Daily Fantasy Sports started out primarily in the US about seven years ago. DraftKings itself was founded in Boston Massachusetts in the USA in 2012. We started the business with solid aspirations to grow and be a real competitor to the market leader at the time, and in the last five years we have focused on creating the best experience possible for our players and are now the market leader internationally. We have a substantial presence in the US, Canada and the UK, which are the three markets we operate in today.
Season-long fantasy sports football started off about 30 years ago as an industry in the UK, Europe and North America. When it first started, it was primarily broadsheet newspapers that published the names of all the players, with their prospective salaries and allowed people to select line-ups, draft teams and enter into competitions. People would tear out the back page of the newspaper, fill it in with a pen, mail it in to the newspaper and they would manually tally and keep a score. This was something that was increasable engaging even 30 years ago. That’s where it all started off.
The internet, as with many other sectors, disrupted the traditional print industry around fantasy sports, and around 20 years ago people started working on season-long online sites, with Yahoo being the industry leader.
About six years ago some people started looking at the product and noticed that the disengagement rate for season-long fantasy sports was 75 per cent after just four or five weeks. While the product was incredibly popular, people quickly lost interest because it took too much work to keep up with changing players through the season. The people looking at this at the time were saying how do we solve this problem, what if we ran our contests for a shorter duration either for one week or one day and the concept of Daily Fantasy Sports was invented.
In the US we are regulated as a game of skill in ten states and we expect many other states will pass legislation and regulation for our category in the near to medium term. While in the UK we are classified as pool betting, if we were to go into the Danish market, we could get what is called a manager games licence, which is the fantasy sports licence for operating in Denmark. We can also get a skill game licence in Italy, so there are a number of jurisdictions that have a licence for games of skill, but nothing is as intentionally designed as the Maltese legislation has been crafted to be.
The Malta Gaming Authority (MGA) is a proactive regulator which is very much in touch with emerging consumer trends and technology and it is refreshing to see that the Maltese government, which is responsible for regulating in terms of Malta’s laws, followed advice put to it by the MGA on regulation of skill-based games. What I mean by this is that when we looked at legislation in other markets across Europe, we found that nobody had considered our category at the time laws in those markets were being drafted, whereas Malta has crafted something that safeguards consumers, which is obviously critical. Nobody wants a black eye in our industry, but apart from safeguarding consumers, the Maltese licence ensures that any business operating in and from Malta has a certain level of integrity. I think the Maltese regulation is exceptional because it was designed intentionally with the prospect of creating a framework for operators to be successful and for consumers to be well protected.
We are going to test the waters in a lot of different European markets and understand how our products fit in those markets. We want to see how daily fantasy sports resonates with perspective players in different jurisdictions, what sports they like to play and what they do and don’t like about our product. The fact is we are going to be the first significant operator in many of these markets, and there is no way for us to really understand the market potential, so it’s going to involve a lot of market testing. We are definitely taking a long-term view on the opportunity in Malta and the markets we intend to serve under the MGA licence.
The major trend is the conversion of season-long fantasy sports to daily, but we are seeing media companies and sports organisations taking a greater interest in the sector. DraftKings exists at the intersection of technology entertainment and sports. We create a fantastic experience to bring sports fans closer to the games they love. This suddenly puts a flag in the ground for business that is interested sports, media or technology.
One of our biggest investors in the US is Fox Sports. They are a global player and understand the synergies of working with us. We are attracting a tremendous number of eyeballs, who are massively involved in our product, who love sports and digital products, and we invite any other media company to contact us and discuss how we can work together. That is also true for sports organisation and leagues. We can help them create a better relationship with their fans and attract new ones.
Malta is an extraordinary base for our business to grow upon. Sensible regulation from a professional and mature regulator was important. The Malta licence allows us to operate in and from Malta across the EU in any market that does not locally regulate fantasy sports. We were also attracted by the ability to find experienced, multilingual and educated staff from across Europe. Another very important thing was technical infrastructure and connectivity. It is also easy to travel from Malta to the places and markets we are going to want to do business.
In short, the MGA was tough but fair.
We will locate our European operations base in Malta, from where we can scale in a number of other jurisdictions around the world. We are putting our regulatory and compliance function in Malta just now, and the intention is to grow from there as the business develops with customer service, fraud, payments, and localisation functions coming online as the business grows. At the moment, we are just getting started and in the process of staffing up. We are taking our initial steps, but our expectation is to be investing a lot in Malta over the years to come.