DRAFTKINGS AND FANDUEL responded slowly to the demands by some of their customers for greater transparency and to limit or prohibit the high-volume players' favorite tools, like the sharks' multiple entries, scripting and other predatory practices.
Adam Krejcik, the managing director of Eilers & Krejcik Gaming, observed that the sharks-vs.-fish dynamic threatened daily fantasy's very existence. "The biggest risk for the DFS industry is not regulation but whether it can attract mass market appeal and avoid becoming too 'hardcore,'" Krejcik wrote in a January 2014 presentation. There's a "very delicate balance that needs to be maintained between 'grinders' and 'casual' players."
But the two sites lavished perks only on their high-volume grinders and contest winners. FanDuel gave its big winners NFL luxury box tickets and autographed jerseys, but DraftKings did even more -- a party attended by VIPs inside a Gillette Stadium luxury box; the Las Vegas "Tiger Jam VIP Experience," in which winning players rubbed shoulders with Tiger Woods in the MGM Grand's poker room and at Shadow Creek Golf Course; a private party for grinders and other VIPs at the LIV nightclub in Miami Beach. And the list goes on.
"Here's the thing -- taking high-liquidity players on junkets is really stupid," says Joe Brennan Jr., the CEO of rival FastFantasy.com. "Steve Wynn wouldn't do it -- he'd be giving the treats to the high-liquidity losers. The sites should be treating the high-liquidity losers, the guys who are losing all that money that goes right to their bottom line."
Another way to look at how the companies were allowing their haves to prey on their have-nots: "DraftKings reminds me of the college kids having a kegger and the cops say, 'Turn the music down,' and they say, 'We're sorry,' and the cops go away and they turn the music back up," Sullivan says. "They have bravado -- for lack of a better term, it's balls."
Some critics now say the companies' CEOs even had the balls to publicly preach the benefits of hooking large schools of novice fish for their sophisticated, big-bankrolled players to devour.
On RotoGrinders -- daily fantasy's most popular online community where players vent and kvetch -- Robins, the DraftKings CEO, told users that his company was spending large sums on advertising to attract new players who would presumably make the site more attractive to the tiny clique of high-volume, consistently winning players. "The goal in how we are set up and the tremendous amount of money we spend on marketing are meant to attract and retain casual players, which in turn should make it an attractive environment for those who profit," Robins wrote on the message board.
Eccles, the FanDuel CEO, said something similar on RotoGrinders, arguing that the best way for high-volume grinders to enhance their return on investment would be for the site to recruit thousands of new players, presumably with less experience and expertise, rather than have the site reduce its rake percentage. "To be honest," Eccles wrote, "at the moment, we've focused more on bringing in new players, which by our calculations is a lot more important to grinder win rates than cutting rake."
Robins and Eccles might have found a consensus on that strategy, but they disagreed about many other ways to grow their businesses. Their hostility toward each other was often out in the open.
More than once, Eccles dismissed DraftKings as a "clone" that didn't pose much of a threat to FanDuel's dominance. The way Eccles saw it, he and his co-founders had created the industry, and DraftKings' reckless, risky corporate ethos that pushed the envelope legally would be its undoing. FanDuel also believed that DraftKings overpaid software engineers and analytics employees, raising the cost of doing business for everyone. Robins deeply resented the disrespect, using Eccles' barbs to motivate his young staff to write better code, develop better products and beat FanDuel for customer experience. The competition and clashing corporate philosophies turned into bad blood between some of the two companies' senior executives, and the bitterness ran deepest between Eccles and Robins, consultants and employees told Outside the Lines. Neither Eccles nor Robins denies the bad blood.
For the executives, it was easy to ignore signs of trouble because fresh investors' money kept flowing, and waves of new customers kept flocking to both sites. It was also easy to ignore the biggest threat to the industry's best shot for long-term success: Nearly all daily fantasy players lose.
ON A LATE autumn weekday afternoon, I sign up for DraftKings and deposit $100. With nearly 250,000 lineups and a top-heavy payout structure, "The Millionaire Maker" seizes the boldest headlines. But the sites also offer countless opportunities to play against small fields for modest stakes. (Contest entry fees range from 25 cents to $10,600, but the most popular entry fee is $3, the sites say.) There are head-to-head matchups, small tournaments of five or nine players, "50-50" games in which players finishing in the top 50 percent win (usually only a few bucks), double-up games in which you can turn $5 into $10, and "invite-only" contests in which you can compete against your friends and colleagues.
