Golden rule: How FanDuel continues to lap the US online sports betting competition

Any business that manages to accumulate a market share greater than that of all its competitors put together must be doing something right. That’s exactly what FanDuel has achieved in the US in under five years; the New York-based operator has cornered a chunky 50% slice of the country’s regulated online sports betting market. “An unassailable lead in the US sportsbook market” was how a perhaps overly bullish KPMG partner described the Flutter-owned company’s position in an EGR column last month. Regardless, FanDuel isn’t lifting its foot off the gas pedal or taking anything for granted. “One of our principles at FanDuel is ‘stay hungry, stay humble’,” explains president Christian Genetski on a Teams video call from his home in Washington DC while sporting a grey tracksuit top embossed with the FanDuel logo. 

To illustrate the point, he recalls how he chatted last year to a senior internal hire who had recently moved to FanDuel from within Flutter and that the new arrival expressed his surprise at the team’s collective self-effacing demeanour. “This person said to me, ‘I came in here and you are the number one in the US, so I expected a lot of people to tell me how good they were and why they were winning, and I wouldn’t have begrudged it, but everybody spent entire meetings talking about all the plays we were leaving on the field and their frustrations at not being able to move faster’. I think it’s incumbent on the people who have been here from the beginning – from the humble beginning when it was far from certain that we would be number one – to maintain that culture for the people joining us now.”

Being top of the pile with a 50% online sports betting market share is reflected in the fact the US business, which is dominated by FanDuel and is now Flutter’s largest operating division, saw revenue climb 67% year on year (YoY) to £2.6bn in 2022. This was £900m more than the nearest rival. Meanwhile, average monthly players (AMPs) surpassed three million for the first time in the fourth quarter. The positive momentum continued into 2023 with US revenue up 92% YoY in constant currency to £908m and sportsbook revenue soaring 147% for the three months to the end of March. On top of this, more than 1.5 million customers were acquired in Q1, swelling the number of AMPs by 46% YoY to almost 3.5 million.

“We are number one now, but we don’t believe staying number one is a sufficiently aspirational goal,” Genetski reveals. “We want to be one of one. We want to be the American sportsbook of record, so when people think about having a bet, we want them to think about FanDuel first, last and always. That gives us a lot to achieve and keeps us motivated.”

On ensuring new starters at FanDuel share that hunger, he says: “We have to be honest with ourselves that it is different to come join someone who has 50% market share and having those who watch the market call it ‘an unassailable lead’. For those folks it can be a little more challenging […] we are very aware complacency could be an issue if we don’t monitor it, but I don’t worry about that too much.

We spend a lot of time looking at the next curve and thinking about where our lead could be disrupted – or how we could disrupt and extend it.” For the 44-year-old president, FanDuel today is all a far cry from where it was when he was hired in February 2015 as chief legal officer. “To remember where we were, you have to forget where we are now,” he states. 

What’s the big idea?           

FanDuel was launched back in 2009 as a North America-facing daily fantasy sports (DFS) startup based out of Edinburgh by husband-and-wife team Nigel and Lesley Eccles, alongside three other founders. Beforehand, they had been struggling to monetise their year-old free-to-play news and US election prediction site, Hubdub, so the five founders flew to Austin, Texas, in March 2009 for South by Southwest (SXSW) – an annual creative conference and festival – and kicked around ideas in a back yard, jotting down skeletal business plans on A4 paper and sticky notes pinned to the outside of a wood-panelled shed. The quintet was joined by a few hardcore Hubdub players and, at one point during the al fresco brainstorming session, the idea for a fast-paced, bite-sized version of season-long fantasy sports was pitched.

In essence, contests on major US sports for cash prizes that would only last a single day instead of taking months to complete. ‘One-night stand’ fantasy sports, as it was later dubbed. “We realised pretty quickly there was an opportunity around shortening the time it took to win your fantasy football league,” Nigel Eccles said in a 2015 interview. And so Hubdub was put on the backburner and FanDuel became the team’s core focus. While 2006’s Unlawful Internet Gaming Enforcement Act (UIGEA) forced the hasty retreat from the US of publicly listed online gambling firms such as partypoker parent company PartyGaming, which lost two-thirds of its players overnight due to UIGEA making it illegal to process payments for online gambling, a carveout permitted fantasy sports.

