FanDuel vs DraftKings | The Enemy of My Enemy | 1

0:28Hey, Business Wars fans, have you heard?

0:35It's July 2017 in New York City. FanDuel CEO Nigel Eccles walks the green of an indoor mini-golf course inside Rockefeller Center. Eccles is a blonde Northern Irishman with a boyish face that makes him look younger than his 42 years. He's not strolling this golf course for fun. He's here for a FanDuel event to publicize that customers can now access golf tournaments on his daily Fantasy Sports app. Eccles smiles and takes questions from reporters, trailed by Hall of Fame NFL quarterback Joe Montana, one of the company's many paid celebrity spokespeople. But not all of the reporters' questions are holes in one.

1:14They want to know what will happen now that one of FanDuel's most consequential deals, a merger with its cheap competitor DraftKings, has publicly imploded. Mr. Eccles, are you worried now that the Federal Trade Commission has blocked the merger? We're evaluating our options. We want what's best for FanDuel and our more than 6 million users. And, of course, to stay within the bounds of U.S. federal law. Does that mean FanDuel and DraftKings will adapt the terms of the deal to satisfy the FTC? Or is FanDuel prepared to walk away? That's all still on the table. Eccles' tone is reassuring, but inside, his mind is churning.

1:56The initial shock of the FTC's decision has worn off, but what's replaced it is worse. Uncertainty. All those months of negotiating, and for what? All for the FTC to shut it down? There's certainly no love lost between Eccles and the Boston-based DraftKings. FanDuel essentially launched Daily Fantasy back in 2009 and spent years doing the heavy lifting of building an industry. DraftKings showed up three years later with one goal, to take everything FanDuel had built. Recently, though, FanDuel and DraftKings have found a reason to come together. They face challenges from regulators over whether Daily Fantasy is just gambling by another name.

2:43They've battled the New York attorney general, statewide bans and large settlement fees that have threatened both companies' cash reserves. By November 2016, a merger between the two companies started to make sense. Even the reluctant Eccles could see that. But now, the Federal Trade Commission has voted to block the merger on antitrust grounds, leaving Eccles to ponder his next move. For now at least, FanDuel and DraftKings will remain bitter rivals, locked in an advertising battle with no end in sight. But less than a year from now, the entire landscape of daily fantasy will change. And what's coming next will make his current worries feel like child's play.

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4:28From Audible Originals, I'm David Brown, and this is Business Wars.

4:55Any casual sports fan knows that sports betting is everywhere. Even if you don't partake yourself, you can't miss the steady stream of commercials on every station. Or the betting app logos plastered everywhere from the field to athletes' jerseys. Right now, sports betting is dominated by two companies, FanDuel and DraftKings. Together, they control around 80 % of the sports betting market. But getting to this current moment took years and many uphill legal battles. because until 2018, gambling on sports was banned almost everywhere in the United States. If you wanted to bet on, say, the NBA Finals or the World Cup semis, your choices were few.

5:40You could go to Las Vegas, use an unlicensed bookie, or keep your wager quiet in between friends. These restrictions gave rise to a peculiar workaround, daily fantasy sports. Instead of betting directly on a game's outcome, you could draft hypothetical player lineups and win or lose based on their real-world performance. It was a way to bet without technically betting, exploiting a legal gray area that most regulators hadn't caught up to yet. And two startups, one from Edinburgh, one from Boston, seized that loophole and turned it into a multi-billion-dollar industry. Along the way, they spent hundreds of millions of dollars trying to destroy each other in an all-out advertising war, one that played out on TV screens and web browsers around North America.

6:33The barrage of ads became so unavoidable, it put FanDuel and DraftKings directly in the crosshairs of state and federal regulators. What follows is a story of legal loopholes, unlikely alliances, and a rivalry so vicious that even when survival required working together, they could barely stand to be in the same room. This is Episode 1, The Enemy of My Enemy.

7:09It's 2009, and Nigel Eccles is on a 10-hour international flight. At this point, Eccles is co-founder of the tech startup Hubdub. He and his co-workers, including his wife Leslie, are on their way to the South by Southwest conference in Austin, Texas. But despite the promise of mild weather, lively music, and plentiful networking opportunities, the mood in the flight cabin is anything but sunny. HubDub is on its last legs, and they all know it. You might say HubDub is an idea ahead of its time. It's an online prediction market that lets people wager on the outcome of current events. Last year, the company made waves by partnering with Reuters during the 2008 presidential election.

