DraftKings Prepares Shift Towards Sports Betting

Just how much could the Supreme Court’s ruling alter the sports betting landscape in America?

One major player isn’t waiting to find out. That player is DraftKings. 

DraftKings is a Boston-based fantasy sports giant that allows its users to make money from daily and weekly fantasy sports contests. As of April 2016 the majority of U.S. states consider fantasy sports (including daily fantasy sports) a game of skill and not gambling, although a number of states have prohibited or created specific laws making daily fantasy spots illegal. As of July 2017 DraftKings has 8 million users.

Preparing for the Future.

Now, Company Co-Founder and CEO Jason Robins has announced DraftKings’ newest plan to prepare for what many deem an inevitable legalization of sports betting nationwide. The company has hired Sean Hurley, former Head of Commercial at London-based sportsbook Amelco UK Ltd, as its first “Head of Sportsbook.”

The move comes at a critical point for the issue of regulated sports betting. A decision from the US Supreme Court on New Jersey’s long-running challenge to PASPA is expected within the next few months.

According to a press release, Hurley will “build, launch and drive the sports betting vertical at DraftKings,” and will report to Chief Revenue Officer and co-founder Matt Kalish.

More from the presser:

“Sean brings a wealth of gaming experience to DraftKings and furthers our ability to be a leader in the sports betting market,” said Kalish.

Hurley will be based in DraftKings’ newly opened office in Hoboken, New Jersey. He will focus on preparing Sportsbook as a potential new line of business for DraftKings in anticipation of the pending Supreme Court decision in Christie v. National Collegiate Athletic Association.

Prior to joining DraftKings, Hurley gained extensive knowledge of the iGaming space with senior roles in both B2B and B2C companies. Most recently, Hurley led sales and commercial for Amelco, a sportsbook and trading platform supplier based in London.

Legal Sports Report also understands that DraftKings has been looking at ways to be involved in New Jersey sports wagering, should the case go the way of the state.

DraftKings had no comment to LSR beyond the release.

If that’s not enough corporate momentum to propel legalization forward, Hurley’s base of operations will be situated in the sports betting hotbed of New Jersey, which is ground zero for efforts to overturn the federal prohibition on sports betting.

Lingering Questions Remain

But exciting as this sounds, it remains unclear what role Hurley will play in the company between now and when the High Court announces their ruling. As of now, this move is an act of pure speculation. There’s no telling whether or not the SCOTUS will overturn the ban on sports betting, called the Professional and Amateur Sports Protection Act of 1992. In the case that it doesn’t, it’s doubtful that Hurley would stay with DraftKings. If the court rules in favor of the federal sports betting ban, that would preclude the company from opening up any sort of sports betting operation in the United States.

The pivot comes amidst a stale period for DraftKings, who have seen their total entry fees plateau as press surrounding the daily fantasy sports operator has diminished in recent years. So, it makes sense that the company would be looking to capitalize on what would be a landmark decision for the sports betting industry. DraftKings desperately needs to look for new business opportunities beyond the realm of traditional DFS play, and sports betting could be a major boon to the company.

It’s worth noting that the MLB and NHL are two of the biggest investors in DraftKings. Why is this significant?

Because those leagues can no longer justify their support of the federal sports betting prohibition. As major investors in DraftKings, the MLB and NHL have no way of distancing themselves from the company that is clearly willing to spend the capital necessary to prepare for a potential change in the law. There is also the fact that two NFL owners — Jerry Jones of the Dallas Cowboys and Robert Kraft of the New England Patriots — belong to investment firms that have poured money into DraftKings. Despite vehemently opposing an overturning of the sports betting ban, the NFL seems to be having an identity crisis. If two of their wealthiest owners are in bed with a company that is preparing itself for a full-fledged sportsbook operation, it would seem the odds are ever in DraftKings’ favor.

So, the same leagues that once claimed that sports betting seriously compromised the integrity of games are now in cahoots with companies looking to capitalize on the ban being overturned.

Interesting turn of events. So what does this really mean?

Essentially, the MLB Owns a Sportsbook.

