HAVENS: FanDuel And DraftKings — When Disruptors Become Gatekeepers

Ziven Havens Contributor
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American entrepreneurs have a knack for inventing new ways of doing old things. Uber and Lyft took ride-hailing from the street corner to the smartphone. Airbnb modernized lodging, making homeowners legitimate competitors to hotels. And in that same decade, the 2010s, FanDuel and DraftKings transformed fantasy sports, turning what had long been the domain of small family and office pools into a billion-dollar, nationwide industry.

That spirit of creative disruption is the secret sauce of the American economy. But success often breeds an unfortunate temptation to use lawfare, regulations, and anti-competitive behavior to monopolize an industry and stifle competition.

When it comes to fantasy sports, FanDuel and DraftKings have unfortunately succumbed to that allure. In recent years, the two gaming giants have dedicated a portion of their creative energy to building a legal and regulatory moat around their businesses. And it is now up to antitrust regulators — the Department of Justice, the Federal Trade Commission, and state attorneys general — to rein in this conduct, promote competition, and protect consumers from the price increases and product stagnation that tend to flow from entrenched duopoly.

For the uninitiated, fantasy sports traditionally involved contestants competing against one another with virtual rosters of professional athletes in sports like football or baseball. The success or failure of one’s fantasy team hinges on the statistical performance of these individual athletes. How many touchdowns does your quarterback throw? How many batters does your pitcher strike out? In the 1990s and early 2000s, a fantasy league often comprised a small group of friends or coworkers chipping in a nominal entry fee, with the eventual winner taking the pot.

In the 2010s, FanDuel and DraftKings exploded onto the scene with daily fantasy sports, or DFS. Their platforms disrupted the paradigm of season-long, small-group fantasy leagues by offering daily and weekly games with potentially massive prizes. Players could compete with large pools of contestants across the entire country. Their surge in popularity was propelled by advertising blitzes that caught the attention of lawmakers and regulators who were concerned that the games constituted illegal sports betting.

The companies argued, correctly, that fantasy sports, unlike sports betting, is a game of skill. The outcomes are determined in significant part by the knowledge, strategies, and tactics of the users. FanDuel and DraftKings largely won the argument, and 45 states went on to formally legalize fantasy sports. When the Supreme Court struck down a federal law against sports betting in 2018, the two dominant platforms leveraged their large DFS user bases, converted them into sports bettors, and cornered the market. Today, FanDuel and DraftKings hold a combined 80+ percent share of online sports betting.

As their attention shifted to sports betting, their DFS products calcified. The games became dominated by a handful of sharks, and consumers began to view DFS as complicated and inaccessible. Naturally, a new generation of disruptive fantasy operators sought to fill the void. Entrants like PrizePicks and Underdog gained DFS market share by simplifying games and diversifying formats. 

In a typical free market, DraftKings and FanDuel would have two options: focus on sports betting and cede ground in DFS to new entrants, or dedicate resources to DFS to compete for lost market share. But the companies have apparently chosen a third path: to use the very laws and regulations they pushed for — those that enabled their business model — to ban the competition. While DFS is no longer a significant moneymaker for DraftKings and FanDuel, they want to preserve the lucrative pipeline of turning DFS players into sports bettors that fueled their rise to dominance. Having alternatives in the market complicates that imperative.

Critics of PrizePicks, Underdog, and other so-called “pick em” games say their products are gambling and therefore should be regulated as such. They point to the fact that operators set statistical benchmarks with gamers trying to predict whether those athletes’ performances exceed the benchmark or not. They also point out that gamers are competing against the operator as opposed to against each other. 

While those critiques aren’t meritless in the academic sense, the reality is that these “pick em” games meet the very definitions of fantasy sports that FanDuel and DraftKings lobbied for in the first place. Key distinctions that separate fantasy sports from sports betting include requiring that entrants pick multiple players from different teams and excluding non-player statistical selections, such as the winner of a match or which football team wins the coin toss. Whatever one’s qualms with “pick em,” the least we can expect from our regulators is that they treat market participants with parity. 

While DraftKings and FanDuel have been lobbying legislators and regulators behind the scenes to illegalize their competitors, they have also made their intentions public. And the seeds of anti-competitive conduct were sown years ago when the two giants, still in their DFS heyday, tried to merge into a monopoly in 2016 before being blocked by a business-friendly Federal Trade Commission and some state attorneys general. DraftKings and FanDuel were also sued in 2017 by the Massachusetts attorney general for deceptive and unfair business practices.

No one wants to see Uber become the taxi cartel that it fought so hard to dethrone. And no one should want to see FanDuel and DraftKings succeed with their hypocritical U-turn. Consumers will be worse off if this duopoly artificially eliminates competition and stifles innovation. It would not only reward and enable the companies’ malaise in DFS, but would allow them to raise prices in sports betting if consumers have fewer options for sports gaming overall.

At a recent conference, DraftKings co-founder and CEO Jason Robins told the audience, “We’re in one of the most competitive markets in the world. I think that anyone that thinks it’s over in the first inning is foolish.” It’s up to America’s antitrust enforcers to ensure that there even is a second inning.

Ziven Havens is the Policy Director of the Bull Moose Project, a 501c4 organization dedicated to advocating for policies that support a brighter American future. He was formerly an American Moment fellow at the Center for Renewing America.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller.