FanDuel Sportsbook – From Fantasy Sports Site to a Global Heavyweight

Author: Matthew Haynes

"Think of it as one-night stand fantasy sports." Famously quoted by leading publication TechCrunch, it sums up FanDuel, at least in the company's early years.

Founded in 2009 by a group of five entrepreneurs in Texas, looking to shake up the fantasy sports market, though also with a view to finding a loophole in the gambling legislation that existed across the US at the time.

Due to fantasy sports being classed as a 'skill game' rather than 'gambling', the site's first reveal to the public was at the SXSW Interactive festival in the same year that it was founded, after months of intensive programming and testing.

By 2010, courtesy of the FanDuel Fantasy Football Championship (with a prize-winning purse of $40,000), the brand had started to become well-known, at least in those circles, with many turning their backs on the 'season-long' fantasy sports games in favor of the chance to win big over the much shorter term.

With further investment in the priority of facilitating more growth, they embarked on a Series C funding round in 2013, which raised $11 million. One year later, $70 million was brought in courtesy of Series D funding, while in 2015, another round netted $240 million.

Having launched aggressive marketing campaigns in the years previously, the company was no doubt an innovator in its space, completely turning a niche with a wide following on its head.

Also responsible for its own growth, FanDuel was successful in completing two acquisitions in 2015. The first one was numberFire - a sports analytics company with the aim to aid players' decision-making process via up-to-the-minute data. The second company acquired was AlphaDraft - an eSports brand that effectively doubled as a smaller fantasy sports site.

Scandal and Drama Embroils Brand

After prosperous growth in its first five years - arguably unprecedented for any start-up, FanDuel was immersed in a controversy that almost threatened to destabilize the whole company.

In October 2015, the Attorney General for New York, Eric T. Schneiderman, opened an investigation to look at betting corruption in the company, after reports of suspicious activity, with rival DraftKings also coming under governmental scrutiny. The allegations were that employees at both firms had won large amounts of money, wagering on each other's platforms. Indeed, the employee from DraftKings won $350,000 from a $25 entry to an American Football contest on FanDuel.

It was subsequently found that the winner, Ethan Haskell, boasted on an open forum to "inadvertently releasing data before the start of the third week of NFL games", with a reader reporting this to the authorities.

Schneiderman said at the time in a radio interview: "It's something we're taking a look at — fraud is fraud.

He continued: "And, consumers of any product, whether you want to buy a car, participate in fantasy football, our laws are very strong in New York and other states that you can't commit fraud."

Meanwhile, both companies had launched an internal investigation and cleared him of any wrongdoing. Prior to the conclusion of the internal investigation, FanDuel revealed in a company statement: "We have permanently banned our employees from playing any daily fantasy games for money, on any site."

They continued: "We will also require all customers to confirm that they are not an employee of any other third-party fantasy site, and if they are, they will not be allowed to access our site."

According to a report, there was also a significant gulf in player winnings, with 1.3% responsible for a staggering 91% of the total prize money for the daily fantasy baseball game, which was based around the MLB (Major League Baseball) competition.

Other statistics saw the top 11 players pay $2 million on average in entry fees and profit $1,350,000 each. It was found that the highest-paid player in 2015 made a $400,000 profit from a total of $3 million in entry fees. It does not necessarily paint a fair representation of the picture when looking at the total figure - indeed, 80% of players lost $25 on average entry fees of $49.

More Controversy Surrounding Sale to Paddy Power Betfair

As a way of trying to capitalize on the legalized US sports betting market in 2018, the Paddy Power Betfair brand renamed its US operation after agreeing to a $465 million sale.

However, not all of the founders of the company were on board with the valuation - an issue that is still being debated today after a lawsuit was filed in Scotland to dispute the price.

Immediately Paddy Power Betfair - now under one umbrella as Flutter Entertainment Inc. saw a significant boost in profits. Having also launched the FanDuel sportsbook, it capitalized on the legalization of sports betting and online gambling in the state of New Jersey, where it was already active. Pennsylvania, Indiana, and West Virginia followed soon.

The FanDuel daily fantasy sports site was still booming. However, it was the FanDuel sportsbook that was making significant strides forward. In 2019, the entire online operation was responsible for $4.8 billion worth of wagers, with FanDuel New Jersey responsible for generating a net profit of $300 million. Meanwhile, in November 2018 - the previous year, FanDuel agreed to a deal with the NHL (National Hockey League) to be its official daily fantasy and sports gambling partner.

Widespread US Legislation Changes the Game for FanDuel

As if like a shark waiting to attack, FanDuel appeared to anticipate multiple US states passing online gambling and mobile sports betting bills and focused its attention on consolidating the premium position in the market. Also, the presence of FanDuel daily fantasy sports site in non-regulated states meant that potential sportsbook customers were indirectly made aware of the brand - still having the ability to play the daily fantasy game. Simultaneously, fierce rivals, DraftKings, were also essentially taking a similar journey.

After the global pandemic struck in 2020, numerous states across the US appeared to change their attitude toward online gambling after many were plunged into poverty, following the near-collapse of industries and job losses.

Realizing that they could generate a significant amount of revenue through the taxation of legalizing online gambling, to then invest this into infrastructure. As a result, it was not long before legalization spread like wildfire across the US.

With licenses granted and approved as early as mid-2020, it witnessed a surge in applications from not only native gambling companies but international operators as well.

However, FanDuel was primed to pounce. The likes of Colorado, Michigan, Illinois, and now New York have passed online gambling or mobile sports betting bills, and FanDuel sensed blood - attacking the market with its typically aggressive marketing approach. With the legalization of California, understood to be in the pipeline - the passing of a bill being voted on in November - the most populous state in the union could be the platform FanDuel needs to secure the majority share of the overall US online gambling and sports betting industry.

Also, sensing further sponsorship opportunities with multiple franchises meant that the brand was active on many different fronts. The addition of BetMGM to the US sports betting industry (a joint venture between MGM Resorts International and British conglomerate Entain) added more competition to what was starting to become a crowded market.

What Does the Future Look Like for FanDuel?

Under owners Flutter Entertainment - which is strategically expanding across different territories, the future for FanDuel certainly looks bright. There will be no doubt at all that they will want to dominate the US online gambling and sports betting market - and perhaps even move it forward, in the same way that the brand completely revolutionized fantasy sport.

Compared to rivals DraftKings, FanDuel has significantly more resources behind it, not just in terms of investment but also immediate, in the form of staff numbers, many of who also have experience working for years in a mature UK online gambling market in key areas such as compliance, business intelligence, analytics, customer service, trading, and marketing.

This perhaps was demonstrated immediately following the acquisition of FanDuel, when corporate sponsorship agreements were struck, which have since paid a dividend.

While its parent company continues to be tactically active in the merger and acquisition niche, the same could well apply to FanDuel over the next couple of years. Perhaps they identify an opportunity to purchase a software provider and bring more of this in-house to improve efficiency - especially considering the predicted rate that the US is expected to scale at.

Its purchase of their data analytics company in its early years proved to be particularly successful, which allowed customers greater control of their gameplay. There are multiple opportunities for FanDuel to scale over the course of the next few years. However, for now, it seems that Flutter is firmly focusing on keeping FanDuel in the US market. Of course, this is somewhat reflected by its business strategy over the last few years - its recent purchase of Sisal focused solely on the growing Italian market.

What started as a "one-night stand" 13 years ago has seemingly transitioned into a relationship with a somewhat nasty divorce after its sale. Following wise counsel from new UK-based owners, it appears FanDuel is once again heading for calmer waters.