Is the reputation of DFS intact?

The storm surrounding the DraftKings data leak scandal continues to rage on. A little over two weeks after DraftKings’ employee Ethan Haskell posted lineup data ahead of the operator’s NFL week 3 Millionaire Maker contest before going on to win $350,000 on rival site FanDuel days later, the industry remains under intense scrutiny.

Gaming regulators in states from Massachusetts to Delaware have launched investigations into how daily fantasy sports (DFS) sits within state law, while the Department of Justice and the FBI have launched their own probe into whether DFS violates the Unlawful Internet Gambling Enforcement Act (UIGEA) 2006.

Unstoppable force

But despite all of this FanDuel and DraftKings, and the industry as a whole, is still attracting millions of entries – and millions of dollars in entry fees – for the biggest NFL contests on offer. In fact, days after the data leak scandal emerged, DraftKings and FanDuel enjoyed their most lucrative weekend on record.

According to data from DFS analytics provider SuperLobby, DraftKings received 4.1 million entries during NFL week 4 while FanDuel received 3.4 million, representing a week on week increase of 10% and 6% respectively. For entry fees, DraftKings recorded $25m compared with $23.9m the week before, while FanDuel saw fees increase from $19.7m to $20.6m.

“The maxim ‘no publicity is bad publicity’ could have come into play to some extent,” says Christy Keenan, chief of content and communications at SuperLobby.

“The reality is that a lot of recreational DFS players are probably not overly concerned by legal grey areas; they simply see normal guys like them winning six and seven-figure sums playing fantasy sports, and think ‘oh yeah, I’d forgotten I have a DraftKings account – let’s give that a go’,” he adds.

But the following week a different trend emerged. As the scandal rumbled on, DraftKings and FanDuel saw entries and fees fall for the first time since the start of the NFL season, down 12% to $22.9m and 3% to $19.9m respectively. The total number of paid entries at DraftKings fell 7%, while FanDuel suffered a 3% dip compared with the previous week.

Reasons for decline

FanDuel and DraftKings taking the decision to bar their players from taking part in contests on rival sites, coupled with the Nevada regulator forcing DFS operators to stop offering contests to players in the state certainly had an impact on the fall. With employees ranking among the top players on each site, and a decent numbers of players coming from Nevada, the impact on entries and revenues was clear to see.

The acid test will be whether FanDuel, DraftKings, and the industry’s other operators are able to drive growth this coming weekend. But with Amaya Gaming having withdrawn StarsDraft from all but four US markets, and a number of operators pulling out of Florida where the regulator is conducting a legal review into the sector, that will be a tough task.

“I expect that they will be within the same ballpark as last week; probably a touch lower,” Keenan says.

“StarsDraft has pulled out of most of the US market, which will reduce the player pool, and the SuperLobby shows DraftKings, FanDuel, and Yahoo have reduced their headline NFL GPP guarantees this week to $6m, $4m, and $650k from $7m, $5m, and $700k, respectively,” he adds.

If the daily fantasy power players are unable to return to growth either this week or next, questions will undoubtedly be raised over whether the scandal has damaged their reputations beyond repair. The way FanDuel and DraftKings have handled the data leak has received praise and scorn in equal measure, and while some believe they have emerged relatively unscathed, others think serious long-term damage has been done.

“While much of the furore was stoked by media speculation about “insider trading” and questions of legality, the fact is that both companies fumbled their response to this crisis,” says Fast Fantasy CEO Joe Brennan.

“Rather than taking decisive action and framing the crisis with a reasoned media response, they allowed the media to frame this in the most harrowing terms for weeks. It will take a great deal of work to restore confidence in their respective companies,” he adds.

But Shergual Arshad, CEO of European fantasy sports operator Mondogoal, disagrees: “I really liked the FanDuel response,” he says. “It was strong, open, honest and not defensive. Setting their ban on employees playing any DFS as permanent and hiring outside counsel to review their practices was a job well done. But they really had no choice. They had to act quickly and decisively.”

Pay a heavy price

Following the scandal it is clear calls for regulation simply can’t be ignored. Whether on a state level, or federally, it is only a matter of time before the self-regulatory model by which operators currently abide is replaced by one signed firmly into law. But regulation will come at a cost to FanDuel and DraftKings, and will likely dent their monopoly on the market.

For others, however, regulation is welcome. The likes of Star Fantasy Leagues (SFL) and Fast Fantasy have built their platforms and business models with regulation in mind. Seth Young, chief operating officer at SFL, says the Nevada ruling is a “boon” for the daily fantasy sports industry, which has been cleared as an activity only licensed gaming companies can offer.

“I’m very glad to see that Nevada is providing clarity for operators about where DFS stands within its borders, and that’s the kind of clarification that we’re interested in seeing in a number of other states as the industry grows,” Young says.

The big question now, however, is whether regulation will be rolled out on a state by state basis like it has been for real-money gaming in New Jersey, Nevada and Delaware, or whether a federal framework will be passed into law. State by state is the most likely scenario, with Nevada already requiring DFS operators to apply for a licence, but is that really the best model for the industry?

A case of déjà vu

“Seems like we have been here before, haven’t we,” says Brennan. “What is unique about DFS is the kind of national brands that are invested in it. The pro sports leagues, the networks, Yahoo, Google – all of them may prefer a federal solution.

“It all depends on how rapidly those parties move to push the issue in Washington. Already, you have key figures like Adam Silver of the NBA pushing for a federal framework, which is exactly what he’s also indicated the league would prefer if we were to progress to traditional sports betting down the road,” he adds.

The next few weeks and months will prove critical for the wider DFS industry, with a big decision to be made about its future as a regulated market. While that will take time, the more immediate question is whether FanDuel and DraftKings have been able to ride the storm with their reputation intact.

And while they may be able to reassure their players the scandal has passed, convincing regulators in the likes of Nevada and Massachusetts may prove a little harder.