If you watch football on TV, you have probably heard of Draftkings and Fanduel. Even if you are unfamiliar with what they do, odds are you have seen or heard one of their countless television ads that aired often during NFL games last season and other sports related TV programs.
Draftkings and Fanduel specialize in “Daily Fantasy Football” which has become wildly popular in America in the past few years. Unlike traditional fantasy football, daily fantasy allows users to pick a different set of players or “team” to bet on every week. One potential advantage this allows for is that fantasy players aren’t “stuck” with an athlete for the entire season if he gets injured on the job or is unproductive.
Daily fantasy is now a major business in America, one that is controlled almost exclusively by two companies. Draftkings has about 8 million users and Fanduel about 6 million. Those 14 million users make up about 95% of the daily fantasy market in America. There are competitors, like Yahoo and Draftday, but they are hard to find if you aren’t looking for them.
With only advertising to go on, you might assume that Draftkings and Fanduel are the only options out there. Draftkings, for example, spent $82 million on TV commercials in 2015, with an ad airing about every 90 seconds that year.
The amount of advertising is down since the initial surge, but the industry is still extremely lucrative and continues to be exempt from gambling regulations in most States. The two companies reached an agreement to merge, but that was blocked by the FTC in July because the new company would have controlled too large a portion of the DFS market.
The aggressive marketing tactics used by Draftkings and Fanduel over the past few years are indicative of their 
strategy. Commonly taught as the “Wall Drug Marketing strategy”, the method involves berating the potential customer with so many ads they will eventually act, either consciously or subconsciously. Fanduel was, at one point, listed by ispottv (a service that tracks money spent by companies on television advertising) as number one in market spending.
Fanduel was the first of the two DFS giants to go to market. It was introduced in 2009 by a company called Hubdub. Hubdub, which announced its closure in 2010, was a “web-based prediction market” like Draftkings or Fanduel. The difference was that Hubdub allowed players to bet on the outcome of a wide array of current events involving politics, sports, technology and other topics.
For example, someone could place a bet on who would win an election or when the next iPhone would come out. Currently, clicking on the url http://www.hubdub.com takes you directly to the Fanduel home page.
In January 2013, Fanduel announced that it had closed an $11 million series-C funding round and added Comcast Ventures (the venture capital subsidiary of Comcast corporation) as an investor.
This was the beginning of the financial ascent of both Fanduel and Daily Fantasy altogether. In July 2015, Fanduel reported a series E funding round of $275 million, this announcement earned Fanduel it’s first billion-dollar valuation.
Draftkings has a more impressive origin story than Fanduel considering it was founded well after FanDuel’s inception yet currently has more users.
Draftkings started operations in founder Paul Liberman’s home in 2012. Its initial offering was “one on one baseball competition” and it’s release was deliberately timed to match up with the 2012 MLB season. Draftkings’ first outside funding came in 2012 but its major breakthrough came in 2013 in the form of a contract with Major League Baseball. The amount invested by MLB was not disclosed at the time, but this was the first time an American sports organization had invested in a daily fantasy company and it opened the door for the countless deals that came after it. In July 2015, while Fanduel was earning its first billion-dollar valuation, Draftkings was making financial strides as well.
In the same month, Draftkings announced both a two-year, $250 million contract with ESPN (Disney) that granted them exclusive DFS advertising rights to the network and a $300 million round of funding with Fox Sports and the Kraft family (investors in Draftkings and owners of the New England Patriots.)
The Disney deal with Draftkings is where this story takes an interesting turn, because the original contract called for $500 million in investments from Disney but that number was cut in half last minute by Disney because of what was described as a branding issue.
According to the New York Times, Disney was concerned that by investing too much in Draftkings it “might taint its well-crafted family image by owning a chunk of a company in a business that feels a little too close to gambling, even though it is protected by federal law as a game of skill.”
Draftkings CEO Jason Robins corroborated that statement following the news that Disney would be pulling half of its investment. “the way they put it to me is that this is an adult product that doesn’t necessarily fit in with their brand,” said Robins in that same publication.
Currently, under U.S. law, it is up to states to decide if Daily Fantasy is gambling and several States’ Attorney Generals have publicly stated that they believe it is gambling.
Nevada, always at the forefront of the gambling industry, has already declared that daily fantasy games be licensed as a sports pool if they are to operate legally.
In New York, daily fantasy sports were banned in March 2016, with state attorney General Eric Schneiderman ruling that “wagering money on real-life sporting outcomes constitutes illegal gambling.”
This ruling went on to be overturned later in 2016 after governor Andrew Cuomo signed legislation that classified Daily Fantasy as a “game of skill.”
This classification means that Daily Fantasy in New York is to be regulated by the State Gaming Commission, the Commission was assigned to “introduce regulations protecting consumers’ rights, as well as levying new fees from the sites to be paid to the state.”. This means that New York can profit from the success of Draftkings and Fanduel. New York joined other states like Massachusetts and Virginia in choosing to regulate and profit from daily fantasy games rather than ban them altogether.
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