LSR Q+A: Nigel Eccles On DraftKings Stock, FanDuel Suit, And Cost Of A US Sportsbook

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FanDuel lawsuit

Books have been, and will be, written about the rise of the two DFS giants and their pivot to sports betting. And a central storyline will always be the divergent experiences of both sets of founders. 

DraftKings’ three founders are still at the helm of a now publicly-traded company with a market cap over $10 billion. Meanwhile, FanDuel’s founders are engaged in a legal battle against their own early investors after receiving nothing from the sale of the company.

Amidst that backdrop, LSR caught up with Eccles via phone to discuss the future of the US sports betting market and how Eccles will continue to play a role in it.

LSR: How does it feel having to go through a court case while seeing DraftKings enjoy such a successful reverse IPO?

Eccles: I think it’s great honestly. Credit to Jason Robins and his team. They really built that company through a lot of challenges, just like we did. The co-plaintiffs on the suit are really proud of what we did with FanDuel. We just wish the former board had acted responsibly and didn’t effectively defraud us.

LSR: How is that lawsuit progressing?

Eccles: New York courts are pretty slow. It could take four years from filing to get through to court. But we’re confident.

It’s obvious to people on the outside that FanDuel didn’t go from being worth $1.2 billion the year before to $559 million at the opportune moment. And that also happened to be the exact price level that was needed for the investors to capture the entire upside from the deal.

We have incredible lawyers and it’s a litigation firm, so we are planning to take this all the way to court.

LSR: Are you still involved in the US betting and DFS industry?

Eccles: I do a lot of consultancy work with investors. There’s been huge interest in DraftKings recently and a little bit on GAN also. 

LSR: What do you make of the DK valuation?

Eccles: I don’t think it’s irrational at all. Look at their market share today. What’s going to change that in the future?

If we give FanDuel 40%, DraftKings 30% – what’s going to change to make those shares change? Are the tier-two firms going to leap forward? Or a new entrant?

I’m not really bullish about any of those tier-twos except maybe BetMGM. They have a really good platform, experience in the market, and a national brand.

Otherwise, William Hill has done a good job in retail but is subscale online. PointsBet has done a good job but its subscale. If they’ve not made big inroads in two years why do we think it will be different in the next two years? I think it looks like it does today.

LSR: What about a newcomer like bet365?

Eccles: If bet365 say: ‘we’re going to get serious about this and spend hundreds of millions,’ that could make a difference. But at the moment they’re three years in and have done nothing.

Remember, bet365 invested £20 million when they started and have been profitable ever since. I think they look at the US and think: ‘if we want to get real, we need to spend half a billion’ and I can’t see them doing that.

I’m also not seeing interest from consumers in a product as deep as bet365. The US customers are still excited you can go into a sportsbook in DC and place a bet. That’s a news article here.

So if you take that to the online side, people are not going from one app to another because of features. It’s about who’s offering the biggest bonus and spending the most on ads. 

So option one to shake the market up is bet365 get serious. Option two is ESPN could get serious. Or, those two pair up and they could be the number one player, with that platform and ESPN’s brand.

LSR: Do you think ESPN’s owner Disney would make that leap? They’ve ruled out becoming an operator previously and now have a 6% stake in DraftKings …

Eccles: I think they would do it. They got very close with The Stars Group and I think Fox Bet was the consolation prize there. Disney has a new CEO now and it would be incredible for them to sleep on the biggest opportunity in sports for 20 years when they have such a strong brand. 

Their cable revenues are in decline. The 6% stake in DK is tiny for them. And this DraftKings valuation has made so many people look up.

This is a $20 billion industry just from online sports betting. You can add the same again for online casino, and DraftKings has 30% share. If they hold onto that, it’s $6 billion in betting and $6 billion in casino.

LSR: We’ve seen that online sports betting market share in other countries around the world is often capped around 25%. But you and other smart people think the US will be different?

Eccles: I think it’s going to look like US telecoms. Two companies will be very profitable and then everyone else is loss-making.

What do you need to make money in this market? You need to have a national presence. These regional guys will lose money in the long run and exit. The other thing you need is a willingness to lose hundreds of millions to get to scale. 

That wasn’t the case in the UK and these other markets. Everyone was making money for a decade there. Look at DraftKings. They burnt $143 million last year, and they were only online in a couple of states.

The entry fee for this market just goes up and up. The casino groups will be too conservative. By the time people see how big this market is, it’ll be too late for rivals.

An investor asked me a while back, if they funded me, would I launch a sportsbook? I said give me $200 million and I could do it. That number is probably $500 million now. 

LSR: How does that stratification affect FanDuel and its newly-acquired Fox Bet brand?

Eccles: What’s the point of owning a second-tier brand? Maybe it made sense for Paddy Power Betfair to run a dual-brand strategy in the UK, but there’s really no difference between FanDuel and Fox Bet. So why spend hundreds of millions on licensing both and then spend marketing money on competing with each other. It doesn’t make sense to me.

I think they ultimately fold Fox Bet under FanDuel and they’ll do fine from that. Maybe that will happen when Flutter has full control of FanDuel, which can happen by the summer of 2023.

LSR: So you weren’t tempted by the offer to get back into the industry?

Eccles: I wouldn’t be excited to be an operator. The winners are already pretty apparent. This is not a market where the best product wins or innovation really matters. This is where the person with the most money and decent execution wins.

As an entrepreneur, it’s not that exciting. There is potentially space at the edges of the market for start-ups, but definitely not on the operator side.

LSR: Maybe on the affiliate side then, where your new company Flick might fit?

Eccles: Back in the early days of FanDuel, we built a great community with a good communication tool. But as we scaled we decided to cut live chat and I’ve always regretted it. Then the whole community migrated to Rotogrinders, and they sold that on to competitors.

So when I left FanDuel, my thesis was that there’s an opportunity for a platform for live sport. Where do I hang out when I’m watching sports? That’s Flick.

LSR: Is this not what Twitter is for?

Eccles: Twitter is the biggest competition. The issue with Twitter is that it’s not a chat platform. It’s good for giving comments. But it’s totally disorganized with the feed model.

Flick is more like Slack for sports with distinct channels. So you might be in a Manchester United group where you don’t want to mix with Liverpool fans. And Flick will send you a notification an hour before the game starts and scoring updates and so on.

LSR: What’s the betting angle?

Eccles: We will monetize it by integrating with sports betting platforms. But we’re not a betting community, ours is a sports community.

LSR: Is there appetite from operators?

Eccles: In the US, if Osama Bin Laden was offering users for $250, they’d take it. But our focus is not lead generation. It’s acquiring customers and bringing them back to the platform regularly. There’s absolutely an appetite for it.

LSR: People have tried and failed for decades to make betting more social. What have you learned from those efforts?

Eccles: No one has figured out social betting and we think we know why. Everyone made the same mistake. They started with a betting product, then tried to add social. But social is really hard.

It’s taken us two years to really get it right. I think Betfair did it best with the forums, but they’ve done nothing with them for 20 years. We’ve built the social product first and then we’re going to add betting.