This week, New Mexico became the fifth state to legalize sports betting after the U.S. Supreme Court in May struck down PASPA, which banned states from allowing sports betting. For those keeping count, that’s six states total where sports betting is now permitted: Nevada (which always had legalized sports betting), Delaware, New Jersey, Mississippi, West Virginia, and New Mexico.
Sports betting is still illegal at the federal level, but states can now legalize on a state-by-state basis, much like the landscape with cannabis—and with daily fantasy sports.
The change in sports betting law had an instant, profound impact on DFS companies like DraftKings and FanDuel. (The latter sold to Irish betting giant PaddyPower Betfair last summer.) Both companies have raced to open sportsbook operations in states like New Jersey and Mississippi, with FanDuel launching physical betting windows, and DraftKings focusing more on online operations in the states that are allowing it.
DraftKings CEO Jason Robins sat down for a wide-ranging interview at Gillette Stadium last month to discuss how his company prepared for the change in betting law, how it’s “back to growth mode,” and his vision for where DraftKings could go next. What follows is a condensed transcript.
Yahoo Finance: When we spoke one year ago, we speculated that the Supreme Court might strike down PASPA… now it has happened. Is this a sea change for the company, or did you totally prepare for this?
DraftKings CEO Jason Robins: We totally prepared for it. I mean, it’s never exactly what you expect it will be, but this is pretty close to what we expected. We were out ahead of it. We had a very deliberate approach: We were very clearly mobile-focused, others were retail-first. I don’t know if that’s because that was easier, or more obvious, or what. But mobile is where I think almost everything, in the long run, will be.
Five or six years ago, I couldn’t imagine that sometime in the future we wouldn’t have betting. Fast forward five or 10 years, and it’s hard to imagine the betting won’t be predominantly mobile and online. So if you’re really playing the long game, that’s where you’re investing. If you’re looking for some short-term news, then it makes sense to go for whatever you can do first.
When you say you always knew you’d offer betting, how did you reconcile that during the two years when you were under harsh legal scrutiny, with states accusing you of already offering a betting product, and you were arguing you weren’t a betting company? You basically had to argue, ‘DFS is not betting and here’s why… but also if the law changes in two years, then we’ll offer betting.’
I always viewed it as we as a company would want to expand into these things. When I first started the company, we discussed this, and the thinking at the time—obviously I’m not a lawyer, so my understanding was not as sophisticated as it is now—my understanding at the time was that fantasy is classified as a game of skill, it’s legal, so our thought was, ‘Okay, this is something that, because of the way the law is classified, it’s okay.’
I mean, we were never pretending that we weren’t trying to go after that market. We were always trying to go after that market. But we thought, ‘Hey, the law classifies this as a game of skill, we don’t make the law, it’s not up to us, that’s a fact; so this is a clever way of going after this market and getting this customer, and then over time, more stuff will open up. But this is the only thing we can do now.’ So I always thought it would be an evolution, more would open up, and this [DFS] was the small thing we can do now.
My thought was that one of two things would happen. I had this conversation with my cofounders, everybody remembers this. Either more and more would open up over time and we’d be able to do products like sports betting, like poker—and I thought clearly it would be that one. Or, what almost happened: this would become illegal. But I never thought it would be declared to be illegal based on the existing law. I thought if it would become illegal, it would become illegal because a new law passed. It never occurred to me that they could try to use the existing law to go after us. My money was on the first one, but I thought even if the second one starts to materialize, by the time a law would get passed, we’ll see the writing on the wall, maybe exit, maybe do something else. But I never realized there could be this in-between… I had this idealistic view that it would be more black and white. And as it turns out, the government can kind of do whatever they want.
Are you guys in growth mode now? You just opened new offices in San Francisco and Las Vegas.
Oh, yeah. We are back to growth mode. It was a little bit of a rough go for a while. But now we are back on the rise. I’m not going to take anything for granted, but right now we’re back on the upswing.
Let’s talk about the FanDuel acquisition. What was your reaction? Now that they are owned by a much larger player, it makes them an even bigger competitor to you, right?