Fantasy sports was classed as a game of skill. Soon, numerous sites were sprouting up offering the DFS variant, although FanDuel and DraftKings (launched 2012) went on to dominate the space with a combined market share north of 90% as they raised hundreds of millions of dollars and reached unicorn status. The apex of the DFS boom saw armchair sports fans bombarded with adverts for DFS sites amid a marketing blitz, which, in turn, heaped scrutiny on the industry. Then, in November 2015, New York’s Attorney General at the time, Eric Schneiderman, issued a cease-and-desist order against FanDuel and DraftKings, accusing the pair of offering illegal gambling in the state. It was a body blow for both companies.

“We took the risk to voluntarily shut down in New York and to seek peace with the Attorney General,” Genetski recalls. “We folded our cards and took the ‘L’, for now, and we focused on the legislator. And the Attorney General was fine with us solving the issue through the legislator.”

A few months later, in June 2016, FanDuel bosses and investors breathed a huge sigh of relief when the New York Senate passed a bill permitting fantasy sports in what was the company’s second biggest market. “We pulled it out [of the bag at] 1:45 in the morning, so that was certainly a big day for the company. There was a lot of work we had to do after that point, but it gave us the lifeline we needed.” Despite the victory, FanDuel was haemorrhaging cash, not least due to the legal struggles.

To stem the bleeding, FanDuel and DraftKings announced plans to merge in November 2016, only to abort the amalgamation eight months later after an antitrust challenge by the Federal Trade Commission in the US. “We’d been through a lot of struggles getting fantasy sports as a category legally insulated in the US. Those battles had really drained the company financially,” Genetski says.

In late 2017 and early 2018, FanDuel had enlisted the services of an investment bank and was knocking on doors trying to safeguard the firm’s future. “We spent the last couple of months of 2017 and the first five months of 2018 actively trying to raise capital for the company or enter into a strategic merger or get acquired. It’s safe to say we talked to everyone in the US and around the world who had a potential interest in US igaming, about the value of FanDuel.”

Genetski says FanDuel had “potentially very valuable assets”, yet bosses doubted whether that was enough to succeed as a standalone business entrenched in a well-capitalised free-for-all that would ensue in the event of a rollout of legal sports betting should PASPA be struck down by the US Supreme Court. “We were not bullish on our chances of going it alone; we were very under-funded and lacked the capital to invest in this opportunity.” London-listed Paddy Power Betfair (PPB), as Flutter was known at the time and before its corporate rebrand in 2019, spotted the potential of FanDuel, though, particularly its DFS customer database, which stood at seven million players – 1.3 million of them active – in 2017.

FanDuel had spent a cumulative $400m on brand-building by that point and boasted real-money customers across 40 states. But despite a 40% market share of the DFS space and revenue of $124m from $1.2bn of entry fees in 2017, the business still recorded an EBITDA loss of $37m that year.

PPB already had a foothold in the US following the acquisition of parimutuel horseracing betting business TVG back in 2009 and had launched Betfair Casino when New Jersey’s regulated igaming market went live in 2013. PPB also gobbled up DFS startup DRAFT for $48m in May 2017, yet PPB still lacked the household name. Devouring FanDuel would be a real signal of intent and a smart play if the Supreme Court finally were to side with the industry in the repeal of PASPA.

On 23 May 2018, just nine days after the federal ban was indeed struck down, it was revealed that PPB was to merge its US business with FanDuel and take a controlling stake in the operation, with PPB contributing $158m in cash to pay down FanDuel’s debt and fund working capital. “I think it is credit to [Flutter CEO] Peter Jackson and the corporate development team for seeing something in the asset package FanDuel brought to the table,” Genetski comments.

Indeed, the deal combined FanDuel’s brand recognition in the US, digital marketing prowess and massive player database with the financial firepower, tech capabilities and online gambling know-how the Dublin-based PPB possessed. “Once I saw FanDuel do that deal, I knew they were going to be a major player in the market,” DraftKings co-founder and CEO Jason Robins told EGR in 2020.                      

Play to win                     

After opening the 10,000 sq ft FanDuel Sportsbook at Meadowlands Racetrack in East Rutherford, New Jersey, two months later in July 2018, FanDuel went on to roll out mobile sports wagering in the Garden State and then across the US as a wave of state-by-state legislation gradually swept the country. As of March 2023, FanDuel, which is now 95% owned by Flutter after the FTSE 100 giant snapped up a 37.2% stake from Fastball for $4.2bn in 2020, holds “gold medal” positions in 16 of 19 online betting states, with market share hovering between 41% and 59% depending on the jurisdiction. True to form, FanDuel is the runaway leader in Ohio when it comes to both handle and gross gaming revenue (GGR) since the online market launched at the turn of the year.

