DraftKings No Longer the Official DFS Sponsor of ESPN

ESPN has ended its exclusive advertising deal with DraftKings, the daily fantasy sports site. The deal was signed between the two companies in June 2015, but did not come into effect until January 2016. The cancellation of the exclusive contract does not mean ESPN and DraftKings will discontinue their business relationship. It simply means the exclusive nature of the relationship ends.

Marriage Lasted 2 Months

Until the “exclusive” part of the deal was passed, ESPN sold advertisement to the main rival of DraftKings: FanDuel. In the fall of 2015, the two DFS companies’ ads saturated ESPN sports coverage. Often, advertisements for the two companies ran back-to-back.

The full details of the exclusive deal were never fully disclosed. When the original deal was signed in June, the companies released details which said the contract “makes DraftKings the official daily fantasy sports offering across ESPN’s platforms“.

That deal included “branding and promotional opportunities across multiple ESPN and DraftKings platforms including integration into digital properties and television programming.”

What Exclusivity Might Have Done for DraftKings

In retrospect, DraftKings might have wished the exclusive nature of the partnership had kicked in before the NFL season began. In the intervening months, DraftKings and FanDuel have come under scrutiny from state and federal officials, who believe DFS gaming is uncomfortably close to gambling. The companies maintain their contests are not gambling, because the UIGEA provides an exemption. Fewer appointing officials, lawmakers, and judges seem to agree as time goes by.

A certain segment of the daily fantasy sports community believes the mass influx of DFS advertisements by the two companies caused a backlash. Sports fans quickly got tired of commercials urging them to play in DFS contests, even if the commercials drove business. The problem with that plan was that fact that many public officials are also sports fans. A certain number of them seemed to be similarly offended.

Perhaps “offended” is the wrong word. Better descriptions might be “aware”, “interested”, and “alerted”. Daily fantasy sports had flown under the radar from 2009 (when FanDuel launched) and 2014-2015, when FanDuel and DraftKings began signing huge corporate sponsorship deals with Comcast, NBC Sports, ESPN, FoxSports, Major League Baseball, The NBA, and The NHL. Even many NFL, NBA, NHL, and MLB franchises signed corporate sponsorships deals with one or the other of the companies.

The Ethan Haskell Scandal

Many believe the Ethan Haskell Scandal was the reason for the added scrutiny. Haskell was a DraftKings employee who won $350,000 for placing 2nd in a FanDuel Sunday Million contest. When Haskell mistakenly uploaded “draft percentage” statistics to his Twitter account, it created the impression he had used DraftKings draft percentage stats to gain an unfair advantage on FanDuel.

Online daily fantasy sports contestants and sports fans in general expressed outrage. One histrionic gaming lawyer told the New York Times Haskell’s actions were tantamount to “insider trading”. A district attorney in Tampa, Florida suggested he would open grand jury proceeding to see if DFS companies violated Florida law. New York-based U.S. prosecutor Preet Bharara said he would open an investigation. Meanwhile, Nevada Gaming Control Board Chairman A.G. Burnett said DFS was illegal in his state. Then a variety of state attorneys general got into the debate.

The Wrath of Eric Schneiderman

Chief among those was New York Attorney General Eric Schneiderman, who said fantasy sports were illegal in New York State. He sent a cease-and-desist order to FanDuel and DraftKings, giving the companies 5 days to stop accepting payments from New Yorkers. Each company filed a lawsuit. The NY judge supported Schneiderman, but on appeal, another New York judge decided the DFS companies could continue to take payments until the decision on the appeal happens — which is probably going to be in May 2016.

The Schneiderman case led other attorney generals to take similar action. Illinois AG Lisa Madigan and Texas AG Ken Paxton each said DFS gaming was illegal in their states. Massachusetts Attorney General Maura Healey said daily fantasy sports was legal, but suggested her own set of regulations for the industry. In a sign of how far the debate had gone, Boston-based DraftKings and New York-based FanDuel (largely) praised Maura Healey for her vision.

DraftKings and FanDuel Face a Time of Troubles

Which brings us to the present. DraftKings and FanDuel are now beset with legal and political trouble. It seems that half the country’s officials want to regulate daily fantasy sports, while the other half want to ban it outright. Left in the middle, DraftKings and Fanduel must whether a wave of lawsuits and legal bans, while lobbying state and federal legislators to keep their businesses legal and profitable.

Thus, the cancellation of the ESPN/DraftKings deal is one more sign that the DFS industry has changed. It’s also the loss of a key boon DraftKings had. When it signed the deal with ESPN, it appeared as if it would have the sole presence of a DFS company on the United States’ #1 sports network. Now, that primacy is gone.

How Much to Advertise on ESPN?

ESPN’s announcement has one other drawback. While DraftKings continues to need exposure to drive signups, so does FanDuel. If both compete on ESPN for potential customers, they are twice as likely to draw more attention to themselves or draw the ire and scrutiny of officials. While ESPN’s decision is good business for itself, it is one more bad turn for the daily fantasy sports industry.