So I cobble together a team of players competing in that night's seven NBA games and post my lineup in a head-to-head contest for a $50 entry fee. Almost instantly -- it took six seconds -- my team is scooped up by a player named "condia." I don't know who condia is, or even what that word means, though a check of RotoGrinders breaks the bad news that condia is the No. 1-ranked NBA fantasy player in America. Somewhat despondently, I watch the games on NBA League Pass as my players are annihilated by condia's lineup by 80-plus points.
The next day, I tell Harber, the former high-volume player, how quickly and effortlessly condia had torched me.
"You got bum-hunted," he says with a laugh.
"Bum-hunted. He had a crawler on the page, and it ate up your game," Harber says. Other players call the condias "lobby hawks," perched and waiting to pounce on rookies like me who show up in the lobby shopping for a head-to-head game.
Harber is still chuckling. "All these high-volume guys are archiving all the data to find out who is a good player or a bad player -- or a complete novice like you," he says. High-volume players are so sophisticated that their computerized scripts and other automated systems are often invisible to the sites, Harber and other high-volume players say, though the sites deny that. Some scripts are ones of convenience: allowing high-volume players to change hundreds of lineups to make a late substitution when a player is a last-minute scratch. Others are more predatory, scraping live data from the sites to target the worst of the losing players, the same trick mastered by professional online poker players.
For years, FanDuel had given quiet permission to customers who asked to use certain scripts, a request almost always made by their most valued, high-volume customers. DraftKings says it forbade the use of all automated tools before July 2015, but high-volume users say they routinely used such tools -- or knew others who did -- before then on the site. There was little or no transparency; sites refused to divulge the identities of players who were warned, suspended or banned for using predatory scripts or violating any of the sites' other ever-evolving terms and conditions. FanDuel says it has suspended thousands of customers. Says a DraftKings spokeswoman, "We do not reveal specifics about our user activity."
I soon discover that condia isn't just a famous, prolific and high-stakes player, he's also pretty widely disliked by the regulars. As far as I can tell, he's disliked not because he plays so much but because he wins so much. He is renowned for trolling the sites' lobbies for every kind of action, including games for as little as $3, despite having a prodigious bankroll in the high six figures.
Condia's real name is Charles Chon, and he is a self-deprecating 30-year-old who lives in Denver and majored in accounting at Colorado State. A few months after I join DraftKings, I tell Chon about our instant head-to-head matchup and how effortlessly he hoovered my $50.
"I'm sorry, man," he says, squeaking out a laugh. "It was just me finding you in the lobby. I like playing the smaller players because it's easy money -- it's like free money for me. I mean, why wouldn't you take it? There have been times when I tried to get action against anyone I could, including newer players. I probably got you for that reason."
Chon denies the persistent accusations on the RotoGrinders message boards that he has cheated by using scripts and other technological edges to find and bankrupt lousy players. "I always try to play by the rules," he says. "I know some other guys don't."
DESPITE ALL OF their ongoing hostilities, Robins and Eccles met for dinner at the Bellagio in Las Vegas during the FSTA's winter conference in January 2015. The unthinkable between the two rivals was broached: a merger. Robins pitched the idea at the urging of Jonathan Kraft, president of the New England Patriots and an early DraftKings investor through the Kraft Group. From a long-term financial perspective, a pair of daily fantasy companies trying to outspend each other into oblivion didn't make sense. Satellite radio rivals Sirius and XM avoided a mutual assured death by merging. Why couldn't DraftKings and FanDuel?
One proposal had FanDuel and its investors getting 60 percent of a new tied-in company. Although those terms were more favorable to FanDuel, Eccles rejected them, sources say. Eccles "wants to be the Mark Zuckerberg of the industry, to be seen as the godfather of daily fantasy sports," a consultant with firsthand knowledge of the negotiations told Outside the Lines. Eccles and Robins "really do hate each other. And their egos got in the way." Says another industry insider privy to the talks, "Guys with cooler heads would have likely gotten it done -- a merger made all the sense in the world."
A month after the dinner, FanDuel hired Christian Genetski to be its chief legal officer, a job that hadn't previously existed, to build a new legal team. He knew one of his biggest missions would be to try to clarify the gray zone on the legality of DFS in states nationwide, a challenge he viewed as somewhat defensive. "If we were a beach house, we needed to winterize," says Genetski, 45, whose law firm has done legal work with Yahoo, also worked for several years in the video game industry. "The Farmer's Almanac didn't call for the Category 5 hurricane that hit us."
