Is it gambling?
That’s the single, looming question that has put the daily fantasy sports industry on high alert over the past few weeks. Industry leaders like DraftKings and FanDuel, which offer pay-to-play fantasy sports contests with cash payouts, have been under fire from regulators taking a closer look at whether or not the daily fantasy sports industry is in violation of federal gambling laws.
DraftKings and FanDuel claim it’s not, arguing that daily fantasy is a game of skill, not chance. Regulators aren’t buying it, at least not without a closer look. The result has been a firestorm of bad press and concern over the future of daily fantasy, a young but certainly budding industry.
That’s the bad news for daily fantasy. The good news? Daily fantasy isn’t going to die, regardless of how much it’s getting pummeled. The simple reason: There are too many people who stand to benefit from the industry succeeding.
A quick scan of FanDuel and DraftKings investors reveals a who’s who list of America’s top media conglomerates, like Comcast*, Time Warner and Rupert Murdoch’s Fox Sports, which led DraftKings’s most recent round, taking an 11 percent stake in exchange for a $150 million investment.
Those investments don’t include the massive revenue bump these media properties have received as a result of the daily fantasy industry’s recent marketing blitz. As part of the Fox Sports investment, DraftKings promised to spend $250 million in advertising money with the network over a three-year span. ESPN, which didn’t even invest, got a similar deal. These networks are making truckloads of money in ad revenue, and that doesn’t even count the boost they receive in ratings.
As Fox Sports COO and president Eric Shanks told Re/code back in July, “The more people play [fantasy sports], the more they consume our product on TV.” Big-time media doesn’t want daily fantasy going away.
Leagues like the NFL, the NBA and Major League Baseball all benefit when fans are playing fantasy sports. The reason? People tune in to games they would have never watched otherwise. And growing its TV audience will be key to continuing to sell TV air rights for billions of dollars. Cord-cutting has already eroded the networks’ business, with ESPN having to lay off 4 percent of its staff last week.
These leagues, and the teams that comprise them, are also making money directly from DraftKings and FanDuel through exclusive partnership deals, most of which have been inked over the past year. Those deals, in which the daily fantasy companies pay to advertise inside stadiums, can be seven figures. If daily fantasy falls through the cracks, so do those marketing dollars.
There are also numerous league owners with a personal stake in the industry. The Kraft Group, which owns the New England Patriots, invested in DraftKings. So did the Dodgers Ownership Group and Dallas Cowboys owner Jerry Jones.
Governments and Casinos
This is where things get tricky, because right now, Nevada’s casinos are fighting the daily fantasy industry. Regulators like the New York Attorney General and the FBI are closing in on whether or not these businesses can operate. But long term, it seems that both groups stand to benefit from a healthy daily fantasy business.
The American Gaming Association released data Friday that found that the amount wagered at Nevada sports books has increased every year since DraftKings and FanDuel have been in existence. That doesn’t necessarily mean fantasy sports is the reason, but it also doesn’t appear to be stealing business from sports books. Given the difference in the two types of wagers — betting on outcomes of games versus the performance of individual players — some might argue the two actually complement each other.
As for lawmakers, much like regulatory battles for Uber and Lyft, the issue is not that these companies are causing trouble — people clearly want to play daily fantasy sports — it’s that authorities can’t control the business or make money in the form of taxes or fees in the process. Uber is slowly gaining regulatory approval by sharing some of the wealth. It’s possible daily fantasy will have to do the same thing to survive.
Update: Chris Moyer, a spokesperson for The American Gaming Association, reached out to Re/code to say that the casinos are actually in support of daily fantasy sports.
“Casinos are not fighting DFS,” he wrote in an email. “In fact, Nevada sports books have seen an increase in the amounts wagered since DFS companies launched. We think DFS is an exciting, popular product and that these companies have tapped into a potential new customer base for casinos.”
* Comcast-owned NBCUniversal is an investor in Vox Media, Re/code’s parent company.
This article originally appeared on Recode.net.