FanDuel’s Next Gamble

0:04Congratulations! You made the Varsity podcast. My name is John Aranda and I'm a sports correspondent and the host of this pod. And today, I'm really happy to have Christian Genetski on the Varsity. Now, Christian is the president of FanDuel and we're going to talk all about the sports betting scandals, the growth of the prediction market, and the enduring popularity of the World Cup. I really enjoyed this interview and I think you will too. But before we get to Christian, today is Wednesday, June 24th, and here's what I'm watching. I'm looking at Fox. Now, in the four days after Fox announced that it was buying Roku for$22 billion in cash and stock, the company's shares dropped by 24%.

0:4724. Now, according to Peter Cipino of Wolf Research and a former podcast on the varsity, That drop came because investors got queasy about the fact that the Murdoch family, which has always operated with an entrepreneurial spirit, was operating in an entrepreneurial way. Supino is positive on the move in general, which he said expands Fox's niche in free ad-supported streaming while putting Roku's data and ad inventory in the hands of Fox's powerful ad sales group. Just how powerful is that ad sales group? Well, Supino pointed out that coming out of the upfronts, Tubi and Fox News posted double-digit growth in an overall down year.

1:32Eight out of Fox's 10 biggest advertiser categories spent more than they spent last year, which is a good sign for near-term results, especially from Fox, which is going to benefit from the World Cup. But back to the Roku deal. Financial analysts really seem to like it, at least in the long run. Moffitt and Nathanson, well, they put out a report saying that the deal is going to ensure Fox's future as streaming overtakes traditional distribution in the coming years. And Guggenheim said that the combination of content and distribution assets is going to raise some questions about the balance of owned media growth.

2:09But Guggenheim also emphasized that this type of deal is typical in the media business. Just look at Alphabet and Amazon, which are vertically integrated technology companies. In other words, ignore the negativity. The consensus really seems to be that Fox's Roku purchase is one that will stand the test of time. Okay, now let's get to FanDuel's Christian Janeski. Christian, thank you very much for joining us. You're just a month and a half into being CEO of FanDuel, so I appreciate you taking the time to stop by here, especially given it's World Cup week, World Cup month. for FanDuel where does a World Cup fall in terms of just the popularity on your platform in terms of other American sports you know first of all John good morning great to be here with you it's interesting I think we didn't know you know it's been you know four years obviously since we had a World Cup it was in the Middle East last time a lot of time variations our business was much smaller then.

3:17We had less population reach in the U.S. So we certainly planned for it to be a much, much bigger event this time, just given that it's being hosted in North America, that the U.S. is involved and some optimism about the U.S. team. I think so. We planned for it. We planned to go big. I think we have been very pleasantly surprised even about the level of customer interest pretty much from the first game on. Obviously, a ton of excitement about the U.S. team and its performance through the first two games, but just much heavier user engagement. And it's been interesting to see its power as an acquisition tool.

4:07This is not, you know, June is not typically a big user acquisition month for our sportsbook, but we're seeing a lot of people come to the sports book for the first time and a lot of reactivations people who haven't been around as much or don't typically bet this time of year so it's it clearly has um captured a ton of interest and we're you know we're continuing to lean into it with a bunch of fun promotions and other things and you know certainly around our office there you know our office is filled with sports fans and people who love sports and And you can, you know, the kind of the excitement's palpable in the office.

4:45The games are on all day. People are, you know, as a conversation piece. So, you know, so far it's been amazing. Other than volume, how is betting on the World Cup different than, say, betting on the Premier League or on MLS or just sort of like, you know, the soccer leagues that come every single year? So I think some of the differences are people who bet soccer regularly, bet Premier League or Champions League or MLS, are more hardcore soccer fans. They're people who know the game. They know the players. Obviously, our parent company, Flutter Entertainment, has the leading sportsbooks all across the UK and Ireland and Europe.

5:32and you've got very sophisticated soccer bettors there or football bettors there. And so you'll see the same kind of customer dynamics in soccer bet by those experts, which is more same-game parlays, more proposition bets around players, people betting on the number of corner kicks a certain player will take and those sorts of things. I think for the World Cup here, what we're seeing, I count myself among them. I follow the Premier League. I have a team. Brighton's my team. I follow it fairly closely, not nearly as closely as other sports. But, you know, in the World Cup, I don't know most of the players.

