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Nets Face a Big Fantasy-Sports Loss

The threat of daily fantasy sports sites like DraftKings and FanDuel losing their “game of skill” status in New York could affect a lot more than sports fans looking for fast cash.

Cable networks, especially sports networks, could stand to lose a huge chunk of advertising revenue should those sites be characterized as sports gambling.

New York State attorney general Eric Schneiderman has sought to block daily fantasy sports (DFS) sites DraftKings and FanDuel from doing business in his state because he believes they are betting sites. In an op-ed piece in the Nov. 20 New York Daily News, Schneiderman likened the sites to online poker. Unlike season-long fantasy sports sites that make their money from administrative fees and advertising, DFS companies take a cut of every bet, he said.

“That is what bookies do, and it is illegal in New York,” Schneiderman wrote.

According to reports, the U.S. Justice Department is also looking into daily fantasy sports sites and could take action by the end of the year. If the federal government deems DFS to be gambling operations, that could ban them in all but four states (Nevada, New Jersey, Montana and Oregon).

Reclassification as gambling sites would subject companies such as DraftKings and FanDuel to a host of new regulations, and could make it tougher to operate. A gambling classification would also prohibit the services from advertising on networks that carry National Football League games.

Analysts say the bulk of third-quarter ad-sales increases at cable and broadcast networks were mainly due to ads for DFS services. Sanford Bernstein media analyst Todd Juenger said DFS ad dollars represented nearly 60% of ad revenue growth in the third quarter, or $134 million out of $227 million.

DFS ads did more than just fill sports networks’ coffers, Juenger said — they created an inventory scarcity that drove up overall scatter- market prices. According to MoffettNathanson analyst Michael Nathanson, citing Kantar Media data, DraftKings and FanDuel shelled out a combined $118 million for TV ads in September alone, representing about 3% of total ad revenue.

Fantasy sports has been a ratings winner for sports networks as well, with several outlets offering shows geared specifically to that audience. The leagues and the networks have taken notice, too.

Major League Baseball owns a small equity stake in DraftKings and the National Basketball Association owns a small interest in FanDuel. Comcast — parent of NBC Sports Group — owns a minority stake in FanDuel, as it was one of its first investors. While the NFL doesn’t own a stake in either site, two of its most prominent owners — Robert Kraft of the New England Patriots and Jerry Jones of the Dallas Cowboys — are big investors in DraftKings.

And though football lends itself most easily to the fantasy sports model, other sports have been just as enthusiastic. Sports networks have gone out of their way to accommodate fantasy fans because they help drive ratings. Both DFS companies offer competitions in football, baseball, golf, basketball, hockey and soccer, as well as college football and basketball.