It hasn’t been a great past few months for DraftKings and FanDuel, but Monday brought good news for the daily fantasy sports giants.
Virginia became the first state to effectively legalize daily fantasy games on Monday after Gov. Terry McAuliffe signed legislation that creates a legal framework for the contests to operate within and separates them from state gambling laws.
The bill requires an initial payment of $50,000 and that companies like DraftKings and FanDuel keep their operating funds separate from player entry fees, The Virginian-Pilot reported. They will also be audited annually by the state and must require that participants are at least 18 years old.
Here’s a statement from Griffin Finan, director of public affairs for DraftKings:
“Today, Virginia became the first state in the nation this year to put in place a thoughtful and appropriate regulatory framework to protect the rights of fantasy players. We thank Governor McAuliffe for his leadership and advocacy and are hopeful that other states across the country will follow Virginia’s lead. We will continue to work actively to replicate this success with dozens of legislatures and are excited to continue these efforts.”
It’s a big deal for both companies. DraftKings, founded in 2011, has raised more than $400 million; FanDuel, founded in 2009, has raised more than $350 million.
Both had a surge of growth over the past few years, spending millions on advertising and attracting a swath of participants vying for lucrative prize pools.
But throughout 2015, the companies ran into trouble as regulators around the country scrutinized the legality of their business models. DraftKings also had Disney-owned ESPN back out of an agreement, while Twenty-First Century Fox, the company owned by Rupert Murdoch, marked down the company’s $160 million investment into DraftKings by a whopping 60-percent.
A growing of number of state attorneys general, including those from Texas, Hawaii, New York, Illinois and Washington, say DraftKings’ is an illegal gambling operation and have outlawed the company’s contests.
Whether or not the companies conduct “legal” contests is up for debate. At the Consumer Electronics Show in January, Dallas Mavericks owner and serial entrepreneur Mark Cuban — also an investor in a daily fantasy sports startup called Fantasy Labs — said that “you have to be an idiot” to think playing daily fantasy sports games are like sports betting or poker.
“It’s not gambling, it’s not gambling, it’s not gambling,” he repeated.
Cuban added: “The only people who think it’s gambling, as opposed to skill, are people who haven’t played or people who have other political agendas, because that’s also very important these days.”
The 57-year-old noted that Fantasy Labs is “killing it because people pay them a lot of money to do analytics for daily fantasy sports,” which gives users a chance to win millions of dollars by compiling the best lineup of players for a given game or week.
“If it was gambling like the lottery, you wouldn’t need to do that,” Cuban said of paying for a service like Fantasy Labs. “You would just play the game and take your chances.”
While fantasy sports have been around for a while, these new daily games are becoming more popular as of late. Rather than a typical season-long fantasy league that forces users to keep the same roster for months, FanDuel and DraftKings let people compile different lineups each week and pick from an array of money pools that have some serious payouts to top finishers. The companies make money by taking a small cut of each pool.
The Virginian-Pilot noted that Virginia’s new law does not use the word “daily” when referencing fantasy sports.
