FanDuel Business Model | How Does FanDuel Make Money?

Once upon a time, sports were the seasonal fixation of a select group of guys gathered around the television screen. 

While that is still true to some extent, technology has enabled even the most unlikely fans to experience the excitement of competition. 

Women, men, teenagers, and grandparents all participate in what the world refers to as fantasy sports. 

This industry earns hundreds of millions of dollars each year due to a loophole in the law prohibiting gambling. 

While numerous fantasy sports websites are available, two entrepreneurs have taken advantage of the growing number of sports enthusiasts looking for a quick and straightforward method to join fantasy leagues by launching short-term fantasy sports. 

Continue reading to learn more about Fanduel and the Fanduel Business Model.

What is Fantasy Sports?

Fantasy sports are most likely familiar to you, but do you know what they are? Fantasy sports do not involve leprechauns or rainbows, as popular belief holds. 

Users create fantasy sports teams using professional athletes from football or basketball. 

It is possible to find players from established leagues such as the NFL, NBA, NHL, MBA, and collegiate teams. 

Fantasy baseball and fantasy football are two of the most popular sports in the United States today.

Users can choose their teams and compete against others for a specified time, whether that’s a single day or a whole season. 

Team members earn points for specific performance indicators, such as tackles in football or bodychecks in hockey. 

The operator offers both private and public fantasy sports leagues, in which players compete against friends or strangers, depending on the points they earned. 

Users can also trade players for an improved league stat and select players for their teams.

What is FanDuel?

FanDuel is a daily fantasy sports platform that offers sports betting and online casino products as well. Products such as these are offered in states where gambling is legal.

FanDuel earns money through competitions, inactivity fees, and sports betting, and gambling.

FanDuel was founded in 2009 and has become one of the most popular fantasy sports and sports betting sites. 

Flutter Entertainment (previously known as Paddy Power Betfair Plc) acquired the company in 2018.

Flutter Entertainment, a holding firm, owns FanDuel. It raised numerous funding rounds, including an $11 million Series C round in 2013 and a $275 million Series E financing in 2015. 

FanDuel became a tech unicorn, which is defined as a company worth more than $1 billion.

How Does FanDuel Work?

FanDuel is a platform for daily fantasy sports and sports betting. Players select teams of players who accumulate points throughout the season in a fantasy sports league.

The number of touchdowns, yards, block attempts and tackles are among the various performance criteria in a football league.

The player whose team had accumulated the most points during the season would win the league.

FanDuel goes one step further with their daily fantasy sports offering. A user can select teams based on their performance on a particular game day.

Thousands of users compete in a variety of tournaments on the platform for cash prizes. For example, the price of a house can easily exceed a million dollars. Participants can enter competitions for free or for a fee of up to $10,000 per competition.

Daily fantasy leagues are available in a variety of sports, including basketball (NBA), football  (NBA), ice hockey (NHL), and baseball (MLB).

Additionally, FanDuel users can wager on sporting events via its Sportsbook app) or play online casino games like blackjack through its FanDuel Casino app.

A user can access FanDuel’s platform by visiting its website or downloading its apps for Android and iOS.

How Does FanDuel Make Money?

FanDuel earns revenue by charging money from users to enter competitions, inactivity fees, and sports betting and gambling.

Eilers & Krejcik Gaming’s Adam Krejcik report shows that FanDuel spends roughly $20 million on television advertising, resulting in a cost of acquiring a client of around $68, on average. 

Krejcik forecasts FanDuel will profit by $100 per customer per season despite the high acquisition costs.

Additionally, businesses earn money in a variety of ways. For example, a portion of their revenue is generated by selling advertisements on their websites and partnering with well-known brands like NBC, Sports Illustrated, Comcast, and Sporting News. 

The result is that professional leagues have immense opportunities to engage and acquire new fans.

Let’s understand FanDuel’s Business Model in detail:

Fantasy Sports Fee

FansDuel charges 10% of every dollar spent on its competitions. FanDuel retains $10,000 for every $100,000 invested by players.

The company will use the funds to maintain and enhance its daily fantasy sports offering and operations in general.

Sports and leagues available for daily fantasy tournaments include NBA, NFL, NHL, Nascar, and CBB.

