How the daily fantasy sports industry was born

The explosion of daily fantasy sports almost didn’t happen.

Nowadays, fans can hardly turn on a football game or check a baseball score on their phone without being offered the chance to win big money via FanDuel or DraftKings, companies now valued at more than $1 billion apiece.

{mosads}But if not for the insertion of five seemingly innocuous paragraphs into a bill that itself was tenuously tucked into unrelated legislation nearly a decade ago, the practice of putting down money behind a virtual team on any given Sunday (or any other day, for that matter), would likely be subject to the law that blocks institutions from accepting money from online gambling.

Nine years later, as the burgeoning daily fantasy sports industry comes under fresh scrutiny from Washington, many of the people involved with the 2006 “carve-out” that paved its way say they had no idea it would create
such a windfall.

“It seemed to be a fairly benign way of increasing interest. … It just didn’t seem to be a particularly scary prospect,” said one person familiar with the 2006 discussions. “I never heard
anyone really focus on, ‘Jeez, [they’re going to make] a bundle of money out of
this thing.’”

According to multiple accounts, Major League Baseball was the driving force behind the fantasy sports exemption to the Unlawful Internet Gambling Enforcement Act (UIGEA), which blocks many types of online gambling. Under the provision, the law doesn’t cover fantasy sports if the outcome is dependent on the player’s skill.

Representatives of Major League Baseball declined to speak on the record for this story. But two people familiar with the discussions said the MLB was the one to broach the idea during talks with the National Football League, the National Basketball Association and the National Hockey League.

None of the other leagues objected, according to the accounts, and the MLB moved forward with advocating for the carve-out. Some have said the provision was seen as a way to foster interest in pro baseball at a time when its popularity was flagging. But those involved thought little of it at the time.

“It almost was not discussed,” said one person familiar with the discussions.

The decision to include the carve-out language came in a delicate moment for the bill, which had failed to gain traction in years prior to its eventual passage.

In order to get the bill through the Senate, the measure was placed into an unrelated conference report — meaning a single lawmaker could have derailed it. A person familiar with the discussions said the professional leagues advocating for the bill could have risked its future by getting into a fight related to fantasy sports.

“Between the experience of what happened to the House bill before and after the August break, and knowing what the exposure was under the Senate rules, unless there was a very serious reason to pick a fight with somebody about this, there was no point in picking the fight,” said the person familiar with the discussions.

The NFL, which was perhaps the strongest advocate among the leagues for the overall bill, did not lobby for the carve-out, according to a person familiar with the discussions.

“Not ever. It was acquiescence, not support,” said the person, when asked whether someone from the NFL had expressed support for the carve-out.

Former Rep. James Leach (R-Iowa), a sponsor of the bill in the House, said he does not recall having direct contact with the MLB. At the time, he said, the fantasy sports exemption was not considered a particularly contentious item, but one necessary to assuring support among some lawmakers who favored it.

“It was considered one of these de minimis issues, that’s all I recall,” he said. “And I remember people shaking their heads and saying, ‘This is so trivial, and yet this’ll open up the whole bill, and let’s swallow it now,’ — [that] kind of
attitude.”

But he also said that nobody had envisaged the creation of daily fantasy sites in 2006.

“No, there was absolutely no sense of that,” he insisted. “And to the degree there was a fantasy sport, it was all about the outcome at the end of the year or something. No, the daily thing, no one had ever conceived of it.”

Some of those familiar with the effort around the 2006 bill argue that the leagues had no idea that the carve-out would birth a multibillion-dollar industry — and one from which they would benefit directly.

“I never heard any discussion of it,” said another person familiar with the discussions around the 2006 bill. “And I think within the industry, if there had been discussion of it, [it] wouldn’t have taken nine years, or eight and a half years, to become the leading advertiser on NFL games.”

The MLB is an investor in DraftKings, which was valued earlier this year at more than $1 billion, as is Major League Soccer and the NHL. The NBA has an equity stake in rival service FanDuel, also valued at over $1 billion.

The relationship between the leagues and the websites, and the overall rise of the services, has attracted congressional critics. Last week, Rep. Frank Pallone Jr. (D-N.J.), ranking member of the House Energy and Commerce Committee, called for the panel to hold a hearing on the issue. Energy and Commerce Committee Chairman Frank Upton (R-Mich.) has said it’s likely the panel will hold a hearing, though it will not take place in the “short-term.”