6:13I'm learning them. I'm quickly, you know, like many people, I'm quickly becoming an expert with strongly held but not necessarily well-informed opinions. So what you see are people betting a little bit more of the sides, the totals, kind of, you know, things that they are familiar with, sort of betting the flags for the different countries and a little less of kind of the multi-leg parlay, more sophisticated, educated, player-driven bets. Your Premier League team is Brighton. How did you pick Brighton? I don't know if I know another American that, you know, you got to go to Arsenal or Chelsea or Spurs or Man U or something like that, right?

6:55So when I went through my process, because I just, I was watching Premier League when a lot when my daughters were very young because it's kind of quiet. You could put it on on Saturday morning while they're crawling around the floor. And that was when I first kind of got interested in it, then fell out of it a little bit, decided I want to get back, kind of did my process. Bill Simmons did this on page two on ESPN years ago about how he went about getting team. And it came down to Arsenal and Brighton. And Arsenal, I was influenced by the Nick Hornby book, Fever Pitch. It's one of my favorite books, but it felt a little, I realized they just finally won, you know, the premier league for the first time in a while this year, but it felt a little bit front runner-ish.

7:40So I wanted kind of a middle of the pack team, two things for Brighton. One, they have a very money ball approach. They're doing more with less, which made them sort of a fun team to root for, I guess, three things. Two, it's located on the water in England. So if I ever want to go to a game and visit, it's a nice place to go. And then three, they're owned by a sports better. The owner of Brighton made his money as a high stakes expert sports better, which that just kind of felt right. I lived in London and I lived in walking distance to Highbury in the late 90s when Arsenal was winning everything.

8:15And so it sort of got into your blood a little bit there. Let me ask you, I want to stick on the World Cup a little bit. The first World Cup in the U.S., they did expand. So a lot of these first-round matchups are not sort of World Cup-worthy type games, I think. Allegedly, except some of these teams are drawing and winning them. I know. You would have thought, I suppose. From your platform, what are some of the bigger surprises that you've seen come out of this? I think we knew there was a lot of anticipation for the first U.S. game. We had some pretty great promotions on the first U.S. game, but the volume on that game still took us aback a bit.

9:03I mean, it's the biggest soccer game handle by a fairly wide margin in the history of our sportsbook. But what has surprised us more is the sustainability of the handle on the other matches. You know, I think we were like, okay, first couple days were exciting. You had the first big U.S. win. Would that sustain or would we kind of have a lull until we got to the knockout round? Because to your point, there's a lot more games. I think what we've seen instead is the way the games are structured with this sort of four a day and they're all paced out. So, you know, you've got your early afternoon.

9:45It's almost, you know, it's akin for us to like a March Madness, right, where you've got a bunch of games, although these games aren't overlapping. So for a sports betting business, it's better to have one game end, have a bit of time before the next game kicks off. You can still have parlays that are people are betting across the multiple games on the same day. But I think the structure of the tournament has really lent itself to sustained interest. And then, again, people are just into it. which is great. I'm more into it personally than I anticipated I would be when it started. I thought I would be fairly common, like a lot of people, to really tune in at the knockout stage.

10:28But the excitement, seeing the crowds, all these things on Twitter with the people who are in the United States and visiting and traveling around and seeing different parts of the U.S. and their impressions, I think all of that is kind of contributing to a lot of excitement. And the other thing I would call out is we now have, you know, we were blown away that the first U.S. game was the biggest soccer game we've ever had in the history of the sportsbook. We now have, I think, the top five to seven by-handle games in the history, soccer games in the history of the sportsbook. So it's building on itself.

11:05It's not waning. And the other, you know, right behind the United States is Mexico. And, you know, perhaps unsurprisingly, but just huge interest in the Mexican national team across their first two games. And, you know, I think we'll continue. They've already qualified, obviously. So we'll continue to see that in a knockout also. Am I right in assuming Canada would be third? I'm not sure of that. They would be in the mix with the other big names. So Spain, Brazil, France, you know, the heavyweights have attracted quite a bit of action. And then when those heavyweights get drawn by lower caliber opponents, that's a great day for the FanDuel Sportsbook.

