FanDuel vs DraftKings | The Enemy of My Enemy

Business Wars

The episode chronicles the intense rivalry between daily fantasy sports giants FanDuel and DraftKings. It details how Nigel Eccles leveraged

Key takeaways

• Nigel Eccles utilized the distinction between 'games of skill' and 'games of chance' to bypass UIGEA gambling restrictions.
• The competition between FanDuel and DraftKings escalated into an unprecedented $750 million advertising war.

Main topics

• Daily Fantasy Sports regulation
• UIGEA legal loopholes

Notable quotes

We're evaluating our options. We want what's best for FanDuel...

Conclusion

The episode serves as a case study on how disruptive companies exploit

Transcript preview

Speaker 1 (0:00) Hey, Business Wars fans, have you heard? Audible subscribers can listen to new episodes of Business Wars early and ad-free, right now. Join Audible in the Audible app or by subscribing on Apple Speaker 2 (0:12) Podcasts. A listener note, Business Wars uses dramatizations based on true events. Some elements, including dialogue, are dramatized, but every episode is rooted in extensive research. Speaker 1 (0:35) It'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 Speaker 2 (0:47) 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, Speaker 1 (1:07) one of the company's many paid celebrity spokespeople. But not all of the reporters' questions are holes in one. They 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. Speaker 5 (1:25) Mr. Eccles, are you worried now that the Federal Trade Commission has blocked the merger? Speaker 1 (1:30) We're evaluating our options. We want what's best for FanDuel and our more than six million users. And, of course, to stay within the bounds of U.S. federal law. Speaker 5 (1:40) Does that mean FanDuel and DraftKings will adapt the terms of the deal to satisfy the FTC? Or is FanDuel prepared to walk away? Speaker 1 (1:48) That's all still on the table. Eccles' tone is reassuring, but inside, his mind is churning. The 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 Speaker 2 (2:35) come together. They face challenges from regulators over whether Daily Fantasy is just gambling by another name. They'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 Speaker 1 (3:15) 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. Speaker 4 (3:32) Hi, I'm Lindsey Graham, the host of the podcast American Scandal. Our latest series tells the story of college counselor Rick Singer, who thought he'd found a way to rig the admissions process for his wealthy clients until an unrelated FBI investigation inadvertently exposed the largest college admissions scandal in American history. Listen to American Scandal on Audible or wherever you get your podcasts. Speaker 5 (3:55) Hey, I'm Cassie DePeckel, host of Against the Odds from Audible Originals. In our latest series, it's 1910 and a train full of passengers is trapped in Washington's Cascade Mountains with an avalanche headed straight for them. Listen to Against the Odds on Audible or wherever you get your podcasts. Speaker 2 (4:17) From Audible Originals, I'm David Brown and this is Business Wars. Speaker 2 (4:44) Any 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. You 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. The 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 Speaker 7 (6:42) working together, they could barely stand to be in the same room. This is Episode 1, The Enemy of My Enemy. Speaker 2 (6:58) It'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. But 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 Speaker 7 (7:52) isn't real. To stay on the right side of U.S. gambling laws, The app is only for entertainment. The Speaker 2 (7:59) 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. He'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. Because at the time, the U.S. 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 Speaker 7 (9:40) 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. But 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, Speaker 3 (10:07) an idea appears. Speaker 3 (10:14) Eccles' idea Speaker 7 (10:15) revolves Speaker 3 (10:16) around the legal distinction Speaker 7 (10:17) 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. By 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. Those exemptions stuck when the UIGEA was passed nearly a decade later. This specific legal carve Speaker 3 (11:57) -out for fantasy? That's about to become the basis of Eccles' big pivot. In 2007, Speaker 7 (12:05) 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 hub-dubs. 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. Over many conversations, one takeaway becomes