Matt King has heard the criticism about daily fantasy sports. Many outside the industry say that it’s gambling. But King, the chief financial officer of FanDuel, one of the top two daily fantasy sites, disagrees.

“Every time that you talk to our users,” says King, “what comes through loud and clear is the fact that we are an entertainment product.”

And unlike gambling, which is made up of games of chance, daily fantasy sports “is truly a game of skill,” says King. “Just like football or basketball. The more you practice, the better that you get.”

Not everyone is convinced. Despite the booming popularity of daily fantasy sports, in recent months, attorneys general in Hawaii, Illinois, Mississippi, New York and Texas have all called the contests a form of illegal gambling. In the below interview with Walt Bogdanich of The New York Times, conducted for our joint investigation, King talks about the debate, addresses calls for regulation, and explains why he believes daily fantasy sports are a “very, very different experience” from gambling.

This is the edited transcript of an interview conducted on Sept. 24, 2015.  

What is it about fantasy sports that has so captured the attention of the American public?

I think fantasy sports is something that people love, and they love it kind of at the core of their soul. It is an American pastime, and I think what fantasy sports did when it came out 30 years ago is it allowed people to get even closer to sports and closer to something that they love. Because suddenly they weren’t just spectators in the game. It was a way for them to engage with the game. …

Is there any concrete evidence that it has significantly increased viewership of athletic events?

There absolutely is. If we look at our players as a for instance, on average we see 50 to 60 percent increases in sports consumption — both the games and frankly news articles and all the research that surrounds actively building your fantasy team is all driven by engaging in fantasy sports.

And it’s one of these things that’s really interesting because when I quote that stat to people, I never have to prove it. Because all you have to do is talk to somebody who plays fantasy and they will say, yep, that’s probably true, and may actually understate it.  Because they spend hours researching their team before the actual games go off. They spend hours watching the game. You’re not just watching your home team anymore, and you’re not just watching, frankly, more games. You’re watching more games longer because even if it’s a blowout, that last play might matter because the guy who has the ball is actually on your fantasy team and he determines whether or not you beat your friends or not in your league that week. …

Tell me a little bit about your background and the background of your company’s founder.

… It is a true entrepreneurial success story. It was five individuals that met at a tech-networking event, and they decided that they wanted to work together. They really liked the way everybody saw business and it was a complimentary team.

Interestingly enough, they launched a product that had nothing to do with [what] FanDuel ended up becoming. It was a news service that allowed people to interact with it — it was a predictive news service. It was a product that had great user uptake, great user engagement. This was 2007. What they found is that they had no revenue model, so they still managed to raise a million dollars, and when they raised that money, and then they realized that they had no revenue model, and then the great financial crisis came along, they actually sat back and said, uh oh, we better figure out what should we do with this money that we have in the bank.

And they had a couple of insights. One, in looking at their user base, they realized that sports fans were voracious consumers of content. They were highly engaged in sports, and then within that, they found that fantasy sports fans were actually more engaged than the average sports fan. And so they started to look at fantasy sports as being this market that had all the makings of being a really interesting market to operate in. It had a big base of people. So you had millions and millions of people playing.

When you ask people, how long do they plan to play fantasy sports, more than half of them will say forever. So you had not only a big base of users that was highly engaged, but they also planned to be engaged for decades … Fantasy was a market that was stagnant …

And Fan Duel played a big role in changing that.

Exactly

 And how did that happen?

… Despite fantasy being a large market, the younger sports fans weren’t engaging with fantasy. And so the insight was, what if we take these mechanics around research and picking players and competing with your friends and put it in a format that is geared towards … a very hard to reach but very important demographic of kind of 18 to 35 year olds. … Let’s make it mobile first, let’s make it faster and see how that goes. …

So when people say how much fantasy sports has changed over the years, fair to say that FanDuel played a major role in that change.

I think it’s absolutely fair to say that we have played a big part of that.

… Fantasy sports used to be seasonal, now it’s being offered on a daily basis. Who came up with that idea?