11:50When the U.S. continues to rout people, we'll be very excited. We will ride the wave, but we will also lose a lot of money on those games. I mean, I'm so myopic when it comes to the sports business. I come from covering media, you know, and so my view of sports is through like the Nielsen ratings in a lot of ways. So the most popular sport is the NFL by far. I think no matter what metric you use, then you have college football, then you have baseball and basketball sort of in there. Does does activity on your platform track with that? Is there are there any surprises like that there are certain sports that are bet more than others or less than others?

12:32By and large, it tracks it. The difference for us in terms of size of our NBA business or MLB business versus our NFL business is really comes down to the number of games. So the NFL is our, we have more people bet the NFL. That's our highest, you know, the September to December are our highest active user counts and the highest, you know, revenue grossing months. They make up more of our year than other months. And that's because you've got the NFL and you've got college football. And of course, you also have NBA starting up again in October and NHL. So those are prime calendar months, but there's 17 weeks in the NFL.

13:19I guess there'll probably be 18 weeks soon enough, plus the playoffs. And, you know, while they continue, I think there'll be games on four or five different days of the week this year. They continue to expand that. Mostly you're talking about Sunday and with one game on Monday, two occasionally. So just the number of times you can make a wager on an NFL game or even a college football game is just far less than an 82-game, you know, 30-team NBA league and, you know, MLB obviously playing for several months over the summer. So the volume totals bet on some of those sports that have a much longer calendar are higher overall.

14:01But the acquisition period and the number of more people bet on the NFL than any other sport.

14:16We've been talking about trying to get you on this pod for a while. And, of course, one of the big stories that you address all the time is just some of the scandals that have been happening, sports betting scandals. And I was worried that I was going to have to go back to Otani's interpreter or Jonte Porter or, you know, the Guardians pitchers. And then, sure enough, within the last month, there's Brendan Swordsby in Texas Tech, that Texas Tech quarterback. back um i don't want to get sort of into it i mean you've covered this ground uh before and and you know the sun that i think you've i've heard adam silver even talk about the sunshine of legalization has has allowed for a lot of this to to get um to get caught but like take let's take the brendan soresby mess that's been going on instantly how take me through how did you hear about that?

15:08What was the tenor like within your office when sort of his problems started to come to light? Yeah. So we have, I think the most important thing to remind, and you touched on it, is that the legal and regulated market, we're accountable every day for every transaction that takes place on our platform. And there are unfortunately still, there's a proliferation proliferation of illegal sites. There are bookmakers on campus, sort of old school bookies who now use mobile apps because everybody can create a mobile app. And there are sites that cater to the underage users that aren't allowed to bet on a FanDuel platform.

15:55So there's a real dichotomy from where this activity takes place. I think we have dedicated teams within our sportsbook and compliance departments that are monitoring all the activity on our site. It's again, it's sometimes not intuitive to people that we're, you know, and this is by far the least important part of sports integrity scandals. I care about them as much as a sports fan as I do as a sportsbook executive. But sportsbooks are victims in these scenarios where people have inside information and try to use it to make bets on games on our platform. They're betting with information we don't have, which means that there's not a symmetry of information there.

16:44And so when these things generate in multiple ways, there are times where we identify that there's abnormal betting activity. I think the Terry Rozier matter was one where the sports books first noticed, on a random Tuesday afternoon that they were getting a lot more volume on Terry Rozier bets. We alert third-party integrity monitoring services, which then in turn alert all the other regulated sportsbooks who look at their activity. If they see it, they put it into the mix, and you build a profile there. I mean, the Terry Rozier situation was terrible and got a lot of deserved attention. I think it's important to note that betting was halted on those props hours before tip-off of that of the game in question um and so and and our level of sophistication that was i think for four years ago five years ago when the actual activity took place um as orders of magnitude better now we're catching that you know those sorts of things more quickly i think the you know generally speaking i said earlier talking about the world cup arm our employee base for the most part they work for vandal because they love sports and they are caretakers of sports and they think that that our business and sports betting are additive for people who love sports they enrich your experience it gives you another way another lens through which to see the game and it's fun um and so these sorts of stories are are not fun for us at all but we take very seriously our role in ensuring that there's transparency um that these things come to light.

