The Rise and Fall of Daily Fantasy Sports

It seems like a distant memory now, but even the most casual football fans will never forget the summer of 2015, just months before kickoff. Whether you watched football or not, you couldn't avoid a DraftKings or FanDuel commercial. THEY. WERE. EVERYWHERE. It was worse than trying to avoid hearing Linkin Park on the radio in 2003. And it didn’t stop the ENTIRE season. Player or not, it was both maddening and amazing. How were these companies affording this? How had this industry exploded so quickly?

Coincidentally, it was this endless stream of marketing nearly led to the downfall of daily fantasy sports (DFS for short) in the US. Those in charge of those campaigns must have had memory problems because not even 10 years earlier the same type of hubris brought down the online poker boom in the US after PokerStars and Full Tilt Poker bombarded the airwaves of sports television with their ads. The major DFS players thought they had a different beast, being “a game of skill” and all, but they ran into exactly the same legislative issues that killed online poker in this country. It turns out nobody was really buying that whole “game of skill” thing as much as they thought. Despite the boom, and millions of dollars from high-profile investors of all kinds (including, interestingly enough, NFL owners themselves), trouble was on the horizon.

It didn't help that the world of DFS was so lightly regulated at the time, and despite all reasonable logic, people that worked for either company were allowed to play on their competition. From there it wasn’t at all surprising when allegations of DFS corporate employees having access to what amounts to insider information and using it to their advantage every Sunday started making the rounds. Finally, with the worst timing possible, the New York Times reported a DraftKings employee had won $350K in a FanDuel pool. All of a sudden, the rumors and concerns of regulation and collusion were out of the shadows and into the light, even for casual players. Regulator battles continued to plague DFS, and as the books got opened, and laws were scrutinized, the trouble continued to mount.

Fast forward to 2016, and on the cusp of the season kick off, daily fantasy sites cleared a major hurdle when New York passed a law that legalized the industry in their state. Though the major sites have hopefully learned from their mistakes in oversaturating TV with commercials, playing fast and loose with regulation, and generally acting overconfident, it remains to be seen what the DFS landscape is going to look like as the season commences.

Adding fuel to the fire, ESPN's Outside the Lines released a lengthy and in-depth look at the explosion and implosion of the DFS industry just a few weeks ago. Among it’s many revelations, the biggest may have been the bright light shone on the dirty little secret that even though DraftKings and FanDuel were trying to sell the public on million-dollar winnings and the average player’s high chances of winning, reporter Dan Van Natta Jr.'s findings show the exact opposite to be true. Only a miniscule percentage of players were making any money, and these were usually professional players with large-scale analytics tools and massive budgets (up to $100,000 every weekend). Sounds familiar doesn’t it?

Despite their new lease on life, the major DFS players now have to deal with major image problems. This season the approach is markedly different; the sites are spinning the game play experience as less about winning big money and more about the experience and bragging rights amongst friends or coworkers. Riiiigghhht. DraftKings, for example, launched a new feature called Leagues, which allows a group of people to form their own competitions without interference from unknowns. You can set up a league each week and invite your friends rather than have to compete against the sharks that are making all the money. Noticeably absent from every commercial break in the preseason, the marketing landscape for the DFS kingpins is dramatically different as well. Gone are the hypy commercials with the oversized checks and bros with their backwards hats, outsized promises, and huge dollar signs. It's much less in your face.

The war isn't over for the soul of DFS though. DraftKings and FanDuel have discussed merging in the past and it's possible the two join forces at some point, Van Natta Jr. reported. But between continuing regulatory battles, mounting losses on massive investors, and flagging interest, the fights for DraftKings and FanDuel are far from over. With a field of parity taking over, competitors attempting to differentiate themselves have taken root and are experiencing steady growth. One entrant, DRAFT (which adds player draft features as opposed to salary-capped teams), weathered much of the 2016 storm and took a much more measured approach in it’s marketing and spending. It’s paying off too. Their innovative features and lean financial strategy has proven successful in it’s quick recovery and continued popularity.

Where the industry goes from here is still unknown. Regardless of what clever euphemism you use in place of “gambling”, the public and investors have shown their willingness to throw dollars at the fantasy industry. Who knows what the DFS landscape will look like a year from now in 2017, as we’ve seen, a lot can happen in 12 months.