I’d never want to claim credit for anything that, you know, I’m sure many people will claim credit for. Clearly, we were one of the first out there …

The basic insight was how do you make it faster? Because you’re really solving two problems by making it faster. One is fundamentally [it] improves the fan experience, because if you have ever played season-long fantasy sports, if you are one or two weeks in and you haven’t had a good Week 1 or Week 2, the rest of the season is not that much fun. Because if you have a bad draft and suddenly somebody’s way out ahead, it’s just not that entertaining. And really what making a daily format was about was improving the fan experience in a way that allowed somebody to kind of hit the reset button everyday or every week.

Explain to me as simply as possible how daily fantasy sports works.

So it really turns the fan into a general manager. That’s the fundamental concept of fantasy, which is somebody will do their research, they will look at what players are out there, and then they will go into our app — about 80 percent of our usage is on mobile — they will choose what contest that they want to enter. We have a wide breadth of types of contests, and really what they do at that point is they draft their team like a general manager does. So in the case of football, they will pick their wide receivers, they will pick their quarterback, they will pick the other players on their team.

We force them to operate under a salary cap, much like many general managers do, depending on the sport. And so we set player values for various players, and really the challenge of it is constructing the best team you can, while still operating under the salary cap. And so somebody will draft their team, they will enter their lineup, and then frankly the excitement begins, because the game starts and then suddenly they are watching not only the teams that they love, but also the players that they have picked that night.

… What percentage of your daily fantasy players would you say are under the age of 30?

Probably about 50 to 60 percent are under the age of 30.

I would imagine most of them male?

Most of them male, yes.

So how big is the FanDuel community?

So we have several million paid players, and that’s growing every day. So right now we are signing up, you know, 20,000 to 30,000 players every day.

20,000 to 30,000 every day?

Yep.

… What’s the biggest prize a player can win?

We have contests where people can win up to several million dollars.

Several million?

Mm hmm.

How does that work?

In terms of?

I want to win several million dollars, what do I have to do?

Sure. I think first before we go to that, the thing that I would say is the core of our game is not about the money. When you ask people why they play, they play because it makes the games more exciting. When you ask us what we as a company are about, we are about making sports more exciting.

Also about making money?

The core of what we do is about making sports more exciting. The role that money plays, if you ask anybody — and it’s the same as the season-long fantasy league — is that it provides a certain tangibility to the experience that you don’t have if it’s simply free to enter.

We offer games that range in both entry fee, level and prize. … We have a number of contests where all you have to do is finish in the top half and you’ll turn your $1 into $2. For the bigger prizes, what we do is we will have one to three marquee tournaments on every weekend. So our marquee tournament is the Sunday million — it’s a $5 million contest, in terms of the total prize pool — and the guy who finishes first wins several million dollars, and the people below him kind of win a range of payouts beyond that.

How does FanDuel make its money?

We make our money as any other marketplace business does. We match effectively buyers and sellers together. What we are is similar to eBay. Where their role was to facilitate the auction of goods, our role is to frankly bring people together that want to compete in the same game.

And so the way we make our money is when we construct a tournament or contest, there will be a certain number of entry fees and then a certain number amount of prizes, and then there’s a spread between those two numbers, and our revenue represents the spread between those two numbers.

… Who are you partners with? In the pro leagues.

Within the NFL, we have 16 team partnerships. That ranges from everybody from the New York Jets to the San Diego Chargers. Within the NBA, we have 13 team partners.  That ranges from the Atlanta Hawks to the Chicago Bulls. And then the NBA is both an investor and a partner.

And really these partnerships come out of a shared view about the opportunity we have to change how people consume and watch sports, and so what does that mean? That means just like the big TV studios were worried about how fans are changing and how that millennial fan is changing how they watch TV shows. The sports teams in the leagues want to make sure that sports is as relevant for today’s millennial generation as it was for the generation that is now in their 40s or 50s. And what they see in FanDuel is an opportunity to engage a younger generation of fans, get people to watch more sports and also to get them to play more on FanDuel.

