DraftKings And FanDuel Won’t Turn Into Sportsbooks Right Away, If NJ Wins Sports Betting Case

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daily fantasy sports metamorphosis

Opinions on the New Jersey sports betting case have been flowing like cheap wine, from this space and elsewhere.

Should New Jersey win its case in front of the US Supreme Court, the realm of possibilities for the proliferation of legal sports betting appears endless.

One hot take making the rounds is this: Daily fantasy sports sites DraftKings and FanDuel are positioned well to get into the sports betting market in the short term.

For a lot of reasons, this is not likely to come to fruition right away.

Reason No. 1: Sports betting online is likely to be limited

You may not agree with this assessment, but the rollout of sports betting is likely to be mostly land-based at first. I went more in-depth on why I think that is here.

That, of course, means that online platforms like those run by DFS sites are not going to be the initial landing spot for sports betting. In any case, sports betting would not be available nationwide, only in select states (more on that below.)

That leads to point No. 2, which is how sports betting is likely to manifest in the US.

Reason No. 2: Current in-state operators would get first crack

While some might argue with online vs. land-based sports betting, an NJ win would not mean a federal rollout. Even though the New Jersey case is about a federal law — PASPA — each state would have to make a decision to repeal its own sports betting prohibition. A New Jersey win would simply given them the freedom to do so.

In that world, state governments, casinos and racetracks are going to be the ones calling the shots on how sports betting goes down, for the most part. DFS sites like DraftKings and FanDuel are not going to get the first bite at the apple. States will try to help their in-state gaming first; outsiders could be locked out entirely.

That is, unless, they partner with existing gaming licensees, something DFS sites have been loathe to do, thus far. (Some of that has to do with keeping their distance from gambling, as they solidify their status as a “game of skill” in jurisdictions around the country.)

And then there’s also this likelihood…

Reason No. 3: FanDuel and DraftKings probably don’t have sportsbooks ready to roll out

Perhaps DraftKings and FanDuel have plans laid out for how to pivot to sports betting, should it become an option in the US. And while they may have a long-term vision of how that might play out, my guess is they don’t have a way to roll out sports betting in the next year or two. (Part of that is due to the two considerations above.)

DraftKings and FanDuel like to argue that they are entirely apart from gambling and sports betting. And at least from a logisitical standpoint, that’s true. Running a DFS site is not much like a sportsbook, and it would take a massive ramp up in funding money, manpower and programming, if they want to do it on their own. They’d also have to deal with regulations that are far more stringent than what they’ve encountered in the US gaming space to date.

(The possibility remains that they could partner with — or even acquire — an existing sports betting provider, but neither seems like a particularly likely scenario. The reverse happening could be more likely: See Draft and Paddy Power Betfair.)

Additionally, don’t they have enough to worry about right now?

Read No. 4: FanDuel and DraftKings have enough on their plate

Are DraftKings and FanDuel ready to retrench for an uncertain world of online sports betting? Consider:

That last point leads to this…

Reason No. 5: Some wouldn’t be happy about the pivot

For the past two years, DraftKings and FanDuel have been telling everyone they are not gambling sites. They’ve convinced lawmakers in a variety of states they offer a game of skill that is nothing like gambling.

So what happens if they suddenly turn into gambling sites, and not just DFS platforms? (Sure, there’s an argument that sports betting is also a game of skill, but c’mon.)

It says here a lot of people — particularly lawmakers that went to bat for them — wouldn’t necessarily be very happy with this development. And the current push to legalize DFS in a variety of states likely becomes even bumpier.

The stakes on that front are still relatively high. Major states like Illinois, Pennsylvania, Texas and California still have no law on the books; some of those also have a murky legal climate.

There’s also the matter of their league partners. Major League Baseball, the NBA and NHL hold equity in either DraftKings or FanDuel. No matter what you think the leagues’ stance is on the future of legal sports betting — and there are increasing signs they are coming around — I am not sure they are ready to go from zero to 60 (i.e. owning the sportsbook).

Does all that mean DraftKings and FanDuel won’t try to get into sports betting?

Absolutely not. A pivot to sports betting would make a lot of sense for the “big two” of DFS. The handle for Nevada sports betting, alone, is more than total handle in North America for paid-entry DFS. They have a primed user base that would love to bet on sports in addition to playing DFS.

So the two DFS sites would certainly be smart to try to leverage their user bases to go after sports betting money, eventually. But doing so in the short term would still be a gamble.