7:55But the partnership hasn't been enough to make the app profitable. And that's because using the app is free, and the money wagered on HubDub isn't real. To stay on the right side of U.S. gambling laws, the app is only for entertainment. The bets are just for bragging rights, at least for now. Eccles envisions that one day users can pay for a premium service that upgrades their experience with more features. Until then, HubDub has been relying on VC funding and a trickle of ad revenue to survive. And now, well, it's almost out of runway. So as the minutes on his long, uncomfortable flight tick by, Eccles is doing some light reading.

8:39He's perusing the Unlawful Internet Gambling Enforcement Act, or UIGEA. It's a sweeping U.S. law passed in 2006 that bans banks and credit card companies from working with real-money betting sites. It's the reason Hubdub can't monetize. And Eccles is wondering if there's some way around it. Eccles is no stranger to the UIGEA. He started his career in online gaming. Born and raised on a dairy farm in Northern Ireland, he went to university in Scotland before getting a job at a UK betting startup. Even back in the early 2000s, Eccles could see that the sheer size of the American betting market made it worth trying to break into.

9:21Because at the time, the US was in the midst of the online poker boom. When the amateur poker player Chris Moneymaker won the online 2003 World Series of Poker, thousands of everyday players suddenly believed they could do the same. Online poker rooms rushed to meet the demand, and within a few years, it was a global, multi-billion-dollar business. Then, Eccles watched that poker boom go bust with the passage of the UIGEA in 2006. Online poker rooms were suddenly banned across America. Billions gone in a puff of regulation. Eccles knows it wouldn't be difficult to pivot HubDub's existing infrastructure from using play money to using real money.

10:05But the UIGEA isn't going anywhere. To build a product that's viable in the U.S., he'll have to find a loophole. And as Eccles reads the statute, at last, an idea appears.

10:25Eccles' idea revolves around the legal distinction between games of skill and games of chance. According to the UIGEA, games of skill are allowed, games of chance are not. The law classifies poker as a chance game, making it illegal. Ask any professional poker player about this and you're bound to get an earful. because, as they've long pointed out, poker involves much more skill than chance. But another online pastime involving wagers remained perfectly explicitly legal. That's fantasy sports. The concept has been around for decades, ever since the first Rotisserie Baseball League was founded in 1980.

11:11By the 2000s, millions of regular folks were playing virtual GM to a roster of real-life players. There's fantasy baseball, football, basketball, hockey, Formula One. If someone in the real world plays it, you can probably play a fantasy version of it. And you can put real money on the line, too, using websites hosted by companies like CBS Sports and ESPN. Fantasy sports have been exempt from U.S. anti-gambling laws since the late 90s, when the pastime first went online and Congress had to decide how to regulate it. Several senators spoke in favor of making fantasy leagues distinct, noting that these games are mostly recreational, played with friends, and that league dues and administrative fees aren't the same thing as placing bets.

12:01Those exemptions stuck when the UIGEA was passed nearly a decade later. This specific legal carve-out for fantasy? That's about to become the basis of Eccles' big pivot. In 2007, a poker player named Chris Fargus started a blog called Instant Fantasy Sports. It resembled the online poker rooms he used to love, only instead of running card games, it ran rapid-fire short-term drafts of fantasy sports teams, combining the mechanics of poker with the fun of fantasy sports. It became popular but niche, used mostly among gamblers in the know. It's the perfect underlying idea for HubDub's next play. When Eccles and his HubDub co-workers land in Austin, they conduct a series of snap interviews with HubDub customers who also play season-long fantasy games.

12:56Over many conversations, one takeaway becomes clear. HubDub users have exactly the right temperaments to get into instant fantasy. These users like the action of prediction markets, but find the regular fantasy season too long and too vulnerable to bad luck or injury. You can do months of research looking at rookie prospects and projected player stats to draft the perfect team, but if your RB1, that's your lead running back, ruptures a tendon, well, your fantasy season is over. And so is that running back's football season in real life. But an instant fantasy offering would let gamers draft new players every week.

13:39or even every day, to assemble the lineup they think will beat their opponents. It's instant gratification. And unlike Hubdub, this new product could accept real money wagers and take a 10 % commission on each matchup. Eccles and his team tweak and elaborate on the concept until they've created their own proprietary version. They call it Daily Fantasy Sports. The idea sounds great to investors, especially the part about a clear path to profitability. In just a couple of months, Eccles and his co-founders raise$1.2 million in venture capital. And in July 2009, the Fantasy Sports spinoff officially launches, with headquarters in Edinburgh.