Genetski reached out to Tim Dent, the chief financial officer of DraftKings, and both sites soon agreed to work together on a modest, defense-only lobbying effort and share the costs of an attorney general consultant.
On May 7, 2015, Genetski, Dent and a throng of lobbyists and lawyers met to discuss legislative and regulatory opportunities at a midtown Manhattan lobbying office. Again, they discussed FanDuel and DraftKings taking the lead to create an industrywide board that would aggressively self-regulate, similar to the movie ratings board created by the Motion Picture Association of America, while also fielding consumer complaints. When the meeting broke up, there was fresh momentum for the rivals to pursue the proposal, with the tentative name the "Fantasy Sports Control Agency."
A week later, DraftKings struck a sponsorship deal with NASCAR and introduced contests on its races. FanDuel had also discussed the sponsorship, but after DraftKings landed it, Eccles and his colleagues were furious, telling investors they were convinced that their rival's new contests violated federal law. "How were they going to self-regulate when one company didn't agree with what the other company was doing?" a senior industry consultant says. "It really was the end of any hope for cooperation."
Besides the CEOs' mutual mistrust and simmering resentments, there were a variety of other reasons the industry never established the board. It was expensive, for one thing. It also required the political skills to cobble together a coalition of dozens of companies with conflicting agendas. "We had a lot of discussions about it," Robins says, "and we were in the process of collaborating on it. And everything just kind of moved too quickly."
"We had thought through things like self-regulation, how that would look," Eccles says. "But we hadn't invested nearly as much as we should have, if we had known what was coming."
It was a costly missed opportunity. When investigators and prosecutors began scrutinizing the industry, a self-policing Fantasy Sports Control Agency might have bought some goodwill.
Instead, FanDuel and DraftKings marched toward an expensive war for market share, in part at the urging of impatient investors who wanted the sites to grab a larger chunk of the 57 million Americans who play season-long fantasy sports. The rivals seemed unable to extract themselves from a vicious cycle: The more their executives could show investors the exponential growth rates of new customers and entry fees, the more investor money they could attract. The more investor money the executives could attract, the closer they would come to an IPO and life-changing paydays for everyone.
THE SUMMER OF 2015 began with soaring financial promise. Everyone wanted in.
In June, ESPN's parent, the Walt Disney Company, was finalizing a $250 million equity stake in DraftKings. In return, DraftKings pledged to spend a whopping $500 million in advertising on ESPN properties over several years. The deal had been discussed for months and seemed a certainty as industry leaders gathered in midtown Manhattan for the start of the FSTA's summer conference on June 22. But by the end of that day, word began circulating that the deal had blown up after a top Disney attorney warned executives that he was uncomfortable with the legal uncertainty surrounding DraftKings' contests.
Undeterred by that setback, and with much fanfare, the industry leaders closed a record-shattering funding round in July -- $275 million for FanDuel and $300 million for DraftKings -- that pushed both companies' valuations considerably higher than
$1 billion. And then DraftKings raised even more, in another funding round that wasn't made public.
But trouble loomed.
In late July 2015, an ominous-sounding letter arrived at both companies' headquarters. It was from a U.S. attorney in Tampa, alerting executives that their companies were the subjects of a criminal tax investigation, sources told Outside the Lines. Despite receiving those notices, the executives moved forward with their marketing plans to try to become No. 1.
"In hindsight," an influential consultant close to both companies says, "those commercials were even more insane because they knew they were under federal criminal investigation."
There was more bad news, but this time it hit publicly. McKinsey & Company released an alarming study showing that a tiny percentage of daily fantasy players win consistently -- only 1.3 percent playing baseball. Analyzing three months of results scraped from FanDuel, McKinsey's study raised major questions about the long-term viability of fantasy sports' "ecosystem."
"Investors are overlooking a fundamental operating challenge: the risk that the skill element of daily fantasy is so high that DFS pros will wipe out recreational players in short order," wrote the report's co-authors, Dan Singer and Ed Miller. The "whales," who Singer and Miller say lose thousands a year on baseball contests, bolster the sites' revenues. "If those whales get discouraged -- and they have a negative-31 percent return of investment, so it's easy to see why they'll get discouraged -- the industry will die," Singer says.