FanDuel offers a variety of contests as well. You can enter some free of charge, whereas others are geared toward intermediate and advanced players.

Online Casino

FanDuel’s Casino app allows users to play online casino games like slots and blackjack, along with sports betting.

New Jersey, Michigan, and Pennsylvania are the three states where Casino’s mobile app is now available.

A gambler that bets against the house (in this case, FanDuel) and loses earns the company money, just as it does with its Sportsbook product.

FanDuel’s probability of winning is significantly skewed, ensuring that it collects more revenue than it pays out.

Regulators carefully scrutinize FansDuel to make sure that the odds it offers are legal.

Sportsbook

Sports betting is available through FanDuel’s Sportsbook app and at fanduel.com. Betting on sports has also been legalized in several states.

A total of 19 jurisdictions permit land-based betting, while 14 allow corporations to offer apps that offer to gamble.

The same as any other traditional bookmaker, FanDuel makes a profit when a bettor loses. Furthermore, the organization utilizes the vigorish methodology (also called vig, juice, margin, and overround).

Vigorish is essentially a fee for placing the bet. The odds offered by a bookmaker usually show this. FanDuel can (almost certainly) make more money by providing fewer favorable odds.

A user of FanDuel may also limit the number of bets executed and the amount of money they may wager to mitigate risk.

Inactivity Fee

The FanDuel inactivity fee was implemented in May 2019. Inactive accounts will be charged a $3 monthly inactivity fee if they have not been used for two years.

FansDuel withdraws the funds from cash deposited in their FanDuel accounts, not from their bank accounts. 

Thus, FanDuel will suspend the charges if the account balance reaches zero.

Success Story of FanDuel

FanDuel was founded in 2009 in New York City by husband-and-wife team Nigel and Lesley Eccles and Rob Jones and Tom Griffiths.

However, FanDuel’s story began a few years earlier. The original team of developers in Edinburgh, Scotland, developed HubDub in 2007.

A HubDub user may try their luck guessing virtually any result, from elections to celebrity breakups.

Unfortunately, it did not work out as expected. Although the site attracted many visitors, it didn’t succeed in converting them into paying customers.

They sifted through their HubDub data after deciding that a pivot was necessary. HubDub discovered that more than half of all predictions were based on sporting events.

Using Craigslist, they recruited test players for their experimentation using a Google Spreadsheet. The competition quickly grew in popularity, with people investing money and participating in numerous competitions.

FanDuel was launched in July 2009 after three months of development. Ultimately, HubDub was shut down in April of 2010 after only a year.

An initial round of fundraising raised $1.2 million for the team in January 2009. It was, however, not an easy process.

Investors rejected them because they feared that the married couple would eventually have personal problems, which would hurt the company. 

Additionally, all employees were located in Edinburgh, even though the company served clients in the United States.

However, the organization did well, primarily due to its pioneering role in offering daily fantasy sports games. 

FanDuel’s business model is also enabled by the 2006 Unlawful Internet Gaming Act, allowing firms to run online fantasy sports competitions.

FansDuel finally opened its New York office in 2011, which became its headquarters. The company’s successful expansion was undoubtedly due to its geographical focus. 

FanDuel paid out more than $10 million in 2011 after earning just $1.5 million in 2010. Additionally, a $50 million increase was recorded in 2012.

Daily fantasy sports have grown considerably during those years. 

Top competitors around the industry, such as Snapdraft, DraftDay, and DraftKings, have invested millions of dollars in television advertising and partnership campaigns to establish themselves as the de-facto category leaders. 

The two companies combined to spend $750 million on advertising their platforms in advance of the  NFL season.

FanDuel could secure partnerships with NBC Universal, sports teams, and leagues, such as the NFL and NBA. 

It wasn’t long before FanDuel (and other daily fantasy sports) advertisements became ubiquitous, appearing in every possible medium.

FanDuel and DraftKings nearly controlled 90% of fantasy sports by 2015. 

Their growth trajectory was hardly affected even by the entry of internet behemoths such as Yahoo.

Many industry analysts and startup enthusiasts predicted those companies would go public. 

FanDuel became a unicorn in July 2015, after raising a $275 million Series E  round at a valuation of more than $1 billion.

It didn’t take long for the image of overwhelming prosperity and the ability to do no wrong to crumble. 