18:25You obviously have had plenty of betting scandals that predated the pass-bend decision in 2018.

18:34Intuitively, you would assume that there were more scandals that went unnoticed that were smaller and not as pervasive and ongoing over time. Whereas in the regulated market, you're picking up things where there are literally, you know, a few hundred bets on one game on one day. I also think, Swarsby notwithstanding, we are seeing improvement. Whereas, you know, the industry is still new. I think people are learning. Athletes are learning. What's becoming clear is that if you do this, you'll get caught. So if you have pressure from friends who are saying, come on, it's no big deal. You know, throw a pitch out, throw the first pitch outside in the fifth inning.

19:24You know, what you're seeing is that there are real and lasting consequences for taking actions like that, that disrupt the integrity of the game. And I think the leagues have been, have done the right thing by, you know, having a very low to zero tolerance policy about this sort of activity and law enforcement has taken these cases seriously as well. And I think that when the consequences become clear and when the reality that you will get caught become clear, you're going to see this activity diminish over time, at least on regulated sports books. And the hope would be that it doesn't move from regulated sports books to the illegal market.

20:09now the the guardians pitchers i forget their names but i think it was uh the the bet was the first pitch was going to be a striker a ball and and jante porter i think it was an under in terms of of rebounds and you've had um influential people like adam silver uh come out and say like you know we we want to call pop uh we we want to did he does he want to ban pop prop bets or does he just want to call them or and make no so we yeah we work closely with the league so with the nba in the wake of the jonte porter work we look we had sat down with them we talked about it we said like what you know what what do what do we want to do here are there things we should be doing as operators who are close partners with the league um we don't need to take a bet on everything.

21:01And we agreed to, we eliminated under bets on two-way players, which are people that don't have a full-time contract in the NBA and can go back and forth between the G League. It's not a perfect solution. You know, unders inform the pricing on overs when you run a sports book. Like if you were to eliminate all unders across the board, it probably lends itself to a really bad customer experience on pricing because you need to have both parts of the bet. and for more prominent players, you know, one thing it gets difficult to do here is to retain perspective. So if you look at the total volume of bets on proposition bets, and then you isolate out the ones that have been problematic from an integrity perspective, you are talking about, you know, 0.001 % of the bets.

21:56doesn't mean it's not important, doesn't mean it's not something we have to address and take seriously, but you do need to place it in the context of how small relatively the bet is. And if you were to get rid of all prop bets, say, you know, those are bets that are readily available all across the legal market. People aren't going to stop betting them. We see this in, you know, in the FanDuel operates our sports book in roughly half the states and roughly 50 percent of the population of the country. The other half is not not betting. They are betting through other sources. And now you've got prediction markets coming in and filling some of that need.

22:39But you still have thriving illegal and somewhat gray sites that are giving people an opportunity. So the demand is there either way. And I think what we've tried to do is work very closely with the leagues, work with our fellow operators to figure out where the regulated market needs to lead. And are there are there bets and bet combinations that lend themselves are more vulnerable to manipulation? We need to take a harder look at those. And, you know, we'll continue to iterate and refine as we go forward. i wish i could come at you with some hard numbers but i don't have any hard numbers other than like uh you know my feelings and so uh it feels like we're seeing more scandals right now it feels like like uh more um shenanigans are being brought to light um two-part question one is uh do you do you feel the same way or do the stats say the same thing and uh two is um uh is this because of the sunshine that you've referenced.

23:48Yeah, I think from the advent of legalized sports betting, so 2018, we launched our first sports book in the fall in New Jersey. For a year and a half or two, we were only in three states. It's relatively small. So if you sort of take from the 2021, you know, we had COVID in 2020, there were no sports for six months, kind of take from 2021 to the present, I think, you know, and I don't have everything in front of me, but I'll go by feel as well since you did. I think if you plotted out when these events took place as opposed to when they came to light publicly, because there is typically, especially if it's a law enforcement investigation, there is a lag between when the activity occurred.

