Posted on: August 10, 2023, 02:44h. 

Last updated on: August 10, 2023, 02:44h.

Underdog Sports, a provider of paid fantasy sports contests, alleges that DraftKings (NASDAQ: DKNG) and FanDuel are conducting covert campaigns to maintain their dominance in the daily fantasy sports (DFS) industry and suppress innovation.

During their inception, DraftKings and FanDuel revolutionized DFS, departing from the traditional format of season-long contests that had long dominated the realm of fantasy sports. The concept was well-received by sports enthusiasts, especially due to the opportunity to win cash prizes, even though DFS was not initially considered gambling.

Established in 2020 by Jeremy Levine, privately held Underdog Fantasy, based in New York, believes that DraftKings and FanDuel fear the competition posed by emerging DFS providers and are using their political influence to undermine smaller rivals.

Underdog and Others Threaten Established DFS Giants

While DraftKings and FanDuel successfully established their dominance in DFS and capitalized on it to create a sports betting duopoly, they also experienced some attrition in their DFS businesses as smaller players grew tired of losing to skilled individuals aided by advanced computer programs. This created an opportunity for Underdog and other companies to innovate and promote DFS offerings that appeal to casual sports fans not dedicating extensive hours to technology-driven lineup building. Underdog asserts that its share in the fantasy sports market now exceeds that of DraftKings and FanDuel, which explains why these industry giants fear the new competition.

But Underdog and other companies innovating in fantasy sports and sports betting threaten their monopoly,” wrote Levine in a letter to Underdog clients. “They’ve seen our company, and others, produce superior products, more exciting user experiences, and begin to challenge them for sports fans’ attention — and they’re scared that we will challenge their market positions. We’re already bigger than they are in fantasy. Frankly, they should be scared.”

Levine adds that DraftKings and FanDuel cannot simply express their dislike for competition to regulators, so they are resorting to a “disingenuous narrative,” claiming that Underdog’s contests are illegal because they resemble sports betting.

This claim is particularly relevant because Underdog and other similar competitors operate in states that are highly coveted by the sports betting industry. Presently, Underdog offers its fantasy games in 41 states and its fantasy pick ’em games in 39 states. Notably, Underdog operates in California, Florida, Georgia, and Texas, which currently lack competitive sports wagering markets. Among these states, only Florida permits sports betting activities, which are controlled by the Seminole Tribe.

Underdog Cites Legal Protection

In his letter, Levine highlights that state-level laws, potentially drafted by lobbyists for DraftKings and FanDuel, clearly define fantasy sports as a broader concept than the salary cap methodology employed by established giants.

“Equally important, in nearly every state where a sports betting law has been passed, the law makes crystal clear that fantasy sports are not sports betting. Explicitly, these laws state that if a contest is fantasy sports, it is therefore not sports betting,” he noted.

Interestingly, while working at StarSteet in 2012, Levine developed the industry’s first-ever single-player fantasy game, which was later acquired by DraftKings.

Furthermore, it is worth noting that in several rapidly growing sports betting states, courts have consistently ruled that Underdog’s offerings meet the legal definition of fantasy sports.

“Regulators across the country – including in states where mobile sports betting is also legal – have concluded our games perfectly fit within the legal definition of fantasy sports. This includes determinations in Arizona, Colorado, and Indiana, where the same regulators oversee both fantasy and betting, that our products are fantasy contests,” concluded Levine.

Thirteen months ago, Underdog raised $35 million in a Series B round of financing, valuing the company at $485 million. Notable investors include Mark Cuban, Kevin Durant, Trae Young, Odell Beckham Jr., Breon Corcoran (ex-CEO Paddy Power Betfair/Flutter), Mitch Garber, Eilers & Krejcik, Liontree Partners, Kevin Carter, Mark Pincus (founder of Zynga), SV Angel, The Chainsmokers, Kygo, Steve Aoki, Nas, Future, Acies Investment, and BlackRock.