As Boston Red Sox starting pitcher Wade Miley peered at home plate, preparing to throw the first pitch of a June 5 game against the Oakland Athletics, a luxury box above Fenway Park’s left field sat filled with the trappings of the high life: craft and macro brews poured by a personal bartender, assorted snacks and bottles of liquor and a superior view of the proceedings below. What it did not have was a full crowd.
The guests, mostly men in their early to mid 20s, would filter in during the later innings, long after A’s center fielder Billy Burns grounded out to Sox first baseman Mike Napoli on the game’s first pitch. Instead of getting there early to eat and imbibe, the ticketholders were back in their hotel rooms, sitting in front of their laptops, making final tweaks to their fantasy lineups. At stake were thousands of dollars. The Red Sox and A’s could wait.
The young men who would occupy the suite were just a dozen of the millions of people playing daily fantasy sports (DFS). The concept is similar to that of traditional fantasy sports, with players picking a team of professional athletes, gaining performance-based points and competing against their friends or anonymous users—except instead of the contest lasting an entire season, DFS wins and losses are compiled at the conclusion of each day’s sporting action, with real money changing hands on a nightly basis.
Two companies dominate the space, claiming more than 96 percent of the market share. FanDuel, founded by entrepreneur Nigel Eccles, essentially invented the category when it debuted in 2009. In 2014, FanDuel had $57 million in revenue and collected $622 million in entry fees, a figure that executives expect to more than triple this year. Boston-based DraftKings came online in 2012, headed by CEO Jason Robins, COO Paul Liberman and CRO Matt Kalish. They’re hoping to catch up to FanDuel, having pulled in $40 million in revenue and $304 million in entry fees last year.
The race between FanDuel and DraftKings is on, with each company raising at least $250 million in the past six months at valuations near or exceeding $1 billion. They plan to spend the vast cash reserves on expanding their user bases. DFS is exploding, and there’s room to grow, with the Fantasy Sports Trade Association estimating that only 20 percent of the 56.8 million fantasy players in the U.S. and Canada participate in the daily version. Eccles says he’s seeing more “fantasy nevers”—people who haven’t played traditional fantasy games—pick up DFS as well. The primary battle is in recruiting customers, which also involves creating unique experiences to entice the masses. That could be working as general manager of the Dallas Mavericks for a day or spending an evening in a luxury suite at Fenway Park. If you build it, the thinking goes, the players will come. Even if they arrive during the second inning.
The DraftKings office, located in a swanky Summer Street building, feels like a typical well-capitalized startup crossed with the ultimate man cave. A framed photograph of Malcolm Butler’s Super Bowl-clinching interception hangs on the lobby wall, signed “To Jason.” A break room boasts snacks, the ubiquitous well-stocked fridge, a pop-a-shot hoops game and a Nintendo 64 system that at age 19 is nearly as old as some of the company’s employees. Orange Solo cups that match the company’s bright color scheme sit haphazardly along the rows of desks. The build-out of a nearby office is underway, but the company is expanding so quickly that one team commandeered what previously served as a conference room, setting up their computers around the square table and getting to work.
In a more austere conference room named for the New England Patriots, Robins, Liberman and Kalish are discussing their plans for the evening. They have a joking manner and easy rapport, taking friendly little potshots as they chat. The former two will attend the Red Sox game while the latter is heading down to New York for the next day’s Belmont Stakes. “It’s not the worst thing ever to have to decide who goes to the Fenway luxury box and who goes to the Belmont Stakes,” Kalish says, although he admits that going down to the field for batting practice is “definitely cooler than what I’m doing.”
The trio has come a long way from three years ago, when the sports-loving friends were office drones working at Vistaprint. But they feel like they’re just getting started. “Right now we feel like we’re in the first inning, maybe even spring training,” Robins says. “There’s just so much to do.” The path forward involves spending millions on advertising—watch any sports broadcast for long enough and you’ll be assaulted by ads for DraftKings and FanDuel—deepening the user experience through more integrated sites and apps, and developing relationships with teams and leagues. DraftKings has a partnership with Major League Baseball that sees its logo in 27 stadiums and MLB highlights seamlessly embedded in its app. FanDuel has a similar relationship with the NBA.