24:40I think you would see the activities decreasing. If you look at the first year the NFL introduced all of their policies around, and these aren't people violating laws, but the NFL had policies about players couldn't bet on other sports even if they were on a team facility. So if you were rehabbing an injury and you were going to get PT and sitting in the ice tub and you had your phone out and you made a bet on the NBA, that violated league policy. If you did the same thing at home, it was okay. We saw a bunch of players get suspended for multiple weeks in the NFL that first fall that those policies were implemented.

25:26They'd all had training on it, but we've all been through training. It doesn't always hold the first time around. We've seen none of those incidents over the last couple of football seasons. So I do think there's an education component that is going to, at least via the regulated market, I would say the initial kind of spate of things you saw was a fact of it's being reported. We're finding it. We're identifying it. We're bringing it to light. I think seeing it diminish a bit has more to do with the transparency and people understanding and learning what they can and can't do and being a bit more responsible.

26:06I think so. So that to me feels like where we are. I don't unfortunately, I'm sure we're not. We haven't seen the last of these cases. And, you know, you mentioned Soresby was betting in his own name on sites that were available. He was not 21, you know, available to people under 21. um a lot of his activity was there uh the activity on legal and regulated sports books was done by using you know people who were over 21 to create accounts for him and then he was he was betting with those those those things are harder to catch but we obviously did unearth all of that and and all that's been reported and it's you know look it's an unfortunate story but i think the reaction to it hopefully makes an impression on other people in Swordsby's position that understands that if they take their college career and their future professional prospects seriously, this is just not activity they should be engaged in.

27:11You, of course, launched FanDuel Predicts recently as what appears to me to be almost sort of like a hedge. Like if, if, if this moves forward, then you, then you, you, you know, got some, you know, beachfront property, real estate, uh, there, like, what is, what is your view right now of the prediction markets and, and, and where do you see this, um, migrating to as a business? Sure. I, I think we, look, we, we are a business that services sports fans. Um, and, And there is obviously a ton of debate about the contours of what should or should not be allowed with event contracts that are regulated through the CFTC and with a license.

27:54But I, you know, when we looked at this is not an area, you know, frankly, that we were exploring before others jumped in. And once the federal government made it clear that they are backing the right of licensees with the CFTC, whether they hold an FCM or a DCM license to be able to offer sports event contracts, the CFTC has jumped into court cases. The states obviously have taken a number of states have taken a different view and believe that something that looks very analogous to sports betting should be exclusively the province of states that have legalized and regulated it. That debate is has been joined in the courts.

28:40And we've had one circuit court decision, which is in favor of sports event contracts and CFTC preemption. There's speculation another circuit court will soon come down with a decision in the opposite direction. I think everybody believes this ends up back at the Supreme Court. We have another major sports betting or in this case, a prediction market case before the Supreme Court that will ultimately be a predominant factor in dictating the way this goes. For us, it's been a delicate situation to navigate because we hold gaming licenses, as I said, in 24, 25 states. That is our primary business.

29:21We think that that public-private partnership with states has been beneficial for consumers. It has been beneficial to residents of states that don't care about sports betting one way or the other because of the amount. You know, Fandle has paid$5 million in taxes over the course of its operation of its sportsbook and iGaming properties. That money funds roads. It funds teacher salaries. It funds first responders and rural health care. And so these are real dollars that are having a real impact on people's lives. And they're generated from people who enjoy being customers of sports. So there there is a lot to like about the sports book market as it's evolved in the U.S., but it's only in half of the U.S.

30:09And, you know, I have because of my position, I hear from my friends who live in places where the sports book's not available all the time about when are you going to get this? When am I going to be able to use FanDuel in my state? And so we know that demand's there. We saw the early movers and prediction markets immediately gain a foothold in sports, especially in those states where our sports book and other legal sports books aren't offered. And so we have to be there to meet that consumer demand. We have a license. It's through a JV with with with CME. So we have an FCM license. So we're we're offering this.