Will Scandal and Scrutiny Spell an End to DraftKings and FanDuel? Don’t Bet on It

Experts say daily fantasy sports is already too big to fail

Few surprise trends have dominated the marketing industry in recent months more than the rapid rise of DraftKings and FanDuel, leaders in a new and obscenely profitable industry known as daily fantasy sports.

The companies seemingly came out of nowhere (though DraftKings has been around since 2012) to announce massive funding rounds and ad budgets fit to rival those of America's biggest advertisers while tying themselves inextricably to both the biggest professional leagues (NFL, NBA, MLB) and the top names in sports media (ESPN, Sports Illustrated, Fox Sports).

Over the past two weeks, the industry leaders' swift rise to the top has encountered a few speed bumps including allegations of "insider trading." Some observers have even called the controversy "the beginning of the end" for their business model.

Don't bet on it. Experts in law, advertising and public relations don't think DraftKings and FanDuel are going away any time soon. Why? As executive vice president/executive creative director Bob Dorfman of Baker Street Advertising (which has worked with the San Francisco Giants and Oakland Raiders in the past) tells Adweek, "The problem is that everybody has a partnership with these companies: the media, the league, the teams … it's incredible."

First came the ads, with 60,000 national TV spots airing so far this year and a spend that's recently outpaced the beer industry, according to CNN. The campaigns have been unavoidable even for consumers who don't follow pro sports, and they inspired more than a few complaints of oversaturation. As Dorfman puts it, "There in the left corner of the screen—during another commercial—is a FanDuel ad. I had never seen that before." The companies also inked sponsored content deals with top media outlets like ESPN, which until recently ran DraftKings-themed segments during its standard programming.

Then came the big news: a DraftKings employee was accused of using data unavailable to the public to win $350,000 from FanDuel.

Both companies quickly went on the offensive, officially prohibiting employees from using their competitors' services (they were already forbidden from playing on their own networks). FanDuel's head of PR told various news outlets that DraftKings employees have won "only 0.3 percent of the money FanDuel has awarded in its entire history," though that total still amounts to several million dollars.

ESPN then announced plans to stop running segments sponsored by the brands, though the network and other top properties like Sports Illustrated will continue airing their paid ads.

The story also became a hot political topic as the Attorneys General of Massachusetts and New York launched separate inquiries into industry practices and both companies hired their own lawyers to conduct internal audits.

Sen. Robert Menendez and others have suggested that the industry needs greater regulation—and Carreen Winters, evp and corporate reputation specialist at PR firm MWW, thinks the political narrative will not end anytime soon. She says, "Online gaming remains a controversial topic among lawmakers, and [this incident] is a particularly useful soundbite for those opposed to online gambling."

The hits keep coming: Just yesterday, after DraftKings CEO Jason Robins told Fortune, "We are committed to being the best, most world-class organization in the industry in terms of openness," a class action lawsuit filed in Manhattan accused the two companies of false advertising. Dorfman predicted this response when he told us, "The problem is that you have these regular Joes who spend their money and now say, 'I don't even have a chance to win.'"

And yet—despite all the bad publicity—DraftKings and FanDuel are now an established part of the sports world signifying a large investment on behalf of pro football in particular. Partner Christopher Chase of law firm Frankfurt Kurnit Klein & Selz tells Adweek, "These two [companies] spent over $100 million in September alone, which is up there with AT&T and Coca-Cola." For that reason, Chase predicts that media brands and other partners will be unable to end their "symbiotic relationships" with DraftKings and FanDuel unless criminal charges emerge—a development that seems unlikely at this point.

He does, however, think that the controversy has damaged DraftKings' and FanDuel's relationships with professional sports leagues and teams: "The perception is, now that there's a concern about the industry itself, the partnerships will not be full [moving forward]."

This is a small complication, and the basic question remains: How has a hugely profitable industry that bears more than a passing resemblance to the world of digital casinos managed to avoid regulation?

"How is this not gambling?" Dorfman says. "I don't see the difference. Online poker has been banned, but both are games of skill with a bit of chance involved."

The Nevada-based gambling industry has certainly noticed, but attorney Chase tells Adweek that the group doesn't have the influence to sway public or political opinion on its own.

The NFL will almost certainly continue promoting DraftKings and FanDuel both directly and indirectly while helping to boost its own viewership numbers along the way. But if the situation grows more dire, the league would prefer not to have to manage yet another scandal. As Winters puts it, "The NFL has its own reputation and credibility issues, and what consumers are doing on FanDuel is the least of their problems."

Play away, then.