Irreconcilable Differences
DraftKings and FanDuel have split from the American Gaming Association. The divorce stems from their entry into prediction markets.
The Bulletin Board
THE LEDE: Three big questions after DK and FD sever ties with AGA.
ROUNDUP: NJ micro-bet ban is still on; Fanatics exploring prediction markets; College hoopster admits to point-shaving.
NEWS: Demo for poker-themed skill game, Hands of Victory, is available.
VIEWS: Affiliates and prediction markets.
AROUND the WATERCOOLER: Here come the NBA props.
STRAY THOUGHTS: This is an evidence-based newsletter.
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The Lede: 3 Looming Questions After DK and FD Exit the AGA
As they prepare to enter the prediction market space, DraftKings and FanDuel have withdrawn from the American Gaming Association, as the two online-focused companies and the AGA’s wider membership are irreconcilably divided over the issue.
The writing was on the wall after DraftKings and FanDuel announced they would soon offer sports contracts via prediction markets. The popular view was that DraftKings and FanDuel represented the mainstream industry’s embrace of prediction markets, but what most people missed was that this was a sign that the two entities were still happy to remain outside the mainstream and willing to ‘cut the line,’ as I’ve put it. Something about leopards and spots, as they return to their disruptive roots.
That became evident when talks in California began to strain in April at the Indian Gaming Association tradeshow.
Unlike tribal and commercial land-based gambling operators, the two online-first companies don’t believe they have the luxury of time, as they continue to see the online domain encroached on by outsiders: first DFS 2.0, then sweepstakes, and now prediction markets. They called out the first two for cutting the line, but have decided to sidle up next to the third for a spot closer to the door.
As I said when FanDuel joined DraftKings in announcing it would soon offer sports contracts through prediction markets in states that have yet to legalize sports betting: There’s no going back from this decision.
As I said in my newsletter titled, The Scorched Earth Approach:
“Despite saying they don’t see prediction markets as a threat, both DraftKings and FanDuel are taking a very big risk by going against the wishes of state gambling regulators, so there must be some there there — or the companies simply felt they don’t have a choice given the legal and regulatory (federally) landscape. Still, it’s hard to envision how the decision to dismiss state regulators gets unraveled down the road; there’s no going back.”
“I don’t know precisely what recourse states will have, but what happens next could make the tension between Barstool and state regulators look like Ward and June Cleaver’s marriage.”
“I just don’t see how this can be spun to tribes. And I don’t think tribes will be willing to pull up another seat at the table if commercial operators come sniffing around to legalize sports betting or online casinos.”
The reason I believed that this was a decision they couldn’t walk back wasn’t the decision itself, but the knock-on effects, and we are already hearing about strained tribal relations (I’m hearing more privately) and now the AGA breakup.
That puts DraftKings and FanDuel in a precarious situation. If prediction markets don’t win in court, they will have a hard time rejoining the ‘mainstream.’ This is a bold gambit that will either cement their place atop the US online gambling market, or, as Discerning Capital’s Davis Catlin jokingly (but not entirely jokingly) put it:
What About Legalization Efforts?
As Dustin Gouker rightly noted, DraftKings and FanDuel lobby for online gambling expansion through the Sports Betting Alliance (SBA): “All of the lobbying for online sports betting by FanDuel and DraftKings takes place via the Sports Betting Alliance, so a split with the AGA likely won’t hinder efforts in the states that have not yet legalized.”
But here’s the problem their departure from the AGA creates: DraftKings and FanDuel will be pre-seeding states through prediction markets, which will not go over well with MGM, Caesars, and other sports betting operators. That means two coalitions fighting over mobile sports betting policy in states that are already proving to be difficult nuts to crack.
And on the online casino front, there is already a split between casino companies that want online gambling and those that don’t. Now there will be a split between those who want online gambling tethered to land-based casinos and those who don’t, because FanDuel and DraftKings are suddenly on the outside looking in. When it comes to political clout in statehouses, land-based casinos and tribes have a lot more than online operators.
One of the things I’ve learned in this industry is that nothing coalesces opposition more than stopping a single, or in this case, a pair of opponents.
What Happens to the Sports Betting Alliance?
And speaking of the SBA, a secondary question is, what happens to its membership? DraftKings and FanDuel are already the most influential members, so I wonder how long non-prediction-market companies can continue advocating for the same policies that DraftKings and FanDuel will push for? The overarching question is, will the SBA evolve into a prediction-friendly bloc or splinter apart?
What About the AGA?
And the final question is, what is next for the AGA? Big tents certainly have benefits, but they can also cause issues. The AGA has done a masterful job over the last decade-plus of changing the perception of gambling from vice to entertainment and from societal drain to economic driver. Still, that argument is proving more challenging to make online, and when some of your membership is push, push, push, and some are for slowing down, the messaging can get a little garbled.
I can see the AGA refocusing on its core priorities after the DraftKings-FanDuel breakup, emphasizing its advocacy for land-based casinos, combating illegal gambling, and a more unified front in pushing for responsible gaming standards that don’t blur the lines with unregulated or quasi-gambling products like prediction markets.
It’s a return to roots for an organization that, post-PASPA, had to broaden its tent to include the digital upstarts. Still, if the goal is cohesion over size, this breakup could ultimately strengthen the AGA’s position as the steadfast guardian of traditional gaming interests.
In the end, this split underscores a fundamental divide in the gambling world: the patient, relationship-driven approach of land-based operators versus the aggressive, tech-fueled sprint of online giants.
