The unregulated Wild West of daily fantasy sports may have come to an abrupt halt this week after it came to light that an employee of DraftKings won $350,000 playing daily fantasy football on rival site FanDuel. Some call it insider trading, some think it was gambling to begin with, but almost everyone agrees that these sites need more oversight from someone.
ESPN, whose parent company Disney (NYSE:DIS) backed out of a $250 million investment for 20% of DraftKings this summer, recently yanked the fantasy sports site from segment sponsorships within its shows. Part of the explanation was that it didn't want to seem biased when reporting on the fantasy sports scandal, but it certainly wanted to distance itself from such bad press.
But what's shocking about this unregulated market is the money that's behind it. Investors read like a who's who of the sporting world. If the recent headlines bring regulation or further scrutiny they may not be so excited about being part of this controversial business.
Who owns the daily fantasy sports world?
I mentioned that Disney was once interested in a big stake in DraftKings, but it backed out upon deciding it wasn't within the company's image to own something that could easily be construed as a gambling site. But plenty of other companies have been willing to put millions into these leagues.
Fox Sports reportedly replaced Disney in DraftKings' most recent funding round, which wasn't short on star power even without Mickey Mouse. Below is a list of some of the investors in DraftKings and FanDuel that you've probably heard of.
DraftKings: Fox Sports, Major League Baseball, the National Hockey League, Major League Soccer, The Madison Square Garden Company and Legends, and The Kraft Group (owners of the New England Patriots).
FanDuel: National Basketball Association, NBC Sports Ventures (Comcast), Comcast Ventures, Google Capital, Time Warner/Turner Sports, KKR, and "a number of NFL and NBA team owners."
The investors in daily fantasy sports have a lot to lose if the business goes south too. The last funding rounds alone for DraftKings and FanDuel were $300 million and $275 million respectively, so they've bet big money in the game.
Fantasy betting isn't dying anytime soon
This scandal could be a setback for fantasy games, but lots of entrenched players have an interest in seeing these businesses succeed. Three of the four major sports are investors in daily fantasy sports and most of the major networks are either investors or partners (ESPN uses DraftKings as its exclusive daily fantasy sports partner).
What's needed are rules and regulations that -- apparently -- aren't currently in place. Maybe Congress will have to step in, which I doubt given the clout of these owners, but they can't lose credibility or the entire business will crumble.
Before this scandal, the daily fantasy sports business was booming and while an insider trading scandal is bad, I don't think it will derail it. The NFL, NBA, MLB, and NHL all have an interest in seeing fantasy sports excel and grow. With networks backing the business as well I don't think this is the last we've seen of fantasy sports, despite its current troubles.
Travis Hoium has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Walt Disney. The Motley Fool recommends Time Warner. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.