This has never happened in American sports before. The MLB, NHL, and MLS are in an unprecedented position of holding ownership stake in a betting sportsbook. The MLB is worth $36 Billion with over 15 of its teams worth upwards of a billion dollars each. As one of the most valuable leagues in the United States, the MLB’s position in this could be enough to turn the tide for the ban.

At the least, DraftKings’ move puts the MLB in a tricky position politically.

The league, along with the NBA, has been actively lobbying for sports betting legislation that places a tremendous amount of power in the hands of professional sports leagues, largely at the expense of sportsbook operators.

But now, with MLB poised to profit from sports betting on the sportsbook side, it makes it hard to lobby for the so-called “integrity fee” — a state-mandated revenue stream that goes right into the pockets of the leagues. The fee is a big ask in the first place — basically it means greatly diminishing the power and scope of sportsbook operators by positioning the leagues to profit from all revenue. The entire landscape of sports and sports betting would change irrevocably. But now with the DraftKings announcing their pivot towards sports betting, the integrity fee becomes even more problematic. Here’s why:

  • Lawmakers opposed to the fee will quickly point to the fact that three professional sports leagues (the MLB, MLS, and NHL, AND two owners in the NFL—and the NBA once their investment in FanDuel puts them a similar position) stand to reap direct benefits from sports betting.
  • The argument that leagues should get a cut of handle, as opposed to revenue, to avoid any appearance of having a stake in the outcome of games also takes a meaningful, if not fatal, blow when a league owns a piece of a sportsbook.
  • Not to mention that the MLB would be paying an integrity fee to itself for the DraftKings profits.

If nothing else, this move by DraftKings will force the industry and the courts to truly assess what a post-prohibition landscape would look like.

How irreparable is that harm?

The pivot comes at a critical point for the issue of regulated sports betting. A decision from the US Supreme Court on New Jersey’s long-running challenge to PASPA is expected within the next few months.

Ownership in a sportsbook is a slight departure from MLB’s historical position on gambling.

Consider the words of former Commissioner Bud Selig, who offered this on the prospect of sports wagering in a deposition related to the first iteration of the current Supreme Court case, Christie vs. NCAA:

“… gambling on a sport, or any sport but on this sport is what you want to talk to me about, is I think the deadliest of all things that can happen. It’s evil, it creates doubt and destroys your sport.”

I’m not saying that DraftKings’ decision will have any direct impact on the Court’s decision. But the willingness of professional sports leagues to be so tightly connected to sports betting cuts against part assertions of “irreparable harm” arising from sports betting. That contradiction may not be lost on the Court.

The optics are also difficult for MLB, as it continues to answer questions about the involvement of one of its best players, Pete Rose, in betting.

What’s Next for DraftKings?

The fact that DraftKings is getting into the sports betting space will surprise no one. But it does create some interesting issues:

  • Major League Baseball and the NHL both hold equity in DraftKings. While the former is lobbying for sports betting legalization — under its terms — it’s not clear how it would react to actually owning a piece of a sportsbook.
  • DraftKings has lobbied and continues to lobby around the country for legislation that declares DFS a game of skill, apart from gambling. How will states and lawmakers react to the physical manifestation of sports betting and DFS under the same umbrella? It’s possible it doesn’t move the needle, but it does give ammunition to those that see the platform as a gambling product.

What’s next for DraftKings?

For now, it’s wait and see what the Supreme Court case brings, and preparing for a world where states beyond New Jersey legalize it. Cause, as we know, that’s a whole other fight.

In the mean time, DraftKings has some work to do in regards to their technology. With increasing press around the potentially inevitable overturning of the betting prohibition, they jumped on the bandwagon of sports betting. But as of now, they do not have a sports betting app, that is unless they’ve been keeping it under wraps. If DraftKings is indeed planning to develop its own platform, they’ll be playing catch up for the time being, with a variety of established sportsbooks that serve the Nevada sports betting industry and regulated markets in Europe and beyond. It’s also certainly possible the company will use an already existing (or planned) platform and integrate it into its own.