DraftKings and FanDuel Face Fear from Underdog Fantasy
Underdog Fantasy, which offers paid fantasy sports contests, alleges that DraftKings (NASDAQ: DKNG) and FanDuel are employing "behind-the-scenes" tactics to maintain their stranglehold on the daily fantasy sports (DFS) industry and hinder innovation.
In their early years, DraftKings and FanDuel ushered in the concept of DFS, which deviated from the traditional, long-term fantasy sports formats that had been the industry mainstay for decades. DFS quickly gained popularity among sports enthusiasts, particularly because cash prizes were involved, even though DFS was not initially considered a form of betting.
After the 2018 Supreme Court decision on the Professional and Amateur Sports Protection Act (PASPA), DraftKings and FanDuel capitalized on their DFS success by converting a significant portion of their client bases into sports bettors. Currently, the two dominant firms control approximately 75% of the US online sportsbook market, validating the effectiveness of the DFS-to-betting model.
Established in 2020 by Jeremy Levine and based in New York, Underdog Fantasy surmises that DraftKings and FanDuel are afraid of the competition posed by emerging DFS providers and that these giants are utilizing their political clout to maligned smaller competitors.
Newcomers Threaten DFS Kings' Monopoly
Although DraftKings and FanDuel have successfully solidified their DFS dominance and translated it into a sports betting duopoly, their DFS businesses experienced some customer erosion due to frustration over facing high-stakes competitors who used sophisticated computer programs to turn DFS into a full-time job.
This dissatisfaction among DFS players has created an opportunity for Underdog and other companies to develop and promote more intriguing DFS offerings that appeal to sports fans not spending hours each day using complicated technology to build lineups. Underdog claims its fantasy sports market share now exceeds that of DraftKings and FanDuel, demonstrating why the giants are wary of the new competition.
In his letter to Underdog clients, Levine accentuated that DraftKings and FanDuel can't dispute the merits of competition, so the duo is spinning a dishonest narrative that Underdog contests are illegal due to their similarity to sports betting.
This angle is significant because Underdog and several of its competitors operate in states coveted by the sports betting sector. Currently, Underdog provides its fantasy games in 41 states and its fantasy pick 'em games in 39 states. These states include California, Florida, Georgia, and Texas, where only Florida permits sports wagering and it's controlled by the Seminole Tribe.
Underdog: Laws Are on Our Side
In the letter, Levine highlighted that the state-level laws, which he believes were largely influenced by DraftKings and FanDuel lobbyists, clearly state that fantasy sports encompass a broader range of activities than the salary cap format.
"Additionally, in states where a sports betting law has been enacted, the law clearly states that fantasy sports are not sports betting," he stressed.
Notably, while working at StarSteet in 2012, Levine designed the industry's inaugural single-player fantasy game, which was later acquired by DraftKings.
Further infuriating DraftKings and FanDuel could be the fact that in several rapidly expanding sports betting states, courts have consistently ruled that Underdog's offerings fulfill the legal criteria for legal fantasy sports contests.
Levine confirmed in the letter that "regulators across the country – including in states where mobile sports betting is also legal – have determined our games meet the criteria for fantasy sports."
