legalized paid fantasy sports by exempting them from the state’s gambling rules. Bills in several other states have stalled, while proposals have popped up in Florida, New York, and New Jersey in the wake of the Haskell controversy, according to Legal Sports Report.
The CEOs of both DraftKings and FanDuel have expressed openness to regulation that protects users, while still allowing the industry to thrive. In a letter to users last month, FanDuel CEO Nigel Eccles specifically lauded proposals that would safeguard user information, require verification of users’ age and location, and require third-party audits of the industry, among other ideas that have been floated.
“It has become apparent to me that our industry has grown to a size where a more formal, industry-wide approach is needed,” Eccles wrote. “A number of smart, but tough, proposals in various state legislatures have begun to emerge, which I believe can serve as the basis for the sensible regulation of the fantasy sports industry.”
FanDuel declined to comment for this story beyond Eccles’s letter.
A DraftKings spokesperson says the company plans to work with government authorities, industry partners, the Fantasy Sports Trade Association, and the Fantasy Sports Control Agency—a new entity created to self-regulate the industry—“to ensure that our industry operates in a manner that is completely transparent and fair for all consumers.”
“We are seeing a number of state regulators and other authorities taking a reasoned and measured approach to the daily fantasy sports business and hope that trend continues, along with due consideration for the interests of sports fans across the country who love to play these games,” the DraftKings spokesperson wrote in an e-mail to Xconomy. “We’re confident in the vitality of our business.”
Fantasy-sports companies are the latest examples of fast-rising consumer tech startups with new types of business models that have run into legal roadblocks.
Uber and its ride-hailing competitors haven’t been fazed by their battles with regulators. At least 15 states have passed bills this year allowing the companies’ networks of private drivers to operate, but with some oversight intended to protect riders and drivers. And just last week, Airbnb successfully fought off a San Francisco ballot measure that would have hampered its business there. The short-term lodging site is getting ready for similar fights across the country, but has signaled a willingness to work with local governments.
Others have not been so fortunate. New York-based Aereo discontinued its service and slashed staff after the unfavorable court decision last year. Its assets were later bought by TiVo and others for less than $2 million in a bankruptcy auction.
“There is a philosophy among some business people that it’s a lot easier to apologize than to ask for permission,” Whitehead says. “We are in a free market system, and innovation is very much a part of the free market system, so long as there’s a reasonable basis for understanding the law and complying with it. I think that would be the position that Airbnb and others are taking.”
“The question is whether or not that’s a sustainable model,” Whitehead adds.
In any case, FanDuel and DraftKings certainly aren’t turning back now. For his part, DraftKings CEO Jason Robins said at a recent Boston startup event that his company intends to double its staff of 250 next year, and double it again the year after. “One of the things that I’ve realized is one of my important drivers, maybe my most important driver, is to be able to build something great in Boston,” said Robins (pictured above), drawing cheers from the nearly 1,600 in attendance.
Now, his company seems to be following the playbook of Uber and Airbnb as it prepares to defend itself against mounting regulatory and legal challenges.
Similar to how Uber and Airbnb tapped Washington, DC, political insiders to help hone their public message, DraftKings hired former Massachusetts attorney general Martha Coakley as an advisor. The news came the same week DraftKings reported the findings of the independent investigation into Haskell’s actions.
Uber and Airbnb have also turned their massive user bases into a powerful political machine, urging them to lobby legislators and vote in ways that favor the tech startups. DraftKings and FanDuel are starting to use the same tactics with their several million users, such as asking them to sign online petitions to protect daily fantasy sports.
That’s a smart play by the tech startups, Whitehead says. “If consumers see a value to this, so long as they’re, I would hope, properly informed of the nature of the product, then why not use that as a means to influence legislation?”
And that cuts to the heart of what Whitehead predicts will drive regulators’ decisions about online fantasy sports—protecting consumers. Regulators might raise concerns about potential addiction to online fantasy sports, and also the need to ensure the sites create a “level playing field” for users, Whitehead says.
Bottom line: It’s likely that we’re only in the first quarter of the tilt between fantasy-sports startups and regulators. In other words, those non-stop commercials aren’t going away any time soon.
