Making a play: FanDuel Group and DraftKings discuss their plans to conquer sports betting
Julian Rogers speaks exclusively to FanDuel Group CEO Matt King and DraftKings co-founder and CRO Matt Kalish to hear more about their bold ambitions
You wouldn’t normally expect to encounter scores of patrons patiently queuing to gain access to the sports bar at New Jersey’s Meadowlands Racetrack in East Rutherford at 11am on a sunny Saturday morning in July. However, these dedicated sports fans and gamblers, as well as some whose curiosity had been piqued, had arrived promptly to witness the grand unveiling of the new FanDuel Sportsbook.
Touted as ‘sports betting reimagined’, the 5,300-square-foot facility can accommodate almost 500 visitors and features 10 betting tellers and 27 TV screens showing live action. To see the FanDuel name – synonymous with fantasy sports for almost a decade – fronting a brick-and-mortar sports betting operation felt like a significant moment for the US sports betting industry, not to mention the New York-based brand itself.
Leveraging pricing and risk management capabilities provided by FanDuel’s parent company, Paddy Power Betfair (PPB), the sportsbook generated handle in the region of $3.5m in its first nine days of operation. Assuming a 5% margin, it means gross-gaming revenue (GGR) was roughly $175,000. Considering the sportsbook opened during the summer when betting action was limited to baseball and soccer’s World Cup Final, this level of handle isn’t to be sniffed at.
“I couldn’t be happier with how things are going at Meadowlands – it has been a phenomenal first couple of weeks,” reflects FanDuel Group CEO Matt King, who stresses this is the first phase of the sportsbook’s construction. “It looks great, the customers are loving it, but we are just kind of getting started. As a strategic point, we are big believers in retail and we believe it is a critical way to introduce people to the brand.”
While King says the mobile sportsbook product “will be ready in the very near future but it’s hard to predict the exact day,” FanDuel has been beaten to the punch in New Jersey by long-time DFS arch-rival DraftKings. On 1 August, the Boston-headquartered business soft launched its Kambi-powered mobile sportsbook for iOS and Android – the very first legal mobile sports betting product outside of Nevada (the web version launched a few days later).
DraftKings, which is partnered with Atlantic City’s Resorts casino, even snuck in ahead of land-based and online gambling industry incumbents. This is certainly a feather in DraftKings’ cap, which was probably much to the chagrin of established brands toiling away on their products ahead of football season’s curtain-raiser on 6 September between the Atlanta Falcons and the Philadelphia Eagles.
It turns out, though, DraftKings took a calculated risk 12 months ago when it began plowing money and resources into creating a sportsbook. Then, last January, four months before the US Supreme Court deemed PASPA to be unconstitutional and struck the 25-year-old federal sports betting ban down, Sean Hurley was recruited as the newly created head of sportsbook.
The operator is now engaged in a hiring spree, with the DraftKings website advertising 90 vacancies, including 17 sportsbook positions – everything from a director of sportsbook operations and CRM specialists to sportsbook operations analysts and a VIP player development executive. This expansion is partly why the company is seeking $200m of fresh investment. “DraftKings is speaking with investors about raising funds to better build out our sports wagering business, which includes engineering, talent technology and marketing,” chief revenue officer and co-founder Matt Kalish confirms to EGR NA.
Expanding footprint
The evolution of these two DFS giants in the past few months has been startling. Yet it is the transformation of FanDuel that has been most stark, mainly due to European online powerhouse PPB swooping in May and acquiring a 61% controlling stake in the business. PPB’s US operations, now known as FanDuel Group, includes FanDuel, Betfair, horse racing and wagering channel TVG, and DFS start-up DRAFT. It means the combined business has a presence in sports betting, DFS, horseracing and casino. Moreover, FanDuel, Betfair and TVG combined have eight million customers in 45 states and online net revenues of $265m ($124m generated by FanDuel) in 2017.
Although King, who was FanDuel’s CFO between 2014 and 2016 before departing and returning last November as CEO, says sports betting is a “logical extension,” it was never the end goal for the business four years ago. “Honestly, hindsight is 20-20 [but] when I joined I never thought sports betting was going to be legal at least in my time at FanDuel. We never really had an eye on sports betting. Given how things have played out, it is hard for people to believe that these days, but that’s the truth.”
