Due to the rising popularity of daily fantasy sports websites, the Fantasy Sports Services industry has rapidly expanded. Increasingly popular websites, such as DraftKings and FanDuel, allow fans to create new teams each week and give users a chance to win cash prizes with every lineup. The fast-paced gameplay and weekly cash-out option has changed the landscape of fantasy sports and increased demand for fantasy services in recent years. Over the five years to 2015, industry revenue is expected to grow at an annualized rate of 10.8% to total $1.5 billion in 2015. Despite this impressive growth, the industry’s strength largely depends on a complex legislative framework surrounding online gambling.
Seasonal fantasy sports leagues are currently legal as defined in the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006. However, the legality of daily fantasy sports services, such as DraftKings and FanDuel, is in question. New Jersey Senator Bob Menendez and Congressman Frank Pallone called for the Federal Trade Commission (FTC) to review current legislation surrounding the evolving fantasy sports market and ensure that proper consumer protections and competitive practices are in place. This letter came following significant controversy surrounding the Fantasy Sports Services industry, when it was revealing that employees of major daily fantasy sports websites had access to nonpublic betting data.
This uncertain legal framework surrounding daily fantasy services could pose a threat to the industry’s future. It is unlikely that the industry as a whole will undergo significant regulatory change, but growing services such as daily fantasy websites face the greatest risk of regulatory intervention. If the industry becomes more heavily regulated, current users may be unable to collect cash payouts from daily fantasy service providers. Currently, the UIGEA maintains the legality of fantasy sports, provided that “the value of the prizes is not determined by the number of participants or the amount of fees paid”. However, daily fantasy sports services appear to contradict this guideline, because some services guarantee monetary prizes regardless of the number of participants.
IBISWorld anticipates that the industry’s influence will continue to reach into the programming blocks of major sports networks and media outlets. Media destinations, such as Yahoo and ESPN, have long incorporated traditional fantasy sports-based content and programming into their respective online platforms, but new daily fantasy services have inundated cable television through branded programming blocks and major advertising campaigns. The Cable Networks industry, which has struggled with declining viewership as a result of increased cord-cutting and new forms of online media, has aggressively pursued branded advertising to generate additional revenue. Advertising has surpassed licensing as the largest revenue generator for cable networks, and branded fantasy sports programming from services such as DraftKings and FanDuel have proven very lucrative for struggling cable networks. This business relationship has proven to be mutually beneficial for both the Cable Networks industry and the Fantasy Sports Services industry. With an increasing number of broadband and mobile internet connections making it easier for users to have constant access to their fantasy rosters, more individuals will likely participate in traditional and new daily sports services over the next five years, even if state or federal regulatory changes eliminate cash payouts from daily fantasy sports services. Over the next five years, IBISWorld projects that the industry will grow at an annualized rate of 6.7% to $2.1 billion in total revenue.