FanDuel got caught up in a betting scandal last year, and has been banned in many states
Daily fantasy sports companies have been in the news for the last nine months for all the wrong reasons. In October, a major betting scandal emerged and since then, numerous states, most notably New York, have launched investigations into the companies and a number have outright banned them.
At Vator Splash Spring last week, Paul Martino, Partner at Bullpen Capital, talked to Tom Griffiths, CPO and Co-founder of FanDuel, about what it was like to become part of that scandal, and how he kept the company going.
"What's it like being the founder of the company, when your laundry's on the front page of the New York Times? Tell everyone what it's like to keep the morale up, and what it's like to go through days when maybe you don't know exactly what's going to happen tomorrow," said Martino.
"We often used to have flareups of user issues, but it wouldn't go anywhere other than a few hundred or thousand people. Then, one day, one of those flareups becomes a news alert on my phone, this is when the New York Times happened. Absolutely fucking surreal. We've got TVs around office that usually show sports, and then we flip to the channel and FanDuel is there in the headlines. We were one of the top three stories for several days, and it really was surreal," he said.
"Internally, at the company, we weren't sure how things were going to pan out, but as the FanDuel team, as an experienced management team, had been through such a rollercoaster ride so far that, yes, it was a big deal, but we kept our heads, kept the team together, and kept working just to let it take its course."
The daily fantasy sports scandal
In case you aren't familiar with what happened,
New York Attorney General Eric Schneiderman launched an investigation into whether the companies committed fraud after a DraftKings employee named Ethan Haskell inadvertently admitted that he had bet on FanDuel using insider information on NFL lineups before they had been publicly posted. He won $350,000 on the site.
He sent letters to both companies, asking both of them for internal data, as well as details, on how they prevent fraud. He also asked for details on any internal investigations that the companies have done into their employees.
Both companies responded by banning their employees from playing in daily fantasy leagues, along with creating advisory boards to help them sort through legal matters.
That was not enough, however, and in his press release announcing that he was seeking an injunction to stop the two website from operating in the state altogether, Schneiderman said that both FanDuel and DraftKings were “plainly illegal” and “nothing more than a rebranding of sports betting."
A judge banned them in December, but that decision was suspended the same day. Both companies ceased operating in the state in March.
Other states have followed suit, and 15 of them currently some type of legislation to regulate, or ban, fantasy sports, including California, Florida, Michigan, New Jersey, Pennsylvania and South Carolina. Fantasy sports has also been challenged, most notably in New York, in 11 states, and there are also five states that have banned it completely: Arizona, Iowa, Louisiana, Montana and Washington.
Most recently betting on fantasy sports was banned in Idaho, though the companies are still allowed to offer free leagues in the state.
So what does this mean for the future of FanDuel? Griffiths seemed to suggest that the company would try to take advantage of the headlines, and turn that into a positive for FanDuel.
"We always said we wanted to be a household name, but I'm not sure if we pictured it happening exactly like it did, but certainly brand recognition is massive now" said Griffiths.
"As we're moving ahead to the season, we're trying to capitalize on that, making it more accessible for everybody."
Thanks to our amazing top-tier Splash Spring 2016 sponsors: KPMG, Javelin Venture Partners, SAP Startup Focus Program, Bread and Butter, Kapor Center for Social Impact, Lyft, Avison Young, Tubemogul, Wendel Rosen and Dictionary.com.
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Hubdub Ltd is a VC funded start-up based in Edinburgh and San Francisco that aims to be the world’s largest developer of premium social games for sports fans. Its main product, FanDuel, transforms traditional fantasy sports ($1bn, 30m people market) into an instant gratification daily game where users win cash prizes every day. It is played on FanDuel.com, via white label partners such as Philly.com, and in future on Facebook and mobile.