FanDuel unveiled its new sportsbook in New Jersey in July
Having offered DFS in the US since 2009, one of FanDuel’s prized assets is its brand recognition among sports fans and especially those who partake in DFS. “We think it’s a huge advantage,” King states. “We are a brand that most sports fans know, and most sports fans associate with real-money gaming. That is a huge head start.” Over at DraftKings, historical research revealed how almost 90% of its players who wager online would be likely to switch to a DraftKings sportsbook. Additionally, 81% of online sports bettors would be willing to place a wager with DraftKings. Meanwhile, a slide released during PPB’s announcement of the FanDuel acquisition said FanDuel’s internal customer research indicated that 84% of its users bet on sports.
King comments: “The sheer fact that we have that stat means people are doing both [DFS and betting] anyway, so we think that as we provide people with the ability to do both in a single platform will be attractive.” Furthermore, of course, its database of 1.3 million active players (seven million registered accounts across 40 states) will also provide a significant leg up. DFS is also a product that appeal to millennials; 65% of FanDuel’s users are aged between 18 and 39, while 70% of entries come via handheld devices. “There is no question they will have a competitive advantage in the online sports betting market by tapping into their massive databases,” remarks Rob Gallo, president of Peak Gaming Group and a veteran of the egaming industry since the mid-nineties.
This is one key reason why London-listed PPB decided to go with the FanDuel brand to front its US sports betting aspirations rather than use the Paddy Power or Betfair brands, the latter of which offers online casino and a betting exchange in New Jersey. Incoming European names with little brand recognition could struggle to compete. Gallo comments: “US consumers, in general, are always more comfortable doing business with brands they recognize… so if you’re a sports fanatic, unless you’ve been living under a rock for the last five years, you will assuredly know the FanDuel and DraftKings brands.”
In the blue corner…
As FanDuel and DraftKings confidently stride into sports betting, it feels as if we are witnessing a re-match of the high-profile slugfest between both start-ups in 2015 – considered the heady boom period for DFS – when, awash with VC funding, they embarked on an all-out marketing blitz in a bid to knock each other out and grab the crown. Indeed, analytics service iSpot.tv reported that by 5 October 2015, both companies had screened over 61,000 TV commercials that year, with the majority focused on the NFL season.
According to iSpot.tv, FanDuel shelled out $74.5m on ads, while the rapidly ascending DraftKings stumped up $131.4m. In fact, from mid-August 2015 to the opening weekend of NFL season, the duo reportedly outspent the entire beer industry. The blanket marketing during football season meant that a FanDuel or DraftKings commercial aired practically every 90 seconds, so it’s little wonder armchair fans were eventually fed up to the back teeth with the wall-to-wall marketing onslaught featuring winners flaunting their new-found wealth. But it did prove a powerful user acquisition tool.
Were the high-vig lines a deliberate move or a naïve misstep?
On 1 August, DraftKings CEO Jason Robins posted a short video on Twitter of staff toasting the launch of the mobile sports betting app in New Jersey. Yet a certain section of sports bettors on the social media platform weren’t in equally celebratory mood when they immediately noticed DraftKings’ betting lines had extremely high vig.
A quick glance revealed that the lines were way out of whack with books in Vegas and the offshore sites. For example, a 10-cent spread, also known as a dime line, could look like -120/+110. A 20-cent line, which is more common, could be -125/+105. However, DraftKings’ initial prices on baseball were 30-cent lines, and even as high as 65-cent lines in certain games.
Some didn’t hold back with their angry responses, accusing DraftKings of “highway robbery”. It seems strange that DraftKings would spend a year planning its sportsbook launch and then trip up by including so much juice.
FanDuel Sportsbook at Meadowlands also attracted criticism for unfavorable lines when it first opened. As competition arrives, though, it’s inevitable that DraftKings and FanDuel’s spreads will have to tighten otherwise bettors will simply go elsewhere.
Yet it seems quite apparent that both companies are – at least for now – targeting recreational and neophyte bettors not au fait with the difference with a 20- and 25-cent line rather than the analytical sharps who shop around for best price.