14:29They call it FanDuel. The company moves quickly, enticing customers with tiered contests, structured not unlike the World Series of Poker. Winning a qualifying round gives users a chance to access bigger and bigger prizes. In December 2010, FanDuel holds its first-ever Fantasy Football Championship in Las Vegas, giving 10 qualifying participants the chance to win up to$40 ,000. The tournament whets customers' appetites for more daily fantasy games. Because the more you participate, the more access you get to big prizes. FanDuel and the industry it spawned are off and running. But with any new industry comes competition.

15:16And Arrival is on its way into the arena.

15:26In 1969, when police tried to shut down a gay bar in New York City's Greenwich Village, they expected little resistance. Instead, patrons rose up in a series of demonstrations that would ignite a movement. Hi, I'm Lindsey Graham, the host of the podcast American History Tellers. We take you to the events, times, and people that shaped America and Americans, our values, our struggles, and our dreams. In our latest series, the police raid on the Stonewall Inn marked a turning point in the fight for LGBTQ rights. But activists had already been hard at work pushing for gay rights for decades, and their battle is still being fought today.

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16:48It's March. 2014 in Boston, Massachusetts, a stone's throw away from Fenway Park. In the corporate headquarters of DraftKings, CEO Jason Robbins is with a colleague reading a piece from Forbes. And the more he reads, the more agitated he gets. Are they being serious right now? What is their problem? Says here, FanDuel wants us to stop saying we're the number one destination for daily fantasy, or that we have the largest weekly cash pools. They're saying they're bigger, so I don't really under... So they hit us with a cease and desist? Well, technically, all they've done so far is tell a reporter they're going to hit us with a cease and desist.

17:31Robbins is 33 years old with short, dark hair and a flat, nasal voice that can make it hard to tell when he's agitated. But this Forbes article has definitely gotten under his skin. In the piece, a FanDuel executive accuses DraftKings of making misleading claims in its promotional materials. To prove it, FanDuel has provided hard numbers on the size of their user base, over 768 ,000 lifetime user registrations, and annual revenue of more than$2.8 million. DraftKings, they say, has far less. If DraftKings doesn't back off its claims of being number one, FanDuel plans to sue. But to Robbins, a little advertising braggadocio is all part of the game.

18:21Sure, DraftKings might not technically be bigger. After all, FanDuel had a three-year head start. DraftKings only launched in 2012. But over the past two years, DraftKings has been building real momentum, pushing aggressively into more sports categories every day. FanDuel has been more cautious, sticking to traditional fantasy offerings, and avoiding individual player sports like NASCAR, mixed martial arts, or tennis. After all, a fantasy football roster might have 15 player slots. It takes skill to put it together. Whereas selecting a single tennis player to win a match is closer to a coin flip or chance.

19:04It toes the line between fantasy and gambling. But cautious isn't in Robbins' vocabulary. DraftKings is all about adding more categories, more prizes, more action, more everything. If that doesn't make it number one, what does? It feels like Robbins and his co-founders Paul Lieberman and Matt Kalish have always had their foot on the gas. They met in the tech world as mid-level data analysts and engineers at the online printing company Vistaprint. It was honest work, but dull. Robbins craves excitement. He loves roller coasters and, not coincidentally, high-stakes poker. Naturally, he was drawn to the heart-pounding world of daily fantasy.

19:50He and his friends were avid daily fantasy players themselves. and they designed DraftKings as a platform for fans by fans. This, Robbins believed, would be their edge when he, Lieberman, and Kalish decided to build their own platform. Over at FanDuel, Nigel Eccles doesn't even use his own product. For months, Robbins and his co-founders gathered after work in Lieberman's Watertown, Massachusetts apartment, working on a challenger to FanDuel. Raising capital was slow going at first, but essential to DraftKings' early strategy. They'd need money, a lot of it, to woo FanDuel users over to their site.

20:35Within a few months of its founding, DraftKings landed a$1.4 million seed round, led by a venture firm based near Boston. After that, the next rounds got easier. By November 2013, DraftKings' total raise was about$35 million. Now, in 2014, the company is already eyeing its first corporate acquisition, another daily fantasy company called DraftStreet. The acquisition will grow DraftKings' user base and put the company in a stronger position against FanDuel. Robbins looks at the Forbes article again, then smiles. You know what? This could actually be good for us. Let's draft a response. The sooner the better.

21:23A few days later, Forbes publishes DraftKings' reply. It has an unapologetic, teasing tone, as if mocking FanDuel for even thinking about legal action. Here's an excerpt. DraftKings is a leading provider of daily fantasy sports with a momentum that is largely unmatched. It is understandable that this would cause some distress and move FanDuel to attempt to halt our ascent by any means necessary. And while we at DraftKings can appreciate the reasons why FanDuel may have felt the need to take such a fanciful approach to competition, this type of frivolity only serves to undermine consumer confidence and weaken the entire industry.

