Amid Rising Regulatory Tension, U.S. Fantasy Sports Landscape Shifting

August 28, 2023
Mounting regulatory scrutiny of new variants of daily fantasy sports contests comes amid a significant shake-up of the national leaderboard in a segment formerly synonymous with DraftKings and FanDuel.

Mounting regulatory scrutiny of new variants of daily fantasy sports (DFS) contests comes amid a significant shake-up of the national leaderboard in a segment formerly synonymous with DraftKings and FanDuel.

The runaway market-share leaders in U.S. online sports betting can no longer lay claim to the same status in the fantasy sports market that the pair redefined barely a decade ago, according to VIXIO GamblingCompliance analysis of state revenue data.

fantasy shares

Across the four states that report operator-level revenue for interactive fantasy sports contests, PrizePicks was the clear market leader in the first half of 2023, securing 43.2 percent of total reported revenue compared with a combined 45.2 percent for both DraftKings and FanDuel.

Excluding Pennsylvania, which does not allow the pick ‘em-style fantasy games offered by PrizePicks, the Atlanta-based operator had a 53 percent share of total adjusted revenue in the states of Arizona, Massachusetts and Michigan. That was significantly ahead of DraftKings on 23.3 percent, with Flutter-owned FanDuel accounting for just 10.6 percent of reported fantasy-sports revenue across the three states.

It must be acknowledged that the data available from just four states provides far from a complete picture of the U.S. fantasy-sports market.

The total does not include revenue from around a dozen states where, like Pennsylvania, regulators do not allow pick ‘em games under state laws on fantasy sports and neither PrizePicks nor rival Underdog Fantasy are currently able to offer such contests.

Equally, however, the total does not reflect fantasy-sports revenue derived from the majority of U.S. states where fantasy sports are not yet subject to state-specific regulation, a line-up that includes California, Texas, Florida, Illinois and Georgia, among other major markets.

PrizePicks recently stated that its revenue has grown more than 3,700 percent over the past three years and publicly claims to be “the largest fantasy sports operator in North America.”

A spokesperson said the company has 3m registered players and been able to “attract and retain players by providing an innovative, fun and social way to play, hosted on a sleek, member-friendly platform. We have an extremely strong feel for fantasy consumers and that shows up in our product.”

In recent months there has arisen an escalating lobbying conflict between the two fantasy-sports disruptors of the past decade and the newer breed of operators offering different variants of contests that critics say cross the line between fantasy sports and sports betting.

PrizePicks, Underdog, Sleeper and Vivid Picks are among operators offering pick ‘em contests that allow contestants to win simply by choosing whether real-life athletes competing in as few as two different games will accumulate more or less points, without having to draft a full roster of players and compete in a contest potentially involving hundreds or thousands of other fantasy participants.

Fantasy sports certainly accounts for an ever smaller portion of DraftKings’ and FanDuel’s total revenue, with the vertical very much overshadowed by the companies’ now far larger sports-betting and online casino businesses.

Still, it remains strategically important, according to Jason Robins, DraftKings’ CEO.

“We have seen really strong crossover continue from DFS when we launch [sports betting in] new states,” Robins told Wall Street analysts last month.

“Everything seems to be working on that front and [fantasy sports] continue to be a big source of engagement for customers in states that don’t have sports betting, as well as a great funnel for new states that launch.”

Lobbying Battlegrounds Emerging

Both DraftKings and FanDuel have publicly complained about rival companies essentially offering variants of sports wagering under the guise of fantasy sports, without being subject to the higher regulatory restrictions that generally apply to sports betting, including typically limiting wagering to 21 years old compared to 18 for fantasy games.

In the likes of California, Texas and Georgia, sports betting is not legally available at all, but skill-based fantasy sports remain a popular alternative.

The rival fantasy-sports operators, in turn, argue that pick ‘em and other fantasy contests meet clear legal definitions that have been enshrined in the 2006 federal Unlawful Internet Gambling Enforcement Act, as well as state-specific laws on fantasy sports.

Various states have also specified that their sports wagering laws do not apply to fantasy sports, meaning offerings meeting the definition of a fantasy contest cannot legally be considered to be a form of sports betting.

Flashpoints are emerging on several fronts.

Regulators in both Michigan and New York are preparing to follow Ohio in adopting rules to expressly ban fantasy games that mimic proposition sports bets.

Regulators in Massachusetts have also committed to examining the lines between fantasy games and sports betting, while officials in Maine and Wyoming have sent letters of concern to operators regarding pick ‘em contests.

The American Gaming Association (AGA), which includes both FanDuel and DraftKings as members, recently lobbied state attorneys general directly on the rising popularity of “faux fantasy” games.

“States have purposefully created distinct licensing and regulatory obligations for sports betting and daily fantasy sports, so it’s extremely concerning if fantasy operators attempt to blur the lines and offer sports betting products,” Chris Cylke, AGA senior vice president of government relations, told VIXIO.

“Legal sports betting operators spend significant resources to secure and maintain a gaming license and should not be put at a competitive disadvantage. Not only does this hurt legal sportsbooks, but also communities by undermining consumer protections and tax revenue.”

Underdog and PrizePicks, in turn, are placing the blame for the mounting pushback at the door of the two operators who once faced similar scrutiny in 2015 and 2016 as they evolved traditional season-long fantasy contests into daily games.

“PrizePicks has established a compelling, popular and legally compliant business. This success has triggered a campaign by established online sports betting operators to try to force PrizePicks out of business,” PrizePicks told VIXIO in a statement.

“They are doing so by using their dominant position in the much larger chance-based games industry to encourage regulators and legislators to improperly classify PrizePicks’ offerings. This attack on the fantasy sports legal framework threatens to rob fantasy sports players of popular entertainment platforms, stifle competition, and discourage innovation in the industry.”


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