However, the marketing this time around is expected to be far more restrained. For a start, they don’t really have the cash to frivolously chuck around like confetti and, secondly, sports betting is going to roll out gradually on a state-by-state basis rather than explode across the US like DFS did. Finally, they won’t dominate the embryonic online sports betting market like they did DFS as land-based and European online sports betting giants want a slice of an industry that, according to Eilers & Krejcik Gaming, could spread to 32 states and be worth $6bn a year by 2023.
As well as inking a deal with the Greenbrier – an 11,000-acre resort situated in the mountains of West Virginia – to provide retail, online and mobile sports betting from sometime this fall, FanDuel is poised to open a sportsbook at Tioga Downs casino and racetrack in upstate New York, should the Empire State pass legislation. That said, some were questioning how the likes of FanDuel would secure access to other states in this post-PASPA era as the dominos fall and sports betting proliferates.
Yet in another unexpected twist (the industry has been full of surprises lately) in early August, the FanDuel Group and Boyd Gaming entered into an agreement to allow FanDuel Group to gain market access for its sportsbook in states where Boyd is present (excluding Nevada). Boyd will take a 4% stake in FanDuel and has the option to increase it to 5% in the future. Through this deal, plus Boyd’s recent partnership with MGM, it means the FanDuel sportsbook seems set to have a route into around 15 states. So, there’s part of the access conundrum solved in one fell swoop, which may well have caused beads of sweat to form on the brows of DraftKings’ management team.
What is most fascinating is the manner in which FanDuel has gone from appearing to be on life support following the aborted merger with DraftKings in July 2017 to pivoting into a major force at the epicenter of the nascent US sports betting sector. Indeed, the momentum appears to be with FanDuel. “I definitely think FanDuel is on the way up,” says Matt Brown, host of The Lines podcast and a high-stakes DFS player. “With an established team behind them in Paddy Power Betfair, it’s hard to argue that they wouldn’t have at least some advantage within the sports betting space from the outset.”
Stand out from the crowd
Having the brand recognition and millions of DFS players in their databases (even if some will have churned), is all well and good, but if the online product turns out to be inferior to the competition, then it’s going to be an uphill struggle. That said, DraftKings’ mobile sportsbook has drawn praise for its user interface and range of markets and features from those who road-tested it.
Kalish says: “Product is immensely important in sportsbook and will be a key differentiator for us entering the market as a relative newcomer. DraftKings is first and foremost a technology company; we have a very modern technology stack which allows us to quickly and continuously innovate on new and existing product offerings.”
DraftKings says it plans to stand out by creating a “personalized experience” for customers
As well as a broad range of sports, in-play betting and cash-out, personalisation will be a key feature. “We plan to stand out from the competition by using data science and machine learning to create a personalized experience for our customers,” Kalish explains. One way this will manifest itself is suggesting tailor-made bets based on a user’s DFS play. So, for instance, if a customer has constructed fantasy line-ups comprising mainly of Boston Red Sox hitters, then the system may suggest a bet on the Red Sox or the team’s run total. Or if a user has drafted Green Bay Packers quarterback Aaron Rodgers in the majority of his line-ups, the sportsbook could suggest an unders/overs bet on his fantasy points scored.
This degree of personalisation will be a unique and interesting feature that should give DraftKings an edge over other sportsbooks, so FanDuel is sure to offer something similar when the product is released. King says: “Props, if you do them right, are really intuitive, so we think there is a huge opportunity because it is going to be something that, in some cases, people find the easiest thing to start with. But it’s all about how you present it and making sure it’s simple and intuitive.”
He continues: “It’s key that you don’t overwhelm users, but where you can find ways to provide very contextual bets is something that people are going to be really interested in.” As for the soon-to-be-released mobile sportsbook itself, he says: “We are very excited about how it’s evolving. It’s clearly going to be the first generation of the product and so it’s going to have a lot of room to be innovated upon and improved but it’s going to be a great day-one product.”
Close to their roots
The $64,000 question is what impact widespread online sports betting will have on a DFS industry which has been dominated by DraftKings and FanDuel for years (this duopoly controls 90% of the sector). Kalish says DFS “will remain our core business for the foreseeable future”, yet it stands to reason that liquidity – the lifeblood of the product – will suffer because of legal sports betting, although it will probably take some time for the full effects to be felt given the staggered rollout of sports wagering.