… Why should casinos and sports books be subjected to oversight and regulation by the government and fantasy sports somehow escapes all that.

Fantasy sports has always been recognized to play a different role. When you talk to people about fantasy sports, it’s a social activity.  It’s about competing with their friends … but we are clearly very focused on making sure that everybody in the industry operates with the highest degree of integrity.

So we are talking about self-regulation here.

Mm hmm.

And you are content that that’s working well.

It is.

So you see no reason for fantasy sports to be regulated by some government agency?

Our product is all about entertainment value.

And you are not regulated as of now?

We operate under a variety of regulations, and so when you look at everything from accepting payment types to other rules and regulations at the state level, we’re regulated like many other service-related businesses are, and we abide by every piece of regulation we are subject to.

We interviewed a college junior in his fraternity and we watched him bet $12,000 before lunch and another more than $12,000 afterwards on the same day. He said he bets about 400 to 500 games a day. If you were his father, what would you say to him about all the attention he is giving to fantasy sports? 

Was he engaging in daily fantasy sports or something else?

Yes. Every day 450 to 500 different games a day.

I think everybody has their own passions. I think one of the things that’s important to know about our business is we take very seriously making sure our users are who they say they are and they abide by kind of all the necessary rules and regulations. We don’t extend credit to any of our users, so in the case that you are describing, for somebody to have that much capital, they are either a good player, and they have built that bankroll themselves, or they’re of significant financial means. … So I would say if that was my son and my father, I think that’s a private conversation about whether or not he is spending his time in the right ways.

Are you aware of any young people who have developed gambling problems by playing fantasy sports?

No.

None?

No.

… All the advertising that I see everywhere I go for fantasy sports these days — in fact I just read where FanDuel and DraftKings spent about $30 million dollars in the last seven days on television ads. If you at one point were flying under the radar, you certainly aren’t doing that now.

I would agree with that.

And while I know you are out seeking new customers and trying to educate them as you said, you’re also getting the attention of the government and Congress. Just the other day it was announced that Congress may hold hearings looking into whether fantasy sports ought to be regulated or in fact whether it’s gambling. What’s your reaction to that?

At the risk of sounding a little bit old-fashioned, my mother said, you know, sunshine is never a bad thing, and so we as a company are never ones that part of strategy will be let’s operate under the radar screen. So we welcome any and all discussions, because just like any other tech-disruptive company, that fact that we are creating a new market will always raise questions and concerns for people. And the approach that we take is we want to have an active dialogue about that. …

On a personal level do you believe gambling should be legalized in the United States?

I don’t have an opinion on that.

Really?

Nope.

Why not?

Because I’m not a gambler, and it’s not necessarily something that I have a view on.

So you don’t view what you do here at Fan Duel as gambling.

No.

That’s a word that isn’t used very much around here I take it.

Nope. Because we are, every time that you talk to our users, what comes through loud and clear is the fact that we are an entertainment product.  …

You know that there are people out there that do view what you are doing as gambling.

Yes, there are certainly people who take that view.

And I’ve interviewed a number of experts who deal with problem gamblers and almost to a person, they are all of the view that this is gambling. There are others out there who take the same view. Does that concern you that so many respected people out there from casino owners who are in the business of gambling, to experts who deal with problem gamblers who think this is gambling, that they have that point of view?

No, because I think one of the best things about the country that we live in is the fact that everybody can express their own opinions. And so people are certainly going to have a range of opinions, and what we always encourage is to say, look, we’re new, right. So as opposed to necessarily having a discussion about are you this or are you that, are you fish or are you fowl, let’s have a discussion about what are the concerns that the fact that our business exists raises and let’s have a discussion about those concerns. Let’s figure out whether those are legitimate concerns or not, and then if there are legitimate concerns, let’s take proactive steps to address those.