Neither company was discouraged, and they pressed forward. DraftKings had always intended to invest a big chunk of its new money on a bid to firmly establish itself as the leading daily fantasy site. During the 2014 NFL season, FanDuel boosted its market share by spending more on ads than DraftKings, whose executives vowed they'd never be outspent again. Initially, FanDuel wasn't planning to spend nearly as much in 2015 as its rival, but executives had watched as DraftKings significantly closed the gap on total market share before surpassing FanDuel in July with nearly 60 percent of the market. FanDuel concluded that the only way to reverse its bleeding market share was to try to match DraftKings' enormous ad buys that autumn during football season.
Fortified with their overstuffed war chests, the two companies were prepared to spend as much money as it would take to destroy the other guys.
DURING THE NFL'S opening week, DraftKings advertised that $10 million in winnings was up for grabs, including a $2 million grand prize, in its Millionaire Maker contest, the largest daily fantasy contest ever. Not to be outdone, FanDuel boasted: "Paying out $75 million a week!"
On Oct. 5, The New York Times reported that a young DraftKings employee named Ethan Haskell had won $350,000 in a FanDuel NFL contest by finishing second overall and beating 229,883 entrants. The Times story alleged that Haskell used inside information -- the percentage of ownership of various players by contestants that was unavailable to the public -- to help win on the site of his company's rival. The online headline dubbed it "insider trading," and though the newspaper quickly changed it after DraftKings complained, the damage was done.
“People asked me, ‘Where do you work?’And I'd say, ‘ I work at FanDuel -- I'm sorry about the commercials.’”
- Andrew Giancamilli, FanDuel's 37-year-old vice president of revenue and customer retention marketing
The sites' employees had competed for years on each other's platforms, despite the practice being long frowned upon by some lobbyists and industry consultants. Even the companies' engineering and customer service employees had access to proprietary data that could give them an unfair advantage playing elsewhere. The numbers are alarming: DraftKings employees won an estimated $6 million playing on FanDuel, though executives at both sites insist most of their employees ended up losing more money than they won.
The optics only worsened when it became public that FanDuel, in a 2012 internal memo, had warned its employees playing on DraftKings to "do no harm" or raise suspicions by winning too often: "Never be among the top five players by volume on any one site (based on site leaderboards). Never be among the top 10 overall on the RotoGrinders leaderboard. Top players frequently become targets for accusations by other users."
"This was destructive -- and done because the sites felt they were untouchable," says a longtime industry lobbyist. "It's obvious that condoning this practice could easily backfire."
Robins and Eccles now acknowledge that the practice angered customers and raised stubborn doubts about the games' integrity. However, they both insist that their own investigations showed no employees had used proprietary information to win a single contest, though employees' winning streaks attracted derision on message boards. A law firm hired by DraftKings later determined that Haskell, who declined to comment, did not consult inside information before posting his winning lineup on FanDuel.
But by then the finding didn't really matter, because New York Attorney General Eric Schneiderman was a New York Times reader and a TV viewer who, like nearly everyone else in America, had become annoyed and exasperated by the onslaught of daily fantasy ads.
At 61, Schneiderman, a graduate of Amherst and Harvard Law School, had established himself as a hard-charging attorney general, pursuing a variety of attention-seizing targets, including the Airbnb industry, corruption-rife state contracts and Medicaid fraud. Allies of the daily fantasy industry later grumbled that he had received more than $150,000 in campaign contributions from state gambling interests during his run for attorney general.
The morning after the Times story, lawyers and investigators from Schneiderman's various divisions -- consumer fraud, investor protection, the internet bureau, taxpayer protection -- huddled for a two-hour meeting in a large conference room at the office's lower Manhattan headquarters. "We had no idea what we were looking at -- we didn't know what we didn't know," says Kathleen McGee, the internet bureau chief. They were concerned about the insider trading allegations, but in interviews with Outside the Lines, they said they quickly became far more concerned with FanDuel's and DraftKings' promises of instant wealth that they kept seeing on television. "Everyone in the office was saying, 'Their ads are everywhere,'" McGee says. "You couldn't escape them."
Within hours of their first meeting, several lawyers and investigators from Schneiderman's office opened DraftKings and FanDuel accounts and began playing their contests. The sites' lobbies "felt like online poker sites -- or an online casino," a senior investigator told Outside the Lines. And the investigators and lawyers would soon discover that the sites didn't just offer daily fantasy contests on a single day's full slate of games. The sites offered hourly fantasy contests, with an evening's slate of NBA and NHL games carved into smaller and smaller slices with fewer and fewer players to draft -- "turbo" contests for three NBA games tipping off at 8 p.m. ET, for example, or a fantasy contest based on two West Coast NHL games in which fantasy players would assemble lineups from only four teams.