While DFS and sports betting are quite different products, there are expectations that existing DFS players will also place bets if the opportunity arises rather than abandoning fantasy sports altogether. “Most of the data we’ve seen suggest players who participate in both products expand their wallet to accommodate those products rather than it being a zero-sum game,” says Eilers & Krejcik Gaming MD Chris Grove. Indeed, real-money fantasy sports enthusiasts enjoy the peer-to-peer nature of DFS and a small percentage of players, despite increases in rake over the years, still make a good income from the product.
DraftKings’ Matt Kalish and FanDuel’s Matt King on going up against the offshore market
Matt Kalish: “We believe that given the choice, consumers will want to bet legally through a trusted and licensed provider like DraftKings over illegal and unregulated options. There are tremendous benefits from consumer protections that sports bettors can now enjoy in regulated US sportsbook states, including oversight of timely payments and with- drawals. In addition, we believe our app and experience will be much better than any of the illegal options, including an easy and fun interface with the most robust betting options.”
Matt King: “People value the trust the FanDuel brand has and, frankly, the confidence they can have that they will get their money out and that it’s legal. Most people want to do things that follow the law. At the core, it is going to come back to product – it’s about a great user experience, a variety and bet types, the launch of new features, and that you have good pricing and offer people value. There are a lot of people who enjoy sports betting and they do it very occasionally when they are in Vegas because they don’t want to use an offshore book. So, we think there is a huge opportunity to expand the market.”
In fact, King feels that rather than harm DFS, sports betting will have the reverse effect and that having both offerings will attract more players, although he adds: “I do think there is an unknowable question: at the higher end of the volume spectrum, do we lose some volume because some of the high-volume players shift some of their spend over to sports betting versus DFS?” On DFS forecasts generally, he highlights Nevada, where full-blown sports betting is legal, as a reference point: “Probably the most concrete data point we have is when we used to operate in Nevada where we found that people there played just as much as anywhere else. So this data point, which is our best indicator, probably says that we are not going to lose anything.
“But look, the market is changing and evolving and it’s hard to make a bunch of specific predictions. Our view is clear that in every piece of data we have is that the more products we offer, the more people spend, so we feel good about the long-term trajectory of where our user behavior is going – it’s [about] the mix of products they play.” This product mix he is referring to will soon even include casino under the FanDuel brand itself. Just 12 months ago it seemed almost unthinkable that FanDuel would be expanding into slots and table games, but that’s what’s now on the cards for New Jersey.
Despite speculation that it will be a skin of Betfair’s casino, which operates under Golden Nugget’s license, King is tight-lipped on precise plans. “We think the cross-sell of casino players to FanDuel is something where there is a lot of value potential, but how we do that and with what brand is something we are working on.” This move increases the likelihood that we will eventually see DraftKings follow suit and roll out casino games in the Garden State. Both brands would then have truly morphed into multi-vertical operators. “There’s simply too much money on the table for either brand to ignore [casino],” Grove says.
“I think in five years, you are still going to see a really broad business. We’re bullish on the racing and seeing great growth and we are obviously bullish on fantasy, casino and sports betting. When you look across the board, all the product lines are growing,” King explains.
Take a step back, though, and this expansion into land-based and online gambling is largely at odds with FanDuel and DraftKings arguing and lobbying that DFS isn’t gambling because it’s covered under the UIGEA carve-out for fantasy sports. Doesn’t expanding into sports betting and casino besides DFS, which is now legal in nearly 20 states, complicate matters, particularly in the eyes of sports fans and lawmakers? “No, we don’t think so because what everyone recognises is they are different game formats and different game formats are subject to different regulation,” King responds. “As we move forward, we have different game types and ones governed by different types of state regulations on a state-by-state basis. We don’t really see any disconnect there.”
Overall, though, he is taking a long-term position. “We are very sober to the fact that this is a marathon not a sprint, so we’re thinking about it from a 10-year perspective.” The more immediate priority for the FanDuel Group is making a splash with its online and mobile sportsbook products in New Jersey ahead of football season and trying to usurp its long-time rival and their new gambling industry competitors. On the other hand, the fact that DraftKings managed to launch an online and mobile product ahead established gambling companies is quite staggering, although other markets have demonstrated that first doesn’t always mean best. Which of the DFS giants will come out on top in sports betting is tough to call at this stage, but if the past six months has taught us anything it is to expect the unexpected.