Part of the discussion around daily fantasy sports and the bills to regulate that space has revolved around the professional sports leagues that have ownership interests in DFS companies like DraftKings and FanDuel. Well, that may no longer be the case with MLB and the NBA, which ESPN’s Darren Rovell and David Purdum report are discussing divesting from their respective equity positions in those companies:
Major League Baseball and the NBA are in discussions to divest their financial interests in daily fantasy sports, but plan to remain partners with DraftKings and FanDuel, respectively, league sources told ESPN on Thursday.
Major League Baseball had been an investor in DraftKings since 2013, and in 2015 signed a multi-year sponsorship deal that made DraftKings the “Official Daily Fantasy Game” of MLB. The NBA took an ownership stake in FanDuel in Nov. 2014. The financial details of the deals were not disclosed nor were the exit terms.
“This space is evolving and we saw the need to take a fresh look at the structure of our relationship,” NBA spokesman Mike Bass said. “FanDuel has been, and will remain, a great partner. We have simply modified some of the components of our partnership.”
In a statement to ESPN, MLB said, “While we have initiated discussions regarding potential changes to the structure of our relationship, we look forward to continuing our valued partnership with DraftKings. MLB and DraftKings will continue to collaborate on innovative approaches to enhance the fan experience.”
Purdum also tweeted statements from FanDuel and DraftKings:
FanDuel on changing relationship with NBA: "FanDuel and the NBA will remain close commercial partners.”
— David Payne Purdum (@DavidPurdum) April 19, 2018
Statement from DraftKings regarding relationship with Major League Baseball: pic.twitter.com/4TfzVWZlJn
— David Payne Purdum (@DavidPurdum) April 19, 2018
This might make some sense on a regulatory level and on a perception level. As per LegalSportsReport.com, daily fantasy has been specifically legalized and regulated in many U.S. states, but there are still plenty of states where legislation either has failed or is still pending. And having leagues that are part of these companies’ products with ownership stakes in the company certainly can raise some questions for legislators and others. As that ESPN piece notes, MLB and the NBA have been lobbying in many of the states where daily fantasy has not yet been fully legalized, and questions have been raised about their ownership stakes.
It’s reasonably improbable that MLB or NBA teams or players would purposefully perform below their capabilities simply because the league as a whole has an ownership interest in a daily fantasy company, as there are so many incentives in the other direction, but many have questioned those leagues’ involvement with daily fantasy given their generally harder-line stances on specific gambling wagers. The argument about if daily fantasy is a form of gambling and should be regulated as such is a complicated one that different jurisdictions have considered differently, but some have certainly made that connection, and there are some logical reasons for MLB and the NBA to no longer have ownership stakes in daily fantasy companies.
There hasn’t been any clear proof of actual influence on U.S.-based sporting events from daily fantasy games, but league ownerships imply endorsement on a level beyond advertising partnerships. And it’s notable that we’ve seen some pullback from daily fantasy before, such as Disney deciding not to invest in DraftKings after all in 2015, ESPN’s 2015 move to remove some sponsored content, ESPN’s 2016 termination of their exclusive ad deal with DraftKings, and the 2015-2016 drops in ad spending for FanDuel and DraftKings (96.5 percent and 70.8 percent respectively). ESPN, and their personalities, have done some more recent things with daily fantasy, like the 2017 series of FanDuel social video ads with Adam Schefter, but daily fantasy occupies a much less prominent place in the sports media landscape than it did a few years back. And it appears that leagues are now following suit with that.
This isn’t necessarily much of a concern for anyone if there are buyers willing to pay a decent price for these leagues’ interests. But that’s a key if. While the daily fantasy landscape is clearer now than when these leagues initially invested in terms of regulation, there are also plenty of regulatory hurdles remaining, and there are plenty of people dubious if it will actually ever hit the levels of widespread acceptance many once proclaimed were coming. Now, that won’t necessarily stop MLB or the NBA from divesting, but it might mean they take a bit of a hit in the process. And that’s not a huge deal for leagues of that size with that much revenue, but it is something to consider.
It’s also going to be interesting to see what this means for the daily fantasy companies. If other buyers are found willing to pay a significant price for the leagues’ equity, great. But if not, that might make their valuations seem rather inaccurate. And maybe a lack of league ownership will make regulatory approval easier, but maybe it will lead to less people backing these companies; after all, MLB and the NBA are pretty good people to be in business with, and their exit might be seen as a concerning sign by some. We’ll see how it all plays out, but this is certainly a notable change for the daily fantasy landscape.