In October 2015, the New York Times reported that a DraftKings employee won $350,00 in a 25-dollar contest on FanDuel.

What was the issue, then? 

Daily fantasy sports are exempt from the Unlawful Internet Gaming Act because they’re deemed a skill-based game rather than a chance-based one.

An employee had access to tens of thousands of data points about players deemed famous by DraftKings users. 

It enabled them to determine which players most users preferred and outmaneuver them. 

It was construed as an insider trading scheme in many eyes, negatively affecting those without access to the data.

It’s imperative to identify which players experts are choosing and seek to avoid them in fantasy football. 

Finding out which player no one else is considering can result in massive advantages if they perform well.

FanDuel has therefore prohibited its employees from participating in its own and other daily fantasy sports games. 

A class-action lawsuit was filed against the corporation by platform users. 

Additionally, former NFL star Pierre Garcon filed a lawsuit alleging that FanDuel improperly utilized his name and image to promote its services.

These difficulties paled in comparison to what occurred in the coming months. 

FanDuel ceases operating in New York after the New York Attorney General (Eric Schneiderman) orders it (and DraftKings).

Various companies involved in daily fantasy sports were alleged to have misled users about their odds of winning and to be engaged in illegal gambling. 

Illinois soon followed suit.

After multiple lawsuits, FanDuel’s New York operations were forced to shut down in March  2016. 

Various payment processors, including Citigroup and Bank of America, have suspended payment processing until the legal issues are resolved.

A few states, including Indiana and Virginia, have decided to legalize daily fantasy sports. It has given the market some optimism. 

FanDuel’s multiple legal battles cost the company millions in legal bills, and the company’s bottom line was negatively affected. 

Therefore, the company had to postpone several product launches in the United Kingdom and elsewhere.

Both FanDuel and DraftKings suffered financial difficulties soon after. 

There were rumors that the two companies were considering merging, which would enable them to reduce their marketing spend and establish themselves as the industry’s undisputed leader.

The governor of New York signed legislation legalizing daily fantasy sports websites into law in  August 2016. 

Both FanDuel and DraftKings offered $6 million in settlements to Schneiderman’s office, admitting to misleading advertising.

The two companies announced in November 2016 their intention to combine (with DraftKings CEO Jason Robins taking over as CEO of the new entity).

The Federal Trade Commission’s (FTC) plans were different. It authorized legal action in June 2017 to prevent the merger of the two corporations. 

A united firm would represent a monopoly, eradicating all competition.

The company’s CEO, Nigel Eccles, stepped down in November 2017 and resigned from his board seat. 

He was succeeded by Matt King, who worked as CFO for three years.

The co-founders and FanDuel’s investors came up with an appropriate exit strategy on May 18, 2018. 

Ireland-based Paddy Power Betfair (formerly known as Flutter Entertainment) bought 61 percent of FanDuel – and has the option to extend its ownership to 80 percent after three years and 100 percent after five years.

It was a strategically advantageous time for Flutter to make its investment. A federal law prohibiting most states from legalizing sports betting was struck down by the Supreme Court of the United States on the same day. 

According to estimates, more than $150 billion is spent each year on illegal sports gambling, only in the United States. 

Regulation reform created a windfall of billions in tax revenue, which several states swiftly seized.

The result was opening physical Sportsbook locations and mobile applications in states that had legalized sports betting. 

Over the next few months and years, FanDuel expanded into new states and announced new partnerships (or renewed existing ones).

Coronavirus pandemic-induced sport suspensions were not enough to dissuade the corporation. 

DraftKings and FanDuel even continue to invest heavily in television and other types of advertising.

Flutter Entertainment purchased a 95% stake in FanDuel in December 2020. 

Flutter has been rumored to consider spinning off FanDuel to facilitate its IPO (DraftKings filed for an IPO via a SPA in April 2020).

FanDuel employs over 1,200 employees in the US and Scotland.

Who is the Owner of FanDuel?

Flutter Entertainment (previously known as Paddy Power Betfair Plc) owns 95% of FanDuel.

Flutter acquired 61 percent of the company in May 2018 for $158 million in cash and part of its US-based assets.

It increased its shareholding to 95% two and a half years later (in December 2020).

The remaining 5% is held by earlier investors, stakeholders, and co-founders.

