The growth of daily fantasy sports betting and the legal issues it faces: an interview with Shergul Arshad
Published 14 January 2015 | Authored by: Jake Cohen
Shergul Arshad is the former Head of Digital at AS Roma and recently launched a new company called Mondogoal, which capitalises on the growing daily fantasy sports market by focusing exclusively on soccer, the world’s most popular sport. In the six months since the company launched, Mondogoal has already formed partnerships with Barcelona, Liverpool, Manchester City, West Ham United, and AS Roma. It has also been nominated for the “Rookie of the Year” award by the Fantasy Sports Trade Association (FTSA).
Jake Cohen spoke with Mr. Arshad, who provided LawInSport with an industry perspective on the burgeoning daily fantasy sports market. He also discussed some of the key legal issues involved in gaming licensing and sponsorship across multiple jurisdictions, with a particular focus on differences between the United States and United Kingdom.
What is Mondogoal and what prompted you to start the company?
Simply put, Mondogoal is daily fantasy soccer/football for cash. It leverages the new daily fantasy sports format that has taken off in the United States, where fans can have the same fun and thrill of building a team as in season-long fantasy sports, but the season starts and ends all in one matchday, or even in a single day.
Fans have a budget of £100/$100 million to build a team