Considering the daily fantasy market didn’t exist six years ago and has, potentially, tens of millions of more customers to attract before it’s saturated, the battle for supremacy between FanDuel and DraftKings is at a low simmer. Neither company’s executives are willing to say that only one will win. In startup speak, they are both focused on “executing” their respective visions. Robins offers an analogy of Coke and Pepsi, two massive conglomerates that both succeeded. “I don’t see either company going away, so for right now I see at least two major players for the foreseeable future,” says Adam Krejcik, an analyst for Eilers Research who studies the DFS space. “Whether they can coexist over the long term will ultimately depend on how big this market becomes and/or if either company has a major hiccup.”
But it also depends on the nature of the Internet, which tends to reward one big winner. Facebook dominated MySpace and Friendster; Google overtook Yahoo. The executives at DraftKings and FanDuel understand this reality, even if they won’t say so publicly. Right now in the first inning of the DFS world, the fight is about awareness and visibility. While FanDuel has the advantage of a head start and more players, DraftKings is making moves as well. One day after meeting Kalish and company in the conference room, I watched American Pharoah win the Belmont Stakes and complete the first Triple Crown in 37 years. As the stallion crossed the finish line, I noticed the bib: Just above his name sat the DraftKings logo.
Daily fantasy appears here to stay, but the fast-growing sector could face speed bumps, as the legality of DFS isn’t quite ironclad. The key is the Unlawful Internet Gambling Enforcement Act (UIGEA), a piece of legislation from 2006 designed to regulate online gambling. (It’s what the federal government used to shut down online poker sites like PokerStars and Full Tilt on Black Friday, April 15, 2011.) The bill, which had backing from the NCAA, NFL, NBA, NHL and MLB, created a carve-out that legalized fantasy sports as long as they were deemed a game of skill and the payouts were established before the contest began instead of being contingent upon the number of entrants.
Individual states, however, can pass their own legislation, so neither DraftKings nor FanDuel allows users in Montana, Washington, Louisiana, Iowa and Arizona to play for real money. (State representatives in Washington and Iowa have introduced bills that would remove the existing impediments.) And there’s some debate about what exactly the UIGEA fantasy provision allows when it comes to DFS, which didn’t exist as a concept in 2006. FanDuel has not created a NASCAR game for fear that it violates the requirement that fantasy games include multiple sporting events. (And perhaps because DraftKings signed a partnership agreement with the racing series’ governing body.)
Although the sites are on the right side of the law for now, legal issues will continue to play a role going forward. “As this industry matures, it generates more attention,” Krejcik says, pointing to “attorneys general who might want to make a name for themselves, states that might try to introduce legislation and even the casino gaming industry, which has yet to take an official position on DFS.”
What matters most, however, is perception. In 2013, Robert Bowman, the chief executive of Major League Baseball Advanced Media, told the New York Times that daily fantasy “becomes akin to a flip of the coin, which is the definition of gambling.” But that same year MLB invested in DraftKings, and the company has since landed funding from the NHL, MLS and Fox Sports. Both the NBA and NBC Sports Ventures have equity stakes in FanDuel. “These investments do add legitimacy,” says Whittier Law School professor and gambling law expert I. Nelson Rose.
Chances for dramatic change decrease as the space gets bigger and the two largest sites grow more entrenched. They might even help pave the way for the legalization of sports betting, which is banned in all but four states. Sports and gambling have long had an uneasy relationship, with nearly century-old tales of bookies pressuring players to throw games or shave points. That’s led to a zero-tolerance policy for employees of sports leagues, but the leagues still benefit from gambling-generated interest in their product, which even NBA commissioner Adam Silver has said is “good for business.” Daily fantasy sports offers users across the country a chance to legally get in on the action each night. And with the approach of football season—the single busiest time of the year for fantasy sports, daily or otherwise—DraftKings and FanDuel are looking to push any advantage to grab users. The fight for the future is happening right now.
During the middle innings of the Red Sox game, I chatted with Kyle Cannon, an affable 27-year-old who used to be a professional card player. “I just got kind of tired of poker, especially going to a casino,” he said. “It’s so slow. I couldn’t even imagine doing it every day.” A few big scores in the beginning of the 2014 baseball season allowed him to start playing DFS full time. Now, he plays between 600 and 700 DFS contests a week across DraftKings, FanDuel and a couple of other sites, and seems totally content with what he does for a living. Inside the suite, a dozen or so DFS players, who won the opportunity to come to Boston to eat some food and drink some beer on DraftKings’ dime, had a similar ease about their place in the developing world. Cannon turned to enjoy the rest of the game with them. Tomorrow would come quickly.