U.S. Markets close in 3 hrs 17 mins

FanDuel adds fantasy golf as it prepares to merge with DraftKings

Daniel Roberts
Senior Writer

You could say that after nearly 18 straight months in the news cycle, it’s been all quiet on the daily fantasy sports front since November, when the two leading companies in the fast-growing space, FanDuel and DraftKings, announced their intention to merge by the end of 2017. Now the companies are beginning to make some changes as they prepare to combine.

First up: FanDuel will add golf to the list of sports it offers, Yahoo Finance has learned.

This comes two months after FanDuel added English Premier League (EPL) soccer to its sports lineup. That was the first new sport it had added to its product in three years.

Taken together, EPL soccer and pro golf suggest that FanDuel is making itself look more like DraftKings in anticipation of the time when the companies will slim to one platform. (The companies have not been specific about their product plans, but once they combine, it’s highly unlikely they will keep operating two separately branded apps.)

DraftKings has long offered more sports than FanDuel: both have NFL, NBA, MLB, and NHL, but DraftKings also offers golf, mixed martial arts, Nascar, and soccer (for English Premier League, Champions League, and MLS).

In the past, FanDuel’s answer for that gap was about focusing on the sports that bring the most revenue. “When we looked at our data, we said, you know what, 80% of our revenue comes from NBA and football; it’s more important that we go deep there,” CEO Nigel Eccles said in 2015. “If [DraftKings] have 100% market share of a sport that only has 1% of the total market, hey, okay. I’d rather have 80% market share of 80% of the market.”

Jordan Spieth at the Sony Open in January 2017. (AP)

Adding DFS golf, despite legal questions

Eccles’ answer today for the “why now” of adding golf is about timing and caution. “The smaller sports… always kind of slipped to the bottom of the pile,” he tells Yahoo Finance. “We had been looking at golf for over a year. We were mindful of the regulatory environment, but now we have states passing laws and really setting the boundaries of what we can and can’t do. We think there’s a golf product we can do that would be compliant with that and be an awesome experience. We took our time on it.”

Golf Channel, owned by NBCUniversal, recently released numbers suggesting that 2016 was a banner year for the network, especially with digital streaming, and especially among millennial viewers. DFS insiders like to theorize that if golf ratings are on the rise, it’s thanks to DFS golf. So far, there has been nothing to prove that, but Eccles buys it: “I could see it driving golf,” he says. “Because now I have a reason to watch all day, because I’ve picked my team.” When DraftKings added golf back in 2015, DraftKings CEO Jason Robins told Golf Digest, “The setup is perfect for what we do. There are these four mega events every year. Everybody stops what they’re doing to pay attention to the Masters and the U.S. Open.”

But there is legal uncertainty around fantasy golf. Some experts believe DFS golf contests, in particular, may constitute illegal gambling. Why? A single PGA Tour tournament arguably would not qualify as “containing multiple events,” a condition of the Unlawful Internet Gaming Enforcement Act of 2006 (UIGEA), which DFS companies initially argued contained an implied carveout that made DFS okay. (Last year they moved away from that argument.)

Marc Edelman, an attorney and Baruch College professor who has consulted for fantasy sports companies, says DFS golf “is still a problem, from a technical legal perspective, even in New York. I think [New York regulators] are either not cognizant of the problem, or are choosing to overlook it.” Edelman adds that fantasy golf “is not as absurd under the current laws as is fantasy NASCAR. However, it is ambiguous at best as to whether a single golf tournament constitutes multiple events.”

In the past, Eccles acknowledged being wary of adding golf. He addressed the issue on a RotoGrinders thread back in 2014. “We won’t be introducing fantasy golf,” he wrote. “I think it is commercially attractive (it’s probably our next most requested sport) but I’m uncomfortable with the legality of it… To me a reasonable person would consider a golf tournament to be a single event, not multiple events. Therefore it would not fall under the UIGEA safe harbor. That does not automatically make it illegal (it may still be a game of skill under state law) but it does make it more risky.”

Clearly he’s had a change of heart. Look to the planned merger with DraftKings as the likely impetus.

And FanDuel is taking a different tack in golf than DraftKings: FanDuel players, when they enter a golf contest, will select two different group of golfers, one for rounds 1 and 2 of a tournament and one for rounds 3 and 4—perhaps an attempt to satisfy the “multiple events” concern. On DraftKings, players draft one roster of golfers for the full length of a tournament.

On the same RotoGrinders thread in 2014, Eccles also said he was wary of Nascar: “The legal status is very negative.” DraftKings offers Nascar; don’t be surprised if FanDuel adds that soon, too.

Optimism about the merger

Speaking of that merger, Eccles is optimistic that combining will allow the two companies to innovate faster, since they won’t be spending redundant money on less sexy burdens like legal costs and KYC (know your customer) compliance.

“We had had discussions on and off, probably since the start of 2015,” he says, “but it wasn’t until the start of 2016 that I sat down with Jason and said, ‘What are your biggest frustrations?’ And outside of legal and regulatory, which was our biggest, it was the fact that we just weren’t resourced to drive innovation. It was like, ‘I can see all the things I want to do this year, but then I can see the things I can do, and it was a short list. We were investing in common things between both companies, and I’m like, ‘This is crazy, we should be merging, put this together, take the best of both companies.’”

Eccles is also optimistic that regulators (it would either be the FTC or DOJ that examines it) will approve the merger, though the question may rest on whether they decide the combined company would have an unfair monopoly (it would enjoy more than 95% market share of daily fantasy sports) or if they would buy the argument FanDuel and DraftKings lawyers will make: that the companies operate in the much broader fantasy sports market, in which they are still small fish compared to ESPN and Yahoo, which have offered traditional, season-long fantasy sports for decades.

“We feel really good about it… our lawyers feel very good about it,” says Eccles. “And the way we look at it is the market is fantasy sports. The idea of actually trying to narrow down this smaller market as DFS we just think isn’t correct, it doesn’t reflect the choices our players make whenever they play on Yahoo, on ESPN, on FanDuel, or DraftKings. And the other thing we would say is the market is very dynamic. DraftKings didn’t even exist four years ago.”

It would be an understatement to say that 2016 was tumultuous for FanDuel and DraftKings. Some argue it was debilitating, as the companies could not operate in New York, one of the biggest markets, for six months. But the industry did grow by revenue just slightly, up 4% to $3.26 billion in total entry fees.

And Eccles says he sees 2016 as a “phenomenal success” when you look at new legislation: eight states passed new laws to protect and regulate fantasy sports contests. “We really invested on the legal side, we wanted to clarify the law in these states and get momentum there, so that really is where most of our effort went,” Eccles says. “On the core business side, it was a good year, but not the kind of massive growth we saw in earlier years.”

FanDuel’s golf product will start in a private, invite-only beta. Separately, to celebrate the addition of golf, FanDuel will run a “Tee-Off Classic” cross-sport promotion from January through March that includes $2 entry fee contests for NFL, NBA, and golf (once golf launches); the top 100 players in those will qualify for the grand prize: a round of golf with Pittsburgh Steelers legend Jerome Bettis.

Golf contests will go live to all users in March, ahead of The Masters in April.

Disclaimer: Yahoo offers its own daily fantasy sports product.

Daniel Roberts is a writer at Yahoo Finance, covering sports business and technology. Follow him on Twitter at @readDanwrite.

Sportsbook is our recurring sports business video series.

Read more:

Daily fantasy sports has a demographic problem

It’s official: DraftKings and FanDuel are merging

DraftKings and FanDuel CEOs: Merger is ‘much bigger than us’

Smaller daily fantasy sports startups look to challenge DraftKings, FanDuel