This was a problem for Kudon, because bets placed from living-room couches are exactly what his clients need to survive. Kudon argued that gamblers were already betting from their couches, but doing so on illegal websites. And the state was missing out on its cut.
DraftKings and FanDuel, whose valuations are both estimated to exceed $1 billion, were founded on the same idea: curate a limitless number of fantasy leagues for profit, generated by participation fees, and let customers choose new players every day. For many fans, watching games quickly became the equivalent of monitoring their investment portfolios, except the investments were bets on individual players. Eric Schneiderman, New York’s attorney general at the time, thought that sounded a lot like gambling.
Games of skill are legal in every state; you can pay to participate in fishing or bowling competitions, for example, and win cash prizes. What you can’t do is bet on who you think will win those competitions. The fantasy sites argued, somewhat tenuously, that constructing a winning team is more like fishing than knowing who is good at fishing. Schneiderman disagreed. In 2015, he shut down both sites and fined the companies. At that point, DraftKings and FanDuel began working to get bills passed in state legislatures that would certify fantasy sports as legal.
Soon after, Leonsis bought part of DraftKings. He tends to characterize troubled companies in one of two ways — as either “falling angels,” which eventually rise again, or as “falling knives,” which don’t. In DraftKings, he saw a falling angel. He anticipated that digital sports betting would become legal, and he agreed with Jason Robins, the DraftKings chief executive, that the gaming-industry giants everyone assumed would dominate the U.S. market — the English bookmaker William Hill or maybe Bally’s or Caesars — were actually at a disadvantage. “We have a big database of customers that we know from research are already betting on sports, mostly with black-market websites,” Robins says. “And we have a brand that is much more identified with winning money and betting on sports than any of them that we’re competing with.”
Last summer, DraftKings partnered with a casino, as New Jersey’s law requires, and became the first company to begin taking digital bets. Since then, it has done more online business than any other bookmaker. Its ads blanket cable networks in New Jersey. “Get ready for thousands of ways to bet!” they shout — and they’re not exaggerating. One DraftKings executive estimates that the company’s app averages 45,000 to 55,000 different propositions for gamblers to consider every day.
But sports gambling laws enacted in most other states have restricted digital activity. Mississippi allows it, but only if the gamblers are physically inside a casino. Delaware’s law has not yet allowed any digital betting at all. Some casinos plan to leverage their brands online, but many regard digital gambling as a threat. “We have hundreds of millions of dollars invested in our casinos,” says Dan Kehl, the chief executive of Elite Casino Resorts, whose family has been in the gambling business in Iowa since 1990.
Kehl backs a bill that would require anyone who wants to bet on sports to first register at one of Iowa’s 19 casinos. That wouldn’t work in larger states, he acknowledges, but no one in Iowa is more than an hour’s drive from a casino. Registered gamblers could bet digitally, though on only a limited selection of propositions. “The question is, how far can we let the mobile go?” Kehl says. That troubles Leonsis, not just because DraftKings might not get the right to operate profitably there, but because nobody will. If gamblers betting on illegal sites can’t be persuaded to bet legally, much of the windfall that investors and politicians like Terry Link are anticipating won’t materialize. It’s not enough that states pass laws legalizing sports betting, Leonsis explains; they have to pass the right law. “The only way that gambling doesn’t work,” he says, “is if the revenue projections are off. If it turns out that all those estimates we hear are wildly inaccurate.”