Schneiderman's lawyers and investigators initially focused on the insider trading allegations, sketching investigative avenues on a chalkboard-sized whiteboard as they wondered whether the companies were defrauding and deceiving customers. Early on, they say, they didn't ponder the question of whether daily fantasy sports were legal under New York law.
Schneiderman's top deputies asked FanDuel and DraftKings to provide information about their customers, consumer protection safeguards and the names of employees with access to proprietary information, such as player data, roster values and the contestants' ownership percentages for pending and historical contests.
At separate meetings at the attorney general's office on Oct. 8, Robins of DraftKings and FanDuel's outside counsel, Marc Zwillinger, fielded questions about their business practices while pledging their full cooperation. Still, executives and their lawyers were alarmed by the investigation. After all, the two companies had operated openly in New York state -- and with no interference -- for years. The company executives and their lawyers left Schneiderman's office confident that, at most, they'd be forced to pay a hefty fine and then would have to seek a daily fantasy bill in the New York State Assembly, a recollection disputed by lawyers in Schneiderman's office.
A senior AG lawyer recalls the DFS executives "running into our door and begging us, more or less, to regulate them and not shut them down."
"Denial is a powerful drug," says Eric Soufer, the AG's senior counsel for policy. "Even beyond the illegal gambling claims, the evidence of false and deceptive advertising was massive, and it was clear to all sides that those claims would be moving forward."
The move by Schneiderman had an immediate impact on both companies. ESPN, which had agreed in June to a two-year, $250 million exclusive branding and promotions deal across multiple platforms, decided on Oct. 6 to remove all DraftKings-sponsored elements from its shows.
Ten days later, the Nevada attorney general released an opinion concluding that daily fantasy is sports wagering and that DraftKings and FanDuel needed gambling licenses to operate in the state. At the same time, the sites were preparing to enter the U.K. market, where they were seeking gambling licenses to be regulated as bookmakers. Both decisions reinforced the impression that daily fantasy is a game of skill in some places but considered a game of chance in others.
Meanwhile, during the daily strategy meetings before the whiteboard, the attorney general's lawyers and investigators began discussing whether, in fact, daily fantasy constituted illegal gambling under New York law. "It quickly became apparent this was so much bigger than a consumer fraud issue," McGee says. "This looks like gambling -- and we kept asking, 'How does this happen right under our noses? These guys are huge.'"
On Nov. 10, Schneiderman sent cease-and-desist letters to FanDuel and DraftKings, declaring that their games constituted illegal gambling under state law and ordering the companies to stop accepting "bets" from New York residents. "It is clear that DraftKings and FanDuel are the leaders of a massive, multibillion-dollar scheme intended to evade the law and fleece sports fans across the country," Schneiderman declared.
Inside FanDuel's Manhattan offices and DraftKings' Boston headquarters, executives were asked, by an ESPN reporter, about the letters before they had been delivered. Robins was in Sacramento at the statehouse; he got word of Schneiderman's move 10 minutes before meeting with an influential California legislator about a daily fantasy bill. Eccles was in Edinburgh, visiting his mother, when a colleague called him with the bad news. At no point had anyone from Schneiderman's office told them they were facing the prospect of being shut down.
"I was shocked," Eccles says.
Recalls a top DraftKings executive, "We never saw it coming."
Welcome to the big time.
New York Attorney General Eric Schneiderman's lawyers and investigators initially focused on whether DraftKings and FanDuel employees had an unfair advantage when they played daily fantasy. Hans Pennink/AP Photo
ON NOV. 13, three days after Schneiderman's cease-and-desist letters were delivered, FanDuel's and DraftKings' top executives, lawyers and lobbyists gathered for a summit meeting at the midtown Manhattan offices of Orrick, Herrington & Sutcliffe, a San Francisco-based global law firm. The session was attended by Robins and Eccles and nearly two dozen attorneys, lobbyists, government affairs specialists and crisis communications consultants. Before the meeting began, "the only thing the two companies could agree on was us," says Jeremy Kudon, a 45-year-old lawyer and lobbyist who is the founder of Orrick's public policy group.
After three hours, the two rivals agreed on a uniform strategy to push for legislation clarifying daily fantasy's legality in dozens of statehouses around the country. FanDuel and DraftKings executives agreed to share the exorbitant costs of going on offense to seek DFS legislation that would regulate, and tax, their industry in any state where there was legal uncertainty or even the slightest chance that an attorney general might move against the industry. It was a marriage of necessity.