22:07Translation? We're not scared of you. You should be scared of us.

22:29When DraftKings publicly thumbed its nose at FanDuel in the pages of Forbes, it was tantamount to a declaration of war. Competition between the two daily fantasy companies gathers steam throughout 2014. They trade funding rounds like a game of high-speed tennis. In late August 2014, DraftKings announces a$41 million round, bringing its total outside money raised to$75 million. One week later, FanDuel fires back with a$70 million round of its own. It's biggest yet. FanDuel is still the bigger company, with more users and more money raised overall, but DraftKings is gaining on them fast. Perhaps more importantly, both companies seem to be neck and neck when it comes to partnership deals with sports leagues.

23:20In just a single week in November 2014, DraftKings unveils a league-wide partnership with the National Hockey League, FanDuel inks an overall four-year deal with the National Basketball Association. DraftKings announces their own distinct partnership with one of those NBA teams, the Dallas Mavericks. And FanDuel reveals plans for a marketing agreement with Washington's NFL team. Meanwhile, DraftKings has already been working with the NFL team in their own backyard, the New England Patriots. Got all that? One week. These partnerships are not limited to advertisements. They often come with a financial stake in the fantasy platforms.

24:05When DraftKings became the official daily fantasy platform for Major League Baseball in 2013, equity came along with it. In other words, MLB became a DraftKings investor. Now, this is a massive change from the attitude professional sports leagues used to have about sports betting. Game of skill or not, most people have realized that daily fantasy looks and feels a lot like gambling. For years, NBA's former commissioner David Stern called gambling a great evil and a danger to the sport. But his successor, Adam Silver, embraces daily fantasy and gambling itself as a way for fans to engage with all the teams in his league, not just their hometown heroes.

24:51Here's Silver explaining his thinking to USA Today. Whether it's looking at the point spreads in your paper and others and hearing sports commentators constantly talking about who's favored or not, there's no doubt there's a betting culture that exists around sports. On top of that, I've done a lot of international work on behalf of the NBA, and in many of those jurisdictions, sports betting is perfectly legal. In other words, it's not my attitude that has to change. It's American laws. Keep that in mind for later. And if you think Daily Fantasy's relationship is cozy with Major League Sports, well, it gets even cozier with the broadcast networks.

25:28From ESPN and Fox to NBC and CBS, nearly all major networks have some financial stake in either FanDuel, DraftKings, or both. From a pure opportunity standpoint, these partnerships make sense. Fantasy sports open up a whole new avenue for content on these networks, another reason to tune in. A sports center anchor can discuss the fantasy outlook for a particular game, which incentivizes more eyeballs on games throughout the season. A ho-hum afternoon matchup between the Milwaukee Brewers and the Pittsburgh Pirates suddenly becomes must-see TV for anyone with daily fantasy players on either team.

26:08More viewers is good for the sports teams and the networks showing their games. We gotta pause for a second because there's something really important happening here. FanDuel and DraftKings aren't just buying ads anymore, right? They're embedding themselves in the very machinery of professional sports. The leagues are partners here, the networks are investors, and suddenly an awful lot of powerful institutions have a real financial interest in getting fans comfortable with something that still sits in a legal gray area. and tying daily fantasy odds to reporting can lead to broadcasts that sound a lot like ads.

26:50Like that? Yeah. Yeah, this is going to be our weekly DraftKings segment. We're going to do this every week. We got some DFS good buys and bad buys for you looking at the prices on FanDuel and DraftKings. The guys have given you their favorite plays on each respective site. For FanDuel and DraftKings, this rush of partnerships is all part of their number one goal, customer acquisition. Having raised more than$150 million in venture capital between them, both FanDuel and DraftKings are now leveraging that cash to get more users than the other guy. You know, if this business strategy sounds familiar, it should.

27:26Hear any echoes of the great startup land grab of the 2010s? You know the game. Spend whatever it takes to get customers, even if every new customer actually costs you money. Then once you get the users in the door, monetize them. The theory is that scale will eventually solve the problem. But that only works if you can keep raising money. And, of course, if nobody changes the rules while you're doing it. Soon, both companies' marketing budgets soar into the hundreds of millions of dollars, far outstripping their actual revenue. And this user acquisition war plays out very publicly. FanDuel tries to drown out DraftKings with more and more ad placements and corporate sponsorships, and vice versa.