Sports Leagues and Daily Fantasy: What’s at Stake?
If you’ve watched any professional sports in the last year, you’ve probably noticed the creep of ads and logos from DraftKings and FanDuel. The two sites are the biggest players in the booming industry of daily fantasy sports sites, which saw an estimated $3.1 billion being bet last year.
Americans have played fantasy sports for decades, hand-picking players for their teams and following a whole season of games along with family, friends or co-workers to see whose roster would win. But FanDuel and DraftKings appeared just in the last few years, offering fans daily contests and the enticing possibility of winning millions of dollars.
Many trace the rise of daily fantasy sports back to a 2006 law, the Unlawful Internet Gambling Enforcement Act, which cracked down on online gambling, but excluded fantasy sports — a “carve-out” based on the premise that fantasy sports required knowledge and skill to win money.
Sports leagues have often been credited with lobbying for the legislation, and in the last few years, with the rise of daily fantasy sites, the National Basketball Association, the National Hockey League, Major League Baseball and nearly every team in the National Football League have all signed sponsorship deals with DraftKings and FanDuel.
But the success of the daily fantasy industry has also brought increased scrutiny. Now some leagues and business partners may be rethinking their ties. Last week, Major League Baseball notified DraftKings that it might terminate their exclusive marketing agreement if the site failed to comply with New York State law, as reported by The New York Times.
To understand leagues’ and teams’ relationship with the daily fantasy phenomenon, and their stake in its success, FRONTLINE spoke to Dustin Gouker, a writer at Legal Sports Report, who covers legislation about fantasy sports and deals between leagues, teams and daily fantasy sites.
This interview was conducted on Jan. 26 and 28, 2016, and has been edited for clarity and length.
The Unlawful Internet Gambling Enforcement Act was aimed at cracking down on online gambling, but today it’s credited with giving rise to the daily fantasy sports industry. What role did leagues have in passing it?
They were definitely doing some lobbying. Some of the executives wrote letters in support of the bill. They weren’t out there saying “Hey, let’s do this bill,” but they were definitely in support of it … The language in the carve-out actually [had] been around for quite a while in other versions of bills that hadn’t been passed. All along, they were interested in making sure that fantasy sports didn’t get lumped in with other types of gambling.
… As it existed back then, fantasy was still just considered a social thing where a bunch of friends or co-workers would put a pot together and then you’d distribute that. It wasn’t codified sites taking money, even though that did occur to some extent even back in the 90s.
There’s not really any evidence that [sports leagues] had any sense back then that daily fantasy would become a thing. There were some examples of things that resembled daily fantasy as it exists now, but it was small and niche. Mostly, they were concerned with protecting season-long fantasy. People have been playing fantasy baseball for decades now, and in the middle of 2006, fantasy football was getting really big. I think they just wanted to protect their interest in season-long football. I’m not sure they even had a sense that daily was going to come along. They didn’t want fantasy to be affected in anyway, which is why they pushed for that carve-out when it happened…
What benefit do the leagues get from daily fantasy sports sites?
The biggest thing about daily fantasy is increased fan engagement. Regular fantasy is the same way, and daily fantasy is not huge, but it has potential down the road — if it’s still around and thriving — to drive fan interest and fan engagement.
TV ratings are another thing. People will watch games that they might not otherwise care about. If you have a fantasy player or two in it and you have some money riding on it, there’s definitely an interest in watching games that may not attract attention otherwise, or watching late in the game when it’s not that interesting because you’re a fantasy player and you have a financial stake in the outcome and how your players do.
Can you describe the sponsorship deals that most sports leagues have with daily fantasy sites? What does each side get out of these deals?
The NBA has an investment in FanDuel, DraftKings has relationships with Major League Baseball and the NHL, as well as the soccer league here in the U.S. The NFL does not have an overarching deal with either of the sites, but most of their teams do have deals with either DraftKings or FanDuel. DraftKings also sponsors the International Series where [NFL teams] play games in London every year. FanDuel and DraftKings both have agreements with the NFL Players Association, which allows them to use players’ likenesses in advertisements and such. And it’s the same for NBA, NHL and MLB teams — most of the teams have sponsorship agreements with one or the other.
There’s a lot of tie-ins across all the leagues, DraftKings or FanDuel, we believe, pay six or seven figures for one of these deals on an annual basis and they get branding out of it, they get promotion on the website, in arenas, and stadiums. It’s a big deal for them, and it’s part of how they grew a lot in the end of 2014 and into 2015. A lot of these deals didn’t exist and they started getting signed late 2014. Almost every team had a deal with one of the two of them by the middle of last year.
In terms of scope, how many teams in each of the leagues has one of these deals?
The NHL is the only one where it’s not quite as many. I’d say it’s probably more like half the teams that have known deals. There’s a possibility there are deals we don’t even know about. Pretty much every other sport — as long as daily fantasy is considered legal there — they generally have a deal. The Seattle teams don’t have deals, because Washington is one of the states where daily fantasy is considered illegal and the operators don’t serve users there. But it’s almost across the board, almost every other team probably in the NBA, NFL and MLB — every team in a legal state probably has a deal with DraftKings or FanDuel.
Which league has the closest relationship with a daily fantasy site?
