Bloomberg: DraftKings, FanDuel Are Uber to Casinos Eyeing Sports Bets

October 2, 2015

At the casino industry’s biggest trade show this week in Las Vegas, the hottest topic is a growing business that’s left major players like MGM Resorts International out of the action: fantasy sports.

The two leaders, DraftKings Inc. and FanDuel Inc., raised a total of $575 million in July from investors including KKR & Co., 21st Century Fox Inc. and Major League Baseball to attract players to games that pay out millions of dollars in cash prizes in daily contests. Casino executives interviewed during the G2E Global Gaming Expo said the murky legal status of fantasy sports and rules set down by state authorities prevent the companies from joining in.

“I would like to know how it is we’re going to address this issue on a national level,” said Jim Murren, chairman and chief executive officer of MGM. “It’s extraordinarily ambiguous now.”

The explosion of fantasy sports, where fans choose players from real-life leagues and pay for a chance to win money, is a growing frustration for the casino industry. Customer spending may reach $17.7 billion by 2020, from $3.7 billion this year, according to Eilers Research LLC. The casinos’ core business of slot machines and blackjack is seeing lackluster growth, and owners have struggled to expand into new areas. Local or federal law restricts their ability to offer online gambling and sports betting.

In the meantime, unregulated fantasy sports companies are free to shower TV networks with ads. In Las Vegas, G2E attendees arriving at McCarran International Airport were greeted by DraftKings banners offering a week of free play and boasting that someone wins $1 million every week.

State regulators license casino operators and decide what games they can offer. They also monitor the companies’ behavior outside their state boundaries — which effectively handcuffs operators from moving into new lines when the rules aren’t clear.

Casino executives gripe that the leagues object to sports betting, yet have their hand in the fantasy pie. The NFL Network, owned by the National Football League, airs a show on the topic and runs its own service, for example. It doesn’t take money or offer prizes.

But the league doesn’t allow its broadcast partners to run casino ads during games. The NFL and other leagues successfully sued last year to prevent New Jersey from offering sports betting in casinos. A congressman from the state has called for hearings.

“The NFL is being exposed as hypocritical,” said Tim Wilmott, chief executive officer of Penn National Gaming Inc., a casino owner based in Wyomissing, Pennsylvania. “Lawmakers are starting to look at this and say, why is this different?”

Officials from the American Gaming Association, which represents gaming companies, met with attorneys general from seven states on Monday to discuss the status of sports betting and non-traditional forms of wagering. The Washington-based group is expected to announce its position on sports betting in November, according to Sara Rayme, director of public affairs for the group.

Brian McCarthy, a spokesman for the NFL, said teams are barred from investing directly in fantasy sports, although team owners can, and ads for Las Vegas tourism are allowed during telecasts. The Kraft Group, owner of the New England Patriots, is an investor in Boston-based DraftKings.

“Fantasy sports are considered legal,” McCarthy said in an e-mail. Major League Baseball takes the same position.

Not all state regulators agree. Michigan is studying whether its criminal gambling laws apply to fantasy sports, said Mary Kay Bean, a spokeswoman for the state Gaming Control Board.

At a G2E seminar, DraftKings CEO Jason Robins downplayed the connection between fantasy sports and gambling, saying only 15 percent of his customers actually bet on sports. He likened the business to chess or investing in the stock market. He declined to take questions after his appearance.

The company doesn’t accept payments in several states where its status isn’t clear, including Montana, Louisiana, Arizona, Iowa and Washington, according to a statement.

Fantasy sports are fundamentally different than traditional sports betting, Justine Sacco, a spokeswoman for New York-based FanDuel, said in an e-mailed statement.

“Fantasy sports contests are contingent on the positive performance of all of their players — with trillions of possible outcomes,” Sacco said. “No one could try to ‘fix’ a fantasy contest for their own objectives.”

The casino companies, for their part, will keep looking for a way in.

“Some people think this industry will always be cherries and triple 7s and green felt,” said Geoff Freeman, the association’s president. “If that’s all you see, you’ll drive it into the ground.”

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Christopher Browne