But the sites continued fighting other, separate legal battles. An investor recommended that DraftKings hire David Boies, the 75-year-old lawyer who became famous representing Al Gore before the U.S. Supreme Court in the deadlocked presidential election in 2000.
Boies was kept busy. Seemingly every day, a new civil lawsuit was filed against the companies and their executives; the companies now face more than 40. The biggest lawsuit alleges that DraftKings and FanDuel granted scores of advantages to an elite group of high-volume players. "The vast majority of bettors who are small guys, playing one or two contests a day for $20 at most, are overmatched by an elite few who have the algorithms, the technological advantages, all the advantages to win the biggest money," New York attorney Hunter J. Shkolnik says. "No one tells you that in the commercials."
Now consolidated in a Boston courtroom, the sprawling 266-page class-action lawsuit -- alleging conspiracy, fraud, negligence and RICO violations, among other claims -- represents losing DFS players from 25 states and the District of Columbia. Shkolnik alleges that FanDuel revealed to its investors that only the top one-tenth of a percent of its customers actually win money. "The top 10,000 users had a negative-9.5 percent return on investment," the lawsuit alleges. In another lawsuit, one of the plaintiffs, Brandon Peck, a 42-year-old losing player from California, says that "DFS sites knowingly and intentionally pulled the wool over the eyes of many Americans when quoting the UIGEA. We deserve our money back."
DraftKings and FanDuel deny the accusations. Robins and Eccles declined a request by Outside the Lines to discuss any of the legal proceedings and criminal inquiries.
Throughout the autumn, Schneiderman's lawyers kept investigating. They became even more offended by the companies' grandiose advertising claims and the promises to customers that both companies made -- and, the lawyers say, had repeatedly broken -- in their bonus programs.
Schneiderman's action had a dramatic ripple effect across the country. In nearly two dozen states, including Illinois, Texas and Alabama, offices of the attorney general quickly opened investigations. In some states, AGs released reports declaring that daily fantasy was illegal, while legislators began considering bills that would legalize the games and regulate the industry.
"I've never seen attorney general opinions weaponized like this before," Kudon says.
Says Boies: "I think DraftKings, and the industry in general, did not do as much as it could have ... to regulate itself, to impose rules and regulations. It was a new industry. It was a growing industry. And I think that [DraftKings] focused much more on their product and their service than explaining it."
The parade of negative headlines also appeared to erode customers' trust. In the second half of the NFL season, DraftKings and FanDuel experienced week-by-week reductions in entry fees and major tournament payouts, according to data compiled by SuperLobby.com. By Week 14, for example, DraftKings' large tourney entry fees were down 32 percent from a Week 5 high of $25 million. And FanDuel's tourney entry fees had dropped 53 percent from a Week 6 high of $40 million, SuperLobby.com found. (FanDuel and DraftKings dispute these statistics, saying there was only a slight drop-off in large contests but that their ads attracted hundreds of thousands of new customers, many of whom have become loyal players.)
On Dec. 11, a New York Supreme Court granted Schneiderman a temporary injunction against the two companies, but they quickly appealed and won, allowing them to continue accepting wagers in New York. The pushback infuriated Schneiderman's lawyers, who filed an amended complaint on New Year's Eve seeking enormous financial penalties against DraftKings and FanDuel for allegedly violating New York's false advertising and consumer fraud laws. Schneiderman accused the sites of misrepresenting the ease and simplicity with which the average user could win big payouts and the amount of skill needed to win their contests, among other accusations.
Inside both companies, morale plummeted. They had been the hottest thing going; job applications had flooded into their headquarters. No more. And for the CEOs and executives, the stress level was relentless and the realities ever-present.
"People asked me, 'Where do you work?' And I'd say, 'I work at FanDuel -- I'm sorry about the commercials,'" says Andrew Giancamilli, FanDuel's 37-year-old vice president of revenue and customer retention marketing.
Protesters gathered in front of Schneiderman's office following his decision to shut down FanDuel and DraftKings. Carlo Allegri/Reuters
BY THE END of last winter, 38 states were weighing daily fantasy legislation. Armed with a team of 105 lobbyists, Kudon and his colleagues discovered that despite their skill-game arguments that daily fantasy is not illegal gambling, influential gambling interests saw them as a threat and blocked them in states where they were entrenched, just as Charchian and others had predicted. Rivers Casino, located in Des Plaines, Illinois, helped kill the state's daily fantasy bill, and the Illinois attorney general issued an opinion that daily fantasy is illegal under state law. In California, Florida, Connecticut, Oklahoma and Arizona, Native American tribes with casinos managed to kill or thwart daily fantasy bills. The companies now don't accept wagers from players in 11 states, up from five a year ago.