In fact, Ohio and Maryland’s launches (last November) were recently hailed by management as the most successful to date, with over 50% market share so far in both states. Ohio user acquisition in terms of percentage of state population for the first month was 3x that of New York (launched January 2022).

FanDuel’s sportsbook app also went live in DraftKings’ home state of Massachusetts on 10 March 2023 and, despite its rival splashing promotional spend to defend its turf and coming out ahead on handle, Flutter’s subsidiary still narrowly topped the market for GGR that month with $16.3m thanks to a 9% hold. What’s more, FanDuel’s Ohio and Massachusetts launches drove a 20% increase in total new players, delivering number one positions in both markets. “We get better in each successive state and continue to apply the lessons from previous launches,” Genetski affirms.

“We’re the number one operator. We’re the most recognised brand. When we go into a state like Massachusetts, we have a lot of users who reside in Massachusetts, have an account and have made a bet on a trip to New York or Connecticut. So, our scale gives us an advantage on day one in a new market, something the smaller-scale players don’t have.”

Another factor is the FanDuel product itself. “Product is a critical part of why we’re winning,” Genetski emphasises. “We have more markets, and we have the ability to price more competitively. We can take on liabilities because our risk function is stronger than our competitors. Our machine is finely tuned.”

Upgrades continue to play a key role in improving FanDuel Sportsbook’s UX, whether it be enhancements to navigation of the web and mobile product or, for instance, quicker bet settlements. “We have made a ton of improvements in these ‘nuts and bolts’ areas,” Genetski says. “So, we have to keep our eye on the ball while also having teams focused exclusively on innovation and the next breakthrough product that captures consumers’ attention.” He adds: “Users will always come back to the company with the strongest product.”

FanDuel Sportsbook regularly tops boutique analyst firm Eilers & Krejcik Gaming’s app testing report where bettors road test and score mobile sportsbooks on categories including UX, betting interface and aesthetics. Users have previously singled out the brand’s crisp UX, wide range of betting options and broad set of features.

With around 6,000 technologists employed across Flutter (1,000 of which are dedicated to FanDuel), which helps to shore up Flutter’s competitive moat, FanDuel can, should it warrant it, cherry pick and repurpose newly developed features built for other Flutter brands. An example would be when FanDuel took the in-play bet tracking tool for same game parlays (SGPs), otherwise known as bet builders, first introduced by sister brand Sportsbet in Australia.

“When we push out an enhancement to SGPs in Australia, we get it in the US. We have the benefit of 10 years of complicated math that Sportsbet has been doing – it’s a 10-year head start on our competition,” Genetski notes. When it comes to its market-leading SGP product, FanDuel chiefs in attendance at the firm’s Capital Markets Day in Manhattan last November told 200 analysts and investors, plus another 300 streaming the event online, that four out of five customers placed an SGP in 2022, which underlines just how popular these wagers are.  

“My colleagues from Flutter who have come to the US business have been surprised at how quickly these types of bets have resonated in a fairly immature market,” Genetski says. “We’ve certainly promoted same game parlays strongly, but we did that because our customers were telling us that they found those bets very attractive and interesting.”

Bettors love SGPs for the chance to bet small and win big, and bookmakers love these bets because they are parlays with higher – and hidden – margin than straight bets. FanDuel’s in-house-priced SGP products, which were expanded for basketball’s March Madness and offered in-play NBA betting in Q1, contributed to AMPs rising 46% YoY, Flutter said. SGPs have also helped drive FanDuel’s hold percentage; net revenue margin in Q1 was 7%, a rise of 290 basis points YoY.

It begs the question, though: is there a danger these higher-margin products impact negatively on churn rates? Genetski responds: “SGPs drive our margin positively; they increase our hold. You could be pejorative and say that feels like a more predatory bet as users are losing at a higher rate. But what we see in both their activity and what they tell us in surveys is it doesn’t have this impact.

“In fact, retention rates are high or higher among people who routinely bet SGPs. It follows how Flutter’s global brands are shifting to more recreational play […] we can have more bettors betting lower amounts on these exotic SGPs, which is also higher margin for us, but they’re betting sustainably and they’re betting recreationally. It’s good for our bottom line, so it’s been a win-win.”