The NBA and MLB are both pretty close on that. Adam Silver, the commissioner of the NBA, has been pretty vocal in supporting FanDuel and saying, “Hey, this is legal but it should be regulated, it’s a game of skill.” And Rob Manfred, from Major League Baseball — just [recently] there was an interview saying he was “comfortable” with their relationship with DraftKings. They both do a fair amount of promotion … They definitely would like to see FanDuel and DraftKings succeed because it helps their bottom line. The projected growth down the road, if [daily fantasy sports] stays legal, could be good for both leagues.
What’s the NCAA’s relationship with daily fantasy?
The NCAA’s relationship with daily fantasy is pretty antagonistic, I’d say, right now. The most recent thing was there’s been legislation in Indiana where they’re trying to legalize and regulate fantasy sports. That’s where the NCAA is headquartered, in Indianapolis. The NCAA sent letters to FanDuel and DraftKings previously saying they want them to stop offering games based on college contests. A lot of sites offer college football and college basketball. The [Indiana] lawmakers talked to the NCAA and the NCAA said to them, “Yeah, this is a good idea. Why don’t you exclude college games from your legislation?” So, that’s been added to the bill.
The NCAA is definitely more hardline than the leagues, and they don’t have any financial interest. They do take some advertising money, or at least they have in the past, from FanDuel and DraftKings, but they view it as gambling.
There’s this interesting paradox where the NFL opposes regular sports betting but many of its teams have sponsorship deals with daily fantasy sites. What’s the difference in the NFL’s view between sports betting and daily fantasy? Why is one considered harmful and the other fine?
Like most of the commissioners, Roger Goodell says that it’s a game of skill, and that he believes it’s not gambling. That’s obviously the debate that’s going on across the United States and state legislatures right now.
At the same time, Goodell and other commissioners all say the reason they oppose sports betting is ’cause it’s easier to fix a game or a match or to influence it. That’s certainly possible, because it would be exceedingly impossible to fix a [daily fantasy sports] contest. I don’t think that’s really in the realm of possibilities. Could you pay to get information that would help you do better in a contest? Sure. But you couldn’t just go and pay a bunch of players and then win a million dollars at daily fantasy. That’s not a likely scenario. That’s the bright line that I feel like the NFL and some of the other leagues draw that there’s much more danger of the idea of match-fixing or something going wrong in sports betting than there is in daily fantasy.
As scrutiny over daily fantasy sites increases, where does that leave the sports leagues and teams with close ties and sponsorship deals?
It’s an interesting question, especially in states where attorneys general have said it’s illegal gambling. In the three main states where that’s going on, which are New York, Illinois and Texas, there’s varying degrees of interest in that. All the leagues are headquartered in New York, so if the attorney general wins the case against DraftKings and FanDuel that this is illegal gambling, can all the sports leagues that are headquartered in New York continue to do business with DraftKings and FanDuel? That would seem like a possible issue for them.
Eventually, there’s a concern legally for them if more and more people are saying it’s illegal gambling under state law. If there’s ever a final determination of that in the courts the calculus could change for the leagues, the owners and the teams.
Where do you see daily fantasy sports going in the future? More regulation? A ban like most other sports betting? Or will the involvement of major sports leagues lead toward legalizing all sports gambling?
That’s the billion dollar question. How it goes down could really shape how betting happens in the United States. Banning daily fantasy … I don’t think there’s a whole lot of appetite for that, honestly. I track all the legislation, and there are a whole bunch of bills that have popped up trying to regulate and legalize it. Because we have so many state gambling laws, who knows whether daily fantasy’s actually legal or not — it’s based on if it’s a game of skill and some arcane language that was written decades ago and really wasn’t meant to cover daily fantasy sports.
I think it’s going to be piecemeal regulation. You’re going to see state-by-state — people will try to take a different approach to it, try to regulate it, try to come up with best practices and try to protect consumers …
Team owners and leagues, how might they be involved in shaping future regulations?
I don’t think they’re going to get involved that closely. The only actual owners that we know are invested [in daily fantasy] are Robert Kraft of the Patriots and Jerry Jones of the Dallas Cowboys. I’m sure the amount of exposure that they have is such that they can walk away from their investments pretty easily if they need to.
I don’t see them actively going out there and going to bat for daily fantasy, although you saw Mark Cuban [owner of the NBA’s Dallas Mavericks] who doesn’t actually have a direct investment in any of the daily fantasy sites that we know of [come out in support of it.] [Editor’s Note: In early January, Cuban invested in a daily fantasy analytics company called Fantasy Labs.]
I think the owners, as far as that goes, they might support it, but they’re not going to lobbying state houses or something like that to say, “Make daily fantasy legal.”
… [The leagues] could do some lobbying, and I think it would come more at the federal level. There’s still chatter that there’s going to be a congressional hearing in Washington. If that’s the case, you’re probably going to see the commissioners appear in front of Congress. You’re probably going to see some lobbying efforts, because just like back in 2006, they would like to see fantasy stick around, they don’t want it to be called illegal, and they don’t want to see it ramped down.
You’ll see some effort, but how much and how public that effort that is remains to be seen. There will be something behind-the-scenes for sure.