In early March, Virginia was the first state to pass DFS legislation, a bill critics dismissed as "industry-friendly." Five other states followed: Indiana, Tennessee, Mississippi, Colorado and Missouri. The Massachusetts attorney general introduced extensive regulations aimed at increasing transparency and fairness, which the state adopted in August.
But the fight's epicenter was the New York Capitol in Albany. No state was more important to daily fantasy's future than New York, where each company had the highest number of customers, who spent a total of $268.3 million in fees in 2015, second only to California. In February and March at DraftKings and FanDuel, executives debated whether they should settle the Schneiderman complaint by agreeing to stop operating paid contests in New York.
"It was tough," says Genetski, the FanDuel executive. "Shutting down seems counterintuitive, and we'd be second-guessed if it failed, but in my view it was clearly the right decision."
When the settlement was announced on March 21, Schneiderman waved the victory flag. "As I've said from the start, my job is to enforce the law," he said, "and starting today, DraftKings and FanDuel will abide by it."
For the companies, it was a worthy trade: They'd stop accepting wagers from New York residents for their less active NBA, NHL and MLB contests in exchange for clearing a major hurdle with state legislators to get a DFS bill passed. "If we didn't get a settlement," Kudon says, "I don't think we'd have gotten the bill introduced in the Assembly."
Without New York, Eccles and Robins worried legislatures in other important states with entrenched gambling interests would be more likely to reject daily fantasy bills -- and, the thinking went, failure in New York might embolden prosecutors pursuing the trio of federal investigations.
"The reality is, neither company was in a position to continue to operate without New York," Kudon says. "They both needed for this to happen. When I had spoken to investors, everyone agreed on its importance -- it was less a financial thing and almost a psychological thing. They'd say, 'We won't believe this industry will survive unless New York happens.' How's that for pressure?"
But getting the bill passed was far from a certainty, and FanDuel and DraftKings had to play a political game now.
One of the bill's staunchest opponents was Batavia Downs, a harness racetrack and casino in western New York owned by the quasi-public Western Regional Off-Track Betting Corp. Over a frantic weekend in early June, FanDuel struck a $300,000 marketing agreement with Batavia Downs, a sum that caused the track's owners to flip and throw their support behind the DFS bill.
FanDuel and DraftKings enlisted retired quarterbacks Jim Kelly and Vinny Testaverde to meet legislators. An email campaign produced a windfall of more than 100,000 emails from New York residents, urging their legislators to vote for the bill. Lobbyists from every corporation with a financial stake in DraftKings or FanDuel, including Verizon and Comcast, pushed the bill. Even still, in the final 48 hours before the Assembly recessed, the bill appeared on the brink of being defeated. "It felt as if they might just kill our bill for the sport of it," Kudon says.
Just after 2 a.m. on Saturday, June 18, the DFS bill passed by a wide margin. On Aug. 3, Gov. Andrew Cuomo signed it into law. And on Monday, DraftKings and FanDuel began allowing New York residents to play again.
"Monumental," Eccles calls it. "The most important victory in daily fantasy history."
DESPITE THEIR ROUSING triumph in New York, both companies' executives continue to spend millions of dollars on multiple legal and regulatory fights. DraftKings has tried to cut costs by renegotiating contracts with vendors while reducing affiliates' bonuses. Merger talks were renewed this summer, with some investors insisting that a merger would be the best way for the cash-strapped companies to survive (and, not incidentally, the best way for investors to protect their stakes). Several industry insiders say a merger is inevitable -- after the upcoming NFL season, if not sooner -- because the sites are duplicating so many exorbitant costs.
"I think DraftKings will survive financially," says Boies, its lawyer. "I do think that the distraction and the expenses have been harmful to the company. I think it's very unfortunate the way some of this stuff has mushroomed and, in many respects, is unfair."
Meanwhile, inside their corporate offices, the two companies' top executives spent the summer devising ways to make the skill games' ecosystem less challenging and more fun despite the inevitable outcomes.