One aspect of the industry where FanDuel hasn’t been able to replicate its digital sports betting dominance is igaming. Not yet at least in the five states where the brand operates: New Jersey, Pennsylvania, Michigan, West Virginia and Connecticut. However, there has been a conspicuous push the past 12-18 months to overhaul FanDuel Casino’s product, its branding, games library and cross-sell journey, reflected in a 43% and 47% YoY increase for Q1 2023 in igaming revenue and AMPs, respectively. In what is a structurally more fragmented vertical than sports betting, the firm’s GGR market share also rose 200 basis points quarter on quarter to 23% for Q1 as FanDuel chases down US igaming’s leaders: BetMGM and DraftKings (including Golden Nugget).

FanDuel draws on the competitive advantage of Flutter’s three in-house games studios and Flutter’s homegrown expertise; 100% of the SVPs and VPs at FanDuel Casino had, as of October 2022, worked in other Flutter divisions. In addition, rewards delivered in real time and the daily free spin Rewards Machine, first unleashed in Q3 2022, has materially boosted retention rates. While average monthly cross-sell rates from sportsbook to igaming stood at 41% in the trailing 12 months to June 2022, customers are increasingly acquired through casino. Direct casino acquisitions largely fuelled FanDuel’s igaming market share gains, Jackson told investors during a Q1 trading update in early April.

Unlike FanDuel’s sportsbook customers cross-sold into igaming, who are typically male, on average 36 years of age and prefer table games, those acquired through casino are a more balanced gender mix, usually aged over 40 and favour slots. This isn’t unique for the industry, though.

“We are confident the FanDuel brand resonates across all those user demographics,” Genetski asserts. “We mostly feel extremely positive about where we are going to be as the total addressable market for igaming begins to hit its stride over the next two to five years. We think we’re really well positioned to capture a very significant share.”

And with just six states offering legal online casino right now, the president stresses there is a long runway of growth ahead: “We are in the very youthful days of sports betting [but] we are in the infancy of igaming in the US.”

Strike up the brand 

In all, more than $2.5bn has been poured into marketing to promote the FanDuel brand over the past decade to get the business to where it is today. It’s an eye-popping sum and emphasises how FanDuel has been able to resonate with sports fans and corner 50% of online sports betting. In a bid to further cement the FanDuel name among American sports fans, last year Flutter rebranded horseracing network TVG to FanDuel TV and launched the first linear TV and streaming platform (FanDuel+) dedicated to sports betting content and live sports, including racing still.

“Having a linear television network in 50 million homes is a pretty unique asset,” Genetski says, while adding that the switch from TVG to FanDuel TV and “weaving in” sports wagering content and narratives to its shows was a logical move. “As the media landscape becomes more and more diversified and niche where people are looking for core audiences, we think FanDuel TV can both help bring new customers to FanDuel but also be a place where existing customers can extend their engagement with us. We think there are some unique ‘watch and wager’ opportunities and to show new interesting sports that don’t have the distribution of the major sports.”

FanDuel is in the enviable position of boasting a database of more than 14 million registered racing and DFS users, a good chunk of whom are Californians. However, legal sports betting options remain off limits in the US’ most populous state and the world’s fifth largest economy after voters there resoundingly rejected two sports betting propositions last November. Proposition 26 would have legalised wagering at California’s tribal casinos, while Proposition 27 was to allow online and mobile betting involving commercial operators. After what became the most expensive ballot measure battle in US history, Proposition 26 lost by 67% to 33% and Proposition 27 suffered an even heavier defeat as 82% of voters said no to online sports betting.

The humiliating result left the industry with a black eye. “It was certainly disappointing,” Genetski admits. “It was a valuable learning experience for us and for the commercial operators. Our proposed law would have had every licence run through a Native American tribe, but, ultimately, the largest tribes weren’t ready for sports betting. And, so, we had the most expensive opposition campaign in the history of California ballot campaigns. It’s going to be difficult to win with that sort of opposition spend. We knew it fairly early and took our foot off the gas and so the final result is a bit reflective of us not pushing until the end.”

Genetski acknowledges that it is “back to the drawing board” but that there won’t be sports betting in “60% or 70% of the country and not California”, adding “it’s a matter of when, not if”. Would the commercial operators have done anything differently in hindsight in their attempts to win voter approval? “I’ve certainly asked myself that question a lot,” he replies. “I’m comfortable with the decisions we made along the way with the information we had at our disposal at the time. I don’t think we made the wrong decision. If I had the benefit of knowing that we would see $200m in opposition spend, then, yes, we would have approached it differently.”               

