FanDuel's co-founder and Chief Product Officer Tom Griffiths says the daily fantasy sports game company's legal problems, and those of its competitor DraftKings, could be behind them.
In an interview with Newsweek's Kevin Maney on Monday night at New York University — part of NYU and the magazine's "Founders Unplugged" live-stream series — Griffiths said he applauds state regulations that keep him in business. “There’s nearly 30 states with bills or legislation introduced that clarify the situation,” he said. Griffiths spoke cheerfully about a law signed by Virginia’s governor that makes daily fantasy sports legal, and says Indiana and Massachusetts will soon follow suit.
“Certain parts of the legal case in New York have been settled," he said, "... and there’s the possibility to produce some legislation." "If you’re a disruptive company," Griffiths added, "… you will eventually run into some sort of regulation issues."
FanDuel and DraftKings say they offer participation in games of skill, while some states say they are gambling sites that should be regulated. Both are extremely popular and lucrative, giving huge payouts for daily picks in football, baseball and basketball. FanDuel says more than a million people play daily. FanDuel has a deal with the NBA, and DraftKings signed one with the NFL Players Association. Both buy huge amounts of ads on sports programs and have made big buys in stadiums for lounges and banners. The only thing that seems to be holding them back: whether what they're doing is legal or fair.
Griffiths talked about FanDuel's creation at the Newsweek event. He was in Edinburgh, Scotland, when he met his eventual partners. They were into the web, and into starting companies, so they tried their hand. Their first effort, Groopit, a mobile social meetup tool, didn’t work. Griffiths says he learned a lot from the experience, namely, that you need to move fast. “If you aren’t embarrassed about your first effort, you’ve waited too long,” he said, quoting LinkedIn’s Reid Hoffman.
His second move, HubDub, a prediction market, also didn’t take off. Griffiths and company spent more time on the business model this time, but it also didn’t work, partially he says, because it was 2008 and Lehman Brothers had just collapsed.
But his team was undeterred. On a pivotal South by Southwest trip, they had an epiphany: a pivot to fantasy sports. "This was a very disciplined process where we came up with a business that would work," Griffiths said.
As the team focused on their new effort, they saw some glaring problems with fantasy sports. It was too easy to lose attention. If you fall behind or have key injuries on your team, you can lose ground rapidly and drop out of your league. Daily games don't have that problem.
The decision to make it a pay game was motivated by money; Griffiths wanted to get big returns for his investors. Payments also wouldn’t leave them dependent on ads. It also seemed to make the game more interesting.
Griffiths was aware of a 2006 law banning all internet gambling, but it left an exception for fantasy sports sites, which back then were small. FanDuel and DraftKings changed that. The former arrived in 2009, saying its game was one of skill and therefore couldn’t be regulated like gambling.
It’s an argument that courts and state attorneys general have sometimes accepted, but the claim came under more scrutiny when news organizations reported how a DraftKings employee won $350,000 on FanDuel in one week. Both sites eventually banned their employees from participating on either site. Since then, Hawaii, New York, Illinois, Texas, and Nevada have all tried to stop the sites from operating.
Although both websites denied it was possible, employees of one company who have access to their site's trading numbers theoretically have a huge advantage on the other platform. The news was enough for New York Attorney General Eric Schneiderman to launch an inquiry and seemed to start the backlash against daily fantasy sites.
WATCH THE ENTIRE CONVERSATION HERE.