going to happen?
Since this is a site all about betting, we’ll go ahead and put our money on Scenario #2. The reason for this is pretty clear-cut in our minds – the rollout of sports betting in the United States is going to be much slower than everyone thinks, and the incoming revenue from DFS will be valuable to both companies moving forward. Also, the margins from DFS (10% flat) are simply hard to ignore when you consider the lack of risk associated with the business model.
That isn’t to say that either of the other 2 scenarios won’t take place, but we think it is likely they won’t happen for at least a couple of years. Now….if only there were a sportsbook where we could set this line and post it in some sort of exchange-type format…
We would love to hear your opinion on the topic of DFS and its future -drop us an email, and we’ll post some of the most interesting comments on this page.
