DFS well-positioned for 2018, but does anyone still care?

Daily fantasy sports posted a banner year on the legislative front in 2017, gaining legal status in several states and bringing the grand total to 18 U.S. jurisdictions that have deemed the activity to be a game of skill and approved such wagers.

This is a remarkable achievement when one considers the manner in which these games burst into the mainstream five years ago: by exploiting a questionable loophole buried within a 2006 anti-internet gambling law.

But, given some of the issues attached – the inability of the major DFS operators to put together a profitable business model, a failed merger attempt, the microscopic tax revenues these games will generate for states and the surging momentum behind legalizing actual sports betting – it begs the question of why anyone should still care.

We all remember in 2015 when FanDuel and DraftKings surged out of their respective corners to conduct an epic customer acquisition battle royale in full view of the public. The climax came ahead of football season, as advertisements flooded television, radio and every other medium explaining how fans could win big money in three easy steps by wagering on their favorite players.

My personal favorite moment was seeing an enormous DraftKings ad wrapped around a Washington, D.C. bus as it drove past the FBI headquarters on Pennsylvania Avenue. It seemed fairly obvious at that point that at least somebody in law enforcement or the regulatory apparatus was paying attention.

Sure enough, a legal battle with New York ensued. That, coupled with reports of cheating by company insiders using internal data to play on the competitor’s site, quickly derailed the momentum.

So did the gradual understanding that winning at these contests was, in fact, more difficult than just picking your favorite players and collecting your cash. Much like with poker, most of the DFS winnings accumulate to quants, statheads and others who have made the game their full-time profession, putting the casual player at a significant disadvantage.

The state-by-state race to earn legal recognition, while simultaneously dueling with the New York Department of Financial Services, ended up being a significant financial drain on companies whose path to profitability was already hazy.

The last hurrah was an attempted shotgun marriage between FanDuel and DraftKings that was shot down by the Federal Trade Commission last summer. It was a Hail Mary attempt, but probably the only maneuver that would have brought them and the industry to a sustainable position.

Anyone who still held the illusion that things were fine and dandy probably got the message when FanDuel CEO Nigel Eccles, arguably the godfather of the entire DFS industry, stepped down in November to pursue a new venture in eSports – a booming sector globally that is headed in the complete opposition direction.

The true dagger for DFS has been the growing momentum behind legalized sports betting which consumed much of the gaming industry’s bandwidth in 2017. Why devote energy to a gimmicky version of sports betting when you’re probably going to get the real thing quite shortly?

Should sports betting indeed become legal in more states across the U.S., DFS will have another hurdle to contend with – fresh competition. While many will posit otherwise, it’s fairly straightforward concept that sports betting and DFS are substitutionary rather than complementary goods. There won’t be much peanut butter and jelly effect here.

That’s not to say DFS has failed. 10 years from now, the legacy of DFS will likely be that it blazed the trail that ultimately led to legalized sports betting across the U.S.

DFS, and particularly the major sports leagues’ embrace of it, seasoned the public’s appetite for sports wagering and created a slam dunk opportunity that the gambling industry was able to exploit.

The leagues were repeatedly bludgeoned over their hypocritical opposition to traditional sports gambling while outright supporting and even owning equity stakes in DFS companies that offer essentially the same product.

It thus became increasingly difficult for the leagues’ arguments to hold water, one of the factors behind New Jersey’s push miraculously working its way to the Supreme Court.

At the end of the day, DFS was a brief success that served a useful purpose, but it was really just a foreshadowing of bigger things to come.