Roundup: NJ Micro-Bet Ban; Fanatics Exploring Prediction Markets; Point-Shaving Admission
New Jersey lawmaker will push forward with micro-betting ban [Covers.com]: As STTP suspected, the restrictions put in place by MLB (and proposed by other leagues) are not enough for some lawmakers: “At this time I have no intention of abandoning efforts to curtail micro-bets and prop bets in NJ,” Democratic Sen. Paul Moriarty told Covers in a statement on Friday. “Proposals by sports leagues to cap these wagers, in my opinion, do not address the addictive nature of these types of bets, nor does it adequately address the incentives for cheating.”
Fanatics is exploring prediction market opportunities [Sports Business Journal]: “Fanatics is in ‘talks to partner with Crypto.com on a push into the fast-growing prediction markets sector in which customers bet on sports, politics, and pop culture.’ The move would give US-based Fanatics ‘exposure to a sector whose popularity has exploded in the past year, with firms such as Polymarket and Kalshi growing rapidly and commanding high valuations. Sources said that the plans for a prediction market partnership between Fanatics and Singapore-based Crypto.com are in early stages and could still change.”
Former college basketball player admits to point-shaving [Associated Press]: “Former University of New Orleans guard Dae Dae Hunter said on ABC’s ‘Good Morning America’ that he participated in point-shaving.” Hunter told GMA, “I did go out there and not do my best: basically, shooting the ball and not actually trying to make it. I just had a child. The school wasn’t paying me, so I was trying to get money to actually take care of my child.”
News: Say Hello to Hands of Victory
Aftermath’s Kim Lund, a frequent guest of the podcast, has been toiling away on a skill-based poker game called Hands of Victory for several years, and that hard work and patience are finally paying off, as a Steam demo of the game has been released:
STTP spoke to Lund after the demo was released to get his thoughts on what separates Hands of Victory from other poker games:
“The industry’s approach to poker this past decade has been to simplify it. With Hands of Victory, we’ve gone in the opposite direction and fully embraced it as a game of skill. By drawing inspiration from other video-game genres, we’ve revitalized gameplay, discovered new ways to monetize, and created a poker-based game that will pass most skill gaming tests.”
Lund also noted that Hands of Victory is available as a free-to-play or real-money game:
“Hands of Victory pushes the hybridization of free-to-play and real-money gaming further than anything else on the market. As a F2P title, it can grow and be enjoyed globally by the masses, and as a recognized real-money skill game, we’ll be seeking partnerships through which we can make it accessible in select markets such as the US. Our reusable model combines the accessibility and discoverability of F2P with the long-tail monetization and high-intensity gameplay of real-money competitions.”
You can listen to my conversations with Kim by clicking the links below:
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News: The Affiliate Angle of Prediction Markets
With FanDuel and DraftKings about to explode the marketing spend of prediction markets, affiliates are licking their chops.
“It [prediction market] is, of course, a very big theme right now and clearly a win-win for us,” Better Collective co-founder and CEO Jesper Søgaard said during the company’s recent earnings call.
Søgaard went on to say the company is familiar with the product thanks to its European business, and “from a US sports industry perspective, the growing attention around Prediction Markets underlines a very strong underlying demand for bet-type products.” He also believes, like others have said (STTP disagrees), that it could accelerate legalization efforts.
Søgaard also noted that Better Collective is already working with prediction markets, although he said the specifics of the deals are not something BC comments on:
“We already work with the key players in Prediction Markets and monetize traffic in states where online sports betting is still not regulated. If Prediction Markets help accelerate the regulation of online sports betting, we benefit from that as well. Regardless of which way the market develops, we are in a strong strategic position to capture value on both sides.”
As Pierre Blanchet said on LinkedIn, gambling affiliates are getting into the prediction market space.
Blanchet went on to say, “And they should. Some went incredibly hard on sweepstakes, but with Prediction Markets, the opportunities are wide. For a few reasons,” which he listed as the benefits of having a diverse portfolio, the numerous players getting into the market, and the nascent nature of the product.
However, as some in the comments noted (and as Davis Catlin of Discerning Capital noted on an upcoming podcast), the CPAs affiliates will receive far below what they receive from traditional sportsbooks. As Catlin noted:
“My guess is that their [sportsbooks] gross profit paybacks on their marketing spending today are somewhere between 18 to 24 months… if they spend a million dollars this month, you know, the players churn and all these things, and that’s where they get to.”
Catlin and I then estimate the customer acquisition cost to be $300 on the low end, with sportsbooks having a structural hold of 10%.
Catlin went on to give prediction markets the benefit of the doubt, with a ‘hold’ of 1% (Catlin believes it is lower):
“So if I just told you that DraftKings is paying off in 18 months… if you make 10% margins on how they bet, you pay off in two years… So even if you just say it’s the same as DraftKings and they’re just as good, you’re spending $300 to get a player in to make a 1% — if we’re being very generous — hold. Which means that you’re getting one 10th of the payback on that same $300, which means your paybacks aren’t two years, they are 20.”
Around the Watercooler
Social media conversations, rumors, and gossip.
NBA prop bets have officially launched on Kalshi:
As Dustin Gouker noted in the Event Horizon newsletter:
“At the start, users will be able to bet on points, assists, rebounds, and three-pointers.
“The number of markets available is fairly limited, with five players the most offered for a single game (Golden State Warriors vs. Orlando Magic).”
Stray Thoughts
“The four most dangerous words in investing are, it’s different this time.” — Sir John Templeton