Have FanDuel and DraftKings scored a legal own goal by deciding to suspend college sports offerings?

By David Cook
A strong sense of irony can be felt when learning of FanDuel and DraftKings’ decision to indefinitely suspend college sports contests from their offerings after this week’s college basketball games, following an agreement that has been reached with the National Collegiate Athletic Association (NCAA). This is a move that on the face of it would look like a voluntary step in the right direction to protect the image of the daily fantasy sports (DFS) industry at a time where multiple states are either considering regulation or ordering its two highest-profile operators to get out of town, and in a sense it is. But there is another way of looking at it entirely.

What did the parties involved say?

Mark Emmert, NCAA president, was quoted by ESPN as stating: "We appreciate and commend DraftKings and FanDuel's action to stop offering contests involving college, high school and youth sports.

"This action culminates months of hard work between all parties to reach a place that is good for amateur sports and most importantly, the young people who participate. We will work diligently with our member schools over the coming year to ensure such amateur sports 'carve outs' are included in pending states' legislation."

FanDuel said: “As a leader in calling for smart, common sense regulations for the fantasy sports industry, FanDuel has had months of productive conversations with the NCAA, their member institutions, and various state legislators to better understand their concerns around fantasy sports contests based on amateur athletics.”

DraftKings added: “We will work closely with the NCAA and lawmakers on a carve-out for collegiate sports in any proposed regulatory framework moving forward. DraftKings is committed to ensuring that fantasy sports players are able to continue to play these skill-based contests that bring them closer to the sports that they love."

Is all this contradictory?

By continuing to offer contests across a range of other sports but ruling out college sports, could this be seen as an admittance that college sports can be open to corruption when offered, in the same way that they could be open to corruption if a gambling operator offers wagering on college sports? We could actually take out the argument about chance gaming vs skill gaming, because even if DFS is more about skill than fortune, that may not matter in the eyes of courts if the sports are just as vulnerable to things like match fixing through DFS as they are through any other types of sports wagering.

In other words, protecting college sports from DFS would be for the same reasons that the NCAA would want to protect college sports from sports betting, a la New Jersey. Why would FanDuel and DraftKings not just argue that the sports are not at risk, because DFS is not gambling and is not affected by things like changes in odds movements and betting patterns, as is the case with many other forms of sports wagering? In fact, why should college or all amateur sports (though neither FanDuel or DraftKings has offered high school or youth sports) be separated from all other types of sports?

In Nevada, college sports and other sports are not segregated, as both can be wagered on, though Olympic betting in the state was only made legal last year after previously being made illegal following Senator John McCain’s attempts to outlaw betting on amateur sports in the state.

The sign that FanDuel and DraftKings will not in any way admit to being anything like sports-betting operators was evident by their respective decisions to not apply for the relevant licensing in Nevada, where the Nevada Gaming Control Board announced in October that while DFS operators would not be banned, they would need to obtain sports-pool licensing to operate in the state.

Reasons for the agreement

While their actions are contradictory in some form, it is clear that FanDuel and DraftKings would not have got to their positions in the market that they have done without having some business-savvy management at the top level. Their latest actions are akin to a politician shaking the right hands prior to an upcoming election. Showcasing your corporate social responsibility nous while showing yourselves to be on the same side as a group that is clearly not in favour of legalised sports betting would seem the obvious thing to do when you would rather be seen as an operator of skill gaming than chance gaming.

By FanDuel’s own admission, this is part of an attempt to create regulation for the DFS industry, at a time where it is now regulated in some form in three states – Virginia, Indiana and Massachusetts, but there is still plenty of work to do, with the matter yet to be resolved in many states, most notably New York, where FanDuel and DraftKings have agreed to pull out of the state while they continue to fight against Attorney General Eric Schneiderman’s injunction.

With college football and basketball accounting for just 3% of FanDuel’s revenue and DraftKings’ NFL daily fantasy market being 10 to 20 times larger than the college football market, according to ESPN, the move should not be too detrimental to business. The suspension is only indefinite too, so they are not ruling out offering the contests again in the future. However, another question to be posed is: Why is the ban “indefinite”? It’s as though they have not fully made their minds up on whether the contests need to be protected. Which is it?

At least from the NCAA’s perspective, the agreement makes a lot of sense on the most part. While there are other operators in the space, most notably Yahoo with Yahoo Sports Daily Fantasy and Amaya with StarsDraft, with StarsDraft having pulled out of a majority of US states and the market still seen as being dominated by DraftKings and FanDuel, this agreement was probably a much simpler path than worrying about the legal route it plans to pursue in shutting out the entire market with carve-outs, at least for the time being.

What next?

It is early days, so it is difficult to tell what effect this move will have on the industry, but FanDuel and DraftKings will need to hope that their latest actions do not backfire on them. For the NCAA, it can be seen as a crucial success in getting its message across about wagers related to any college sports, and it will be interesting to see if other operators follow in FanDuel and DraftKings’ footsteps.
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