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What Legal Sports Betting Means For the Future of FanDuel and DraftKings
Welcome to America — where sports betting is now technically legal.
In a 6-3 ruling, the Supreme Court cleared the way for states to legalize sports betting, striking down a 1992 federal law that had banned the practice in most states.
Justice Samuel Alito explained that this issue has long divided Americans. He said:
The legalization of sports gambling is a controversial subject. Supporters argue that legalization will produce revenue for the States and critically weaken illegal sports betting operations, which are often run by organized crime. Opponents contend that legalizing sports gambling will hook the young on gambling, encourage people of modest means to squander their savings and earnings, and corrupt professional and college sports.
The legalization of sports gambling requires an important policy choice, but the choice is not ours to make. Congress can regulate sports gambling directly, but if it elects not to do so, each State is free to act on its own.
This is huge news for daily fantasy sports companies like FanDuel and DraftKings, as sports gambling will account for a big chunk of their business. Ironically enough, both companies have long argued that daily fantasy sports, in which users can win cash prizes in exchange for cash entry fees, is legal because it’s technically a game of skill, not a game of chance.
Now, they’re changing their tune. Last week, FanDuel CEO Matt King told Term Sheet that he’s “excited about the future whatever the decision is.” Yesterday, he said he expects sports betting revenue to eclipse fantasy sports revenue at some point.
“We have exciting ideas from a game features standpoint that we will embed into our current experience,” he said. “What users will see is a simple integrated experience in our core app.”
What does such a product look like? It’ll likely allow users to gamble on the outcome of games or point totals.
Annually, illegal sports betting amounts to an approximately $150 billion industry, and FanDuel isn’t waiting too long to start taking bets from its users. The company plans to launch its sports betting offering as soon as this NFL season.
But where there is huge opportunity, there is also huge competition. When asked if he was worried about daily fantasy sports rival DraftKings, King said, “I’m always worried. I’m always constructively paranoid about the competition.”
He added that a market expansion like this one is bound to attract many new competitors as well. “We have a tremendous foundational business, but we need to execute really, really well.” he said. “I’m optimistic but also very realistic that it’ll be quite the battle.”
Meanwhile, DraftKings CEO Jason Robins is also excited about the Supreme Court ruling, and also plans to debut its sports betting platform during the NFL season, and is also aware of the competition. Robins said he’s “pretty comfortable with our market position at the moment.”
The ruling could have a big windfall for investors, too. Tusk Ventures’ Bradley Tusk, who invested in FanDuel, told Term Sheet that he expects another 25 to 30 states to legalize sports betting. “As an investor, I couldn’t be happier.”
It’s easy to see why. Tusk told ESPN that the decision doubled the value of the firm’s equity stake. “And once states start legalizing sports betting and it becomes common practice, it could be more like five times,” he added.