"How do you make the games less hard? There are ways to do it -- share information more broadly to take away edges that some players may have, limit the number of entries, have beginner areas," says Giancamilli, the FanDuel vice president. "If you want to play $100,000, I'm OK with it if you are doing it in just one part of my playground. There should be places in the playground for players of all skill levels -- safe spaces, safe harbors, with single-entry limits, things that make the beginner player feel comfortable and welcome."
Besides beginners' games, the sites have introduced a multitude of other safeguards against predatory play. By February, both sites banned all third-party scripting. DraftKings allows players to block others. Both sites' employees are forbidden from competing on rival sites. Both sites have limited the number of entries to 150. They have created tiered levels in their lobbies so players can avoid tangling with savvier, higher-bankrolled competitors. And they have moved even more aggressively against users' predatory behavior. (Giancamilli made a point of saying that FanDuel had slapped a one-month suspension on a high-volume, predatory player who failed to heed multiple warnings.)
"Integrity is the issue," says Peter Jennings, a champion daily fantasy player and former ESPN expert. "How do you balance the ecosystem of these top players, who are really important to the site because it gives them the volume they need, and still make it fair and fun for the other guys?" Another way is to improve transparency: FanDuel introduced "Experienced Player Indicators," and DraftKings has "Experienced Player Badges," which are affixed to the more seasoned players.
Robins says the industry is evolving, in the same way any young industry confronts, and tries to solve, its customers' most pressing concerns. Didn't Facebook manage to overcome a host of problems, from privacy issues to advertisers spamming users? "To paint all this as an Armageddon for the industry is silly," Robins says. "It's common in any emerging technology for there to be a very healthy cycle for product makers to get feedback from their customers."
Still, executives have had to tamp down the expectations of their restless investors. Some states passing DFS bills will tax the companies' revenues from their residents (New York is the highest, at 15 percent). Boies says the new taxes will probably be passed on to players, meaning the sites' rakes will likely be increased. While Robins and Eccles insist that they remain optimistic about their companies' futures and chances for profitability, the sky-high growth projections of a year ago have been shelved.
The gigantic jackpots have not been retired. For the NFL's opening week, DraftKings is hosting a $5 million guaranteed contest, with the winner getting $1 million. The entry fee is $3. But the messaging is being recast. No longer will the companies emphasize oversized checks and overnight fortunes. This fall there won't be another endless run of dueling TV ads with backward baseball cap-wearing bros fist-pumping over a sudden $1 million payday.
Robins says his biggest regret is selling daily fantasy mainly as a fast way to win big money. "We've done a lot of research, and winning money is maybe, like, reason 4 or 5 why people play," he says. "The main reasons they play are they enjoy the thrill of competition, they like doing things with their friends." The first impressions created by all those ads will take patience and money to erase. "I think we did ourselves and did the industry a disservice," Robins says. "That was a mistake. ... It made us come across more like used-car salesmen and less like we have a great luxury automobile here that you're really going to enjoy."
For his part, and perhaps not surprisingly, Eccles isn't fully signed on to Robins' mea culpa. "Unfortunately, there have always been negative consequences from it," he says of the ads, "but I don't really regret our decision. ... I feel the mistakes we've made were errors of overenthusiasm, of feeling we can get further faster. ... Maybe we tried to be too aggressive, but I feel those are ... the right mistakes to make."
In a way, fantasy sports have come full circle from the rotisserie baseball league co-invented in late 1979 by editor and author Dan Okrent. That was a season-long league, a chance to pretend to be a big league general manager and win bragging rights among a circle of pals. The money didn't matter. "Daily fantasy bears no relationship, really, to what those of us who played in our living rooms with our friends were doing 30 years ago," says Okrent, 68, who lives in the same Upper West Side apartment building as New York's attorney general. (Okrent says he nods at Schneiderman, his downstairs neighbor, in the elevator, but he insists they've never discussed the DFS legal battle.) "It's become a kind of malignant mutant version of something that began as simple and pure."
By preaching that daily fantasy, like Okrent's inaugural league, is an affordable way to have some fun, FanDuel and DraftKings are betting their futures on attracting and keeping players who will buy in to the argument that there's more than one way to measure a return on investment.
In August, FanDuel redesigned its website, game platform and marketing strategy. Its new one-word slogan is "SportsRich," a trademarked term it defines as "the experience of having all the great stuff sports has to offer."
In block letters in promotional materials, FanDuel says its customers should now expect "excitement, thrills, camaraderie and fantasy. These are all examples of what it is to be SportsRich. NOTE: None of them have anything to do with money."
Van Natta is a senior writer for ESPN and can be reached at