Consequences And Repercussions

Tactical errors and blunders could cause a significant backlash against DraftKings and the industry as a whole.

DraftKings’ surcharge lasted less than two weeks, but the fallout could have a much longer shelf-life and is the latest in a growing list of adverse outcomes and poor decisions.

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As an owner of multiple businesses, I understand the desire to run ideas up the flagpole and the need to accept a certain amount of risk to reap the rewards.

At the martial arts school, we’ve tried adding several new or specialty classes, tried different classes at different times, and tinkered with how we separate classes by age/experience.

Something we always ask before considering a change: How easily can we undo this?

Take two of the changes I mentioned above: adding a new class or changing the way a class is structured (age/rank). One is easy to unwind; we’re going to drop that class. The other is a nuisance for all involved; remember that class time we changed that you adjusted your life schedule to? Well, we’re shifting it back.

Basically, for a martial arts school, changing the makeup of an existing class is much riskier than trying a new class. One can come and go without overly upsetting anyone; the other will annoy people twice.

As it demonstrated, it was easy for DraftKings to walk back its surcharge plans. It gave itself a long lead-in time and figured (correctly) that customers would be happy if the surcharge went away.

What DraftKings may not have considered are the lingering effects and the possibility that the damage was done the moment it was announced. Additionally, they’ve set a precedent that if they enact a policy customers don’t like, they will fold if pressure mounts.

How people react to an announced change and later to its retraction is an important consideration whenever a business contemplates something like an added cost. As I previously wrote, even if you roll it back, you might be left with all the bad publicity and no financial gains.

If we announce a new class and then 13 days later say, “Sorry to the few people who registered, there isn’t enough interest to launch the class.” Three of our customers are mildly disappointed but understand the decision.

On the other hand, if we told all of our martial arts students we are increasing dues at the beginning of the year, some might leave before the dues increase. Even if we later announce dues won’t increase, it’s too late. We’ve already planted the bug in people’s heads, and something they probably weren’t thinking about (dues could go up at any time) is now on their radar. They may also start wondering why we were considering raising dues in the first place.

It’s important to note that the DraftKings surcharge news was confined mainly to the industry and Gambling Twitter. Most of its customers are likely unaware a surcharge was announced or retracted.

However, gambling media has an excellent memory, and the 13-day surcharge era will be referenced whenever DraftKings (or a competitor) implements its next customer-unfriendly policy.

As the Wells Fargo team noted, DraftKings may have just invited more investor skepticism and might have to embark on an “apology tour” to appease customers and investors. The latter is likely having second thoughts as the announcement and quick retraction give the appearance that DraftKings is flying by the seat of its pants.

And then there are the regulators. As Eilers & Krejcik Gaming (a newsletter sponsor) noted, FanDuel and others were wise “to avoid the potential backlash from customers and, perhaps more importantly, policymakers, who we suspect would not have looked kindly on any attempts to skirt paying taxes.”

Blunders, Unforced Errors, and Appropriate Risks