I would wager right now that if you and I went out onto the street and asked the first 10 people we ran into is fantasy sports gambling, I would bet the majority would say yes.

I can’t hypothesize about that.

Do you want to go down with me and look?

That’s OK.

Because it seems the common definition is that if you are putting at risk something of value, you can win or you can lose. That would seem to me the definition of gambling, and that’s what’s happening with FanDuel or with DraftKings or with many of the others that are engaged in fantasy sports.

Arguably that could be any spelling bee that you are in either.

Well, it could be poker. Poker is a game of skill, right?

No poker is not.

So you don’t think winning at poker involves skill?

There is a lot of academic research on this, what’s the skill versus luck kind of spectrum. The reality is within poker, every time you shuffle the deck, it creates an element of luck that trumps it basically to being much more a chance-dominated game than a skill-dominated game. If you look at our data, the players that are good, are frankly consistently good. It is truly a game of skill. … Just like football or basketball. The more you practice, the better that you get. Many of the forms of regulated gambling are actively constructed so they are games of chance, and that is a very, very different experience than a game of skill, which is what fantasy clearly is.

So if I’m playing daily fantasy and it rains in a particular stadium and the game isn’t played, I might very well lose, and that certainly would seem to involve chance and luck.

I mean, a spelling bee can have chance or luck. …

A spelling bee can have chance and luck?

You can still have chance in a spelling bee.

You either know the word or you don’t.

Right, but [if I was] asked the word that I didn’t study in the dictionary, that can be chance. And so in any competition there is some element of chance, and so the real question is what is the relative weighting of chance versus skill, and we take this issue very seriously, which is why I can speak on it very robustly. We actually have an MIT professor who is studying this specific issue for us … and what she has come back with is a very clear view that fantasy sports — and daily fantasy specifically — is absolutely a game of skill.

The exemption that was granted through the 2006 law certainly applied to a very different form of fantasy sports than is being played today. You would agree with that, right?

No.

But it was seasonal right? They weren’t playing daily fantasy back in 2006.

Yeah, daily fantasy had not been created yet.

It has now, and that’s very different than sitting around waiting for six months or seven months or however long the season is and settling up at the end of the day versus on the daily basis. And we’ve interviewed people who were involved with passing that law, including former Congressman [Jim] Leach (R-Iowa) —  he says he had no idea that what he approved back then would in fact turn into what it is today, which raises the question, whether that exemption ought to exist, given how it’s been practiced.

I would have a couple of responses to that. One is, I think if you look at the piece of legislation, what it was about was defining what fantasy sports is and making it very clear that it frankly isn’t gambling. So first and foremost, I don’t think it’s fair to call it [an] exemption rather simply saying, look there is a bucket of things that we are trying to regulate out here, and for the avoidance of doubt, there is a very discrete set of activities in fantasy sports that don’t qualify for any of this and are a very different set of activities.

I think two, if you take your logic and you extend it out, where you said any piece of legislation that is out there that isn’t explicitly approving something, means that anything new wouldn’t be allowed — [that] would frankly stifle all innovation. Because frankly, the people that invented and wrote the original rules governing the [Federal Communications Commission], for instance, never contemplated the Internet. … And so I think our view goes back to the basic principle that we are a disruptive-tech company that is creating a new category. We absolutely recognize that. With that comes a lot of questions and a lot of things that we all need to work through together.

And so consequently, I can’t take a view about what the person had in their mind when they wrote an original piece of legislation. What I can do is make sure that my product abides by all regulations and laws that are out there today, and then as questions and concerns come up, I can have an absolutely proactive dialogue around how do we make sure we address those. …

Would the industry have fewer critics if there was some kind of regulation or even tougher self-regulation by the fantasy sports industry?

Judging by the experience of a lot of other kind of disruptive-tech companies, my guess is you’re always going to have people that are critics no matter what steps you take, and so our best approach is to hear all of the critics out and take steps and continue to evolve as a company as we understand and surface legitimate concerns and we take steps to address those.

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