FanDuel is rumored to be spun out from Flutter Entertainment and listed on the stock exchange as a standalone firm. 

If that is the case, its ownership structure will most likely change due to its shares’ public availability and traceability.

What is the Revenue of FanDuel?

FanDuel generated $896 million in revenue in 2020. This represents an increase of 81 percent from the previous year.

What is the Funding and Valuation of FanDuel?

Crunchbase reports that FanDuel raised $416.2 million in venture capital investments across seven rounds.

Piton Capital, Pentech Ventures, Bullpen Capital, Shamrock Capital Advisors, Comcast  Ventures, KKR, and Google Capital are notable investors.

FanDuel’s worth was last publicly disclosed in December 2020, when Flutter Entertainment increased its investment in the company. As a result, a further 37% of FanDuel was acquired for $4.2 billion. As a result, FanDuel is now valued at more than $11.4 billion.

Is FanDuel Legal or a Scam?

Daily fantasy sports sites are currently battling for formal legality, which is strange since DFS has never been classified as an illegal activity at the federal level. 

It has always been the state’s responsibility to regulate daily fantasy sports and similar activities, and this will not change.

FanDuel and daily fantasy sports, as a whole, are not a scam, based on what we’ve seen. 

Websites like this one understand how to advertise, offer contests and deals to encourage us to participate, and their end goal is clearly to make money. 

You do not necessarily have to be engulfed in a dark spiral of loss and sorrow.

FanDuel instead wants players to make some sort of profit to continue participating in their contests. 

FanDuel makes most of their revenue via site rake, which is a modest fee for each competition you enter. 

Thus, if you win a contest that’s as small as a $1 head-to-head game (much more on that later), you’ll receive only $1.80. 

You and your opponent put in $1 (totaling $2), and FanDuel gets $0.20 for letting you participate in that particular contest.

As you can see, this is a larger figure since we have larger contests and entry fees. 

As a company, FanDuel is not trying to defraud us but merely providing us with a service. We can gain from their contest hosting by continually winning and benefiting, and they can help as well.

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Who can Play Fantasy Sports on FanDuel?

Daily fantasy sports are permissible on a federal level. That is currently being tested across the United States, but at the moment, you can play FD for real money in 41 of the 50 states. However, the following states presently prohibit it:

• Washington
• Idaho
• Montana
• Nevada
• New Mexico
• Texas
• Louisiana
• Alabama
• Iowa

Several of these states are very certainly actively considering legislation to authorize FD and other DFS sites, while others that are now lawful may also alter. It is the user’s responsibility to stay current on their state regulations. 

However, FD does an admirable job of covering their bases and informing you whether or not you are permitted to use their service for real money.

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Final Words on FanDuel Business Model

FanDuel is a prestigious service offering a unique product that enables anyone to win daily fantasy sports contests. 

As you grow your FanDuel account, you will also have to invest your time, energy, and money to become a better player. FanDuel gives you an equal chance to succeed.

If you join FD, you can take advantage of great competitions, impressive events, and a convenient platform. 

FanDuel is an excellent place to get started in daily fantasy sports if you’re new and want to come back often.

What is FanDuel?

FansDuel is an online daily fantasy sports game site where players can create and compete fantasy sports teams for money.

Where is FanDuel Located?

A Texas-based startup in 2009, FanDuel is an international company with offices in New York, Orlando, L.A., Edinburgh, and Glasgow.

Who Created FanDuel?

FanDuel was founded in 2009 by Tom Griffiths and Nigel Eccles in Texas.

Do I Have to Pay to Play?

The games are free, but you can purchase them if you like. Moreover, the FanDuel DFS contests offer a variety of competitions that offer different types of cash prizes.

Is FanDuel Legal?

While some jurisdictions prohibit paid-to-play and certain areas consider it illegal, DFS is allowed on a federal level. There is a legal ambiguity that the states are attempting to clarify. You are still allowed to play as long as it is legal in your state at the moment.

Is FanDuel a Gambling Site?

Daily fantasy sports sites such as FanDuel and all others are not gambling. Instead, their games are skill-based, requiring information, study, strategic judgment, and, together, the ability to play. 

In Daily Fantasy Sports, winning by chance is always possible, but you won’t frequently win if you’re not “excellent.”

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