FanDuel’s president believes between one and three states could realistically legalise online sports betting this year. The next launch on FanDuel’s radar is Kentucky after a bill passed on the final day of the 2023 legislative session in March. Mobile sports betting is expected to go live towards the end of 2023, and it would be no surprise if FanDuel, based on its track record, hit the front in the Bluegrass State straight out of the gate.

The group’s US arm, which also includes Fox Bet, PokerStars and TVG, is also on course to reach the psychological milestone of profitability for FY 2023, while Flutter is aiming to capitalise on FanDuel’s dominance with an additional listing, this time in the US, after receiving overwhelming approval from shareholders. This will position the group for its “next phase of growth”, Flutter said.

Upset the odds

Five years ago, amid the immediate clamour to exploit the online industry’s biggest ever greenfield opportunity, few could have predicted that DFS operator FanDuel would become so dominant. Nor that FanDuel and DraftKings would grab around three-quarters of the US online sports betting market combined. Not when well-known marquee land-based casinos and experienced European online firms were entering the fray.

“If I think back to September 2018, when the first operators were launching in New Jersey, it was certainly not considered a fait accompli that the US DFS brands were going to be the leading operators in sports betting. People would have scoffed at that,” Genetski remembers. “Someone joked that at one point there were 13 operators claiming they were going to have 20% market share.”

As well as the online gambling nous provided by the wider Flutter group, the president credits much of FanDuel’s unrivalled success to a relentless “desire to win”, a tenacity which has existed since the fiercely fought DFS era and the subsequent legal travails. “You have ‘lifers’ at FanDuel who have been through some really tough times where it wasn’t clear the company was going to make it another month. So, there is a survival instinct.”

Today, FanDuel is worth in the region of $22bn. So, it’s little wonder industry observers believe the Paddy Power Betfair deal was the shrewdest piece of business the industry has ever witnessed. “I suspect there are people who kick themselves over drinks five years on for thinking that FanDuel was a bad bet,” Genetski remarks with a wide smile. 

Seal the deal

Chris Grove, co-founding partner of Acies Investments, and Alun Bowden, senior consultant at Eilers & Krejcik Gaming, on the significance of Paddy Power Betfair’s swoop for FanDuel in May 2018

EGR: In terms of M&A, where does that deal rank?

Alun Bowden (AB): It is quite obviously one of the most value-creative deals in the sector’s history and a very shrewd bit of low-cost gambling. They could easily have been left with a loss-making DFS business for years, or a single-state sportsbook. It was an odds-against shot this would come off, as you needed legislation to pass in New Jersey, DFS sites to be allowed to play in the market, more states to open up, and you needed to execute well once those things happened. But it was a tremendous bit of business either way. It was basically a same game parlay (SGP) they bet at 100/1 when the price was no bigger than 5/1.

Chris Grove (CG): The FanDuel transaction is, without a doubt, the defining transaction of the US online gambling industry. In retrospect, it looks like the steal of the century. Price aside, the deal reflected how major European operators, in many ways, understood the future of the US online gambling opportunity more clearly than American retail casino companies.

EGR: How did FanDuel become so dominant in US online sports betting?

CG: FanDuel’s success comes down to a mix of often-discussed factors: superior product, the head start from DFS, a wider vertical mix than competitors, several years of on-the-ground experience in New Jersey, and the myriad benefits stemming from Flutter’s deep operational expertise. But the company also benefitted from a competitive field that was hampered by various challenges, including fumbled M&A integrations, inefficient partnerships, diluted focus, as well as a failure to appreciate the depth of the technological and regulatory challenges of operating online gambling in the US market.

AB: They have just executed better in all parts of the business than their competition. Along with DraftKings, they had what is perhaps even underrated, certainly by me, an acquisition funnel in DFS and had no major barriers put in place to those funded wallets by regulators, which surprised me a little. But what they had that DraftKings didn’t was deep sector expertise from within the Flutter group, most notably from the UK and Australia. They hit the ground running with both acquisition and crucially retention marketing nous as well as a good read for what a betting product should look and feel like.

But, perhaps most important of all, they were first to market with SGP and had that almost to themselves for a full year. And it’s hard to overstate just how important that was. They’ve also managed to remain ahead on product, on SGP and arguably on marketing for the whole lifecycle of the market to-date. None of this is an unassailable moat by any stretch of the imagination, but doing all of it as well as or better than them is now a really tough ask.