Yes. It combines two competitors that both had something different they were bringing to the table. In FanDuel’s case, they had a lot of the same things that we bring to the table: an existing customer base; a brand; a daily fantasy sports product. PaddyPower, prior to this, had none of those things, but they had the expertise in building and operating sports betting products; they’re publicly traded; they have a lot of cash; they had some scale already in America with their TVG business [a TV channel focused on betting] and their online casino business. So it takes two competitors and combines them into one, which, on the plus side means one less competitor; on the negative side, one big competitor that brings all that to the table. So I’m not going to sit here and pretend it doesn’t matter. I think they will probably still be our biggest competitor for the foreseeable future.
Is it strange that now we’re seeing states legalize betting in a domino effect and you’re launching products for that, but that there are still some states going after DFS?
They’re not really, anymore.
Well, there are nine states where you still don’t operate. [Alabama, Arizona, Hawaii, Idaho, Iowa, Louisiana, Montana, Nevada, Washington.]
There are two different types of states on that list. One is states that we never operated in, and the reason is because our legal position was not strong in those states, our lawyers felt. That’s five states. I guess we could get hyper-aggressive, but I think it would be a big leap to say all of a sudden that we didn’t feel comfortable operating there before, but now we do, when nothing has changed. The other four are states where, during the 2015 thing where a bunch of states came out against us, we had to pick our battles, so in some of the smaller states like Hawaii or Idaho, we decided it was smarter to strike an agreement with the A.G. where we agreed to exit the state.
We could technically enter again, but it would be tricky because we signed an agreement with the A.G. saying we wouldn’t.
Do you feel, in terms of regulation, much safer now?
Oh yeah. No question about it. Well, I didn’t really feel unsafe in the first few years. There was just a nine-month period where it felt that way, and then just because we were shell-shocked, we felt that way for a year afterwards. But I don’t know if the feeling of being safer changes how we run the business. We just don’t have the distractions, the deluge, and now we can focus on other stuff.
What is still the biggest lingering misconception about DraftKings?
I think there is still a misconception that somehow it’s all a scam, and we’re out to steal people’s money, and it’s a rigged game. I think there’s still people that believe that. I don’t think that’s amongst a big group of people, but it’s sizable enough that it matters.
When people aren’t winning, they want to come up with a story for why they’re not winning, it can’t be that they didn’t do well. What happened, unfortunately, was the media perpetuated this story that gave a very easy line of thinking to people who weren’t winning and wanted to blame others. So that’s just kind of there now. I think the media did a good job of creating that. As the old cliché goes, they do a much lesser job of clearing your name than they do of smearing it.
You have a business that is tied to the NFL. When you have ratings dipping last season, and the political talk, what’s your level of concern there?
Fantasy sports and the underlying content have a virtuous relationship. More interest in that content means more interest in fantasy. There’s no doubt about that, everybody knows that. So anything that disrupts that, for whatever reason, isn’t good for us. That’s not to say there aren’t positives going on. But if you just look at it in a vacuum, anything that disrupts interest in football is not good for us.
I think most people come to watch sports to escape, to not think about politics, to not think about the wrongs in the world. That’s not to say there’s not merit to using a platform to discuss things—there is. But when you’re talking about things that are entertainment and are escapist by nature, there has to be a focus on just the entertainment. The more we can get back to that, the better it is for us, for the league, for the networks. I think if there’s less interest in the sport, that would concern me, but if people are just consuming content in different ways, that doesn’t concern me. If anything, that helps us.
And who knows what the future holds, right? Amazon is showing 10 NFL games this season. Maybe, in a decade, DraftKings ends up showing NFL games?
Totally. That’s actually what we want to do. That’s hopefully where we’ll get to. That’s the goal. I think we have the customer, we have the wallet, we have a lot of the ingredients to make that a success.
I don’t think this is rocket science: I think media and betting will converge. There are so many synergies. The natural market forces should make media and sports betting converge. There are other blocking factors that could get in the way, but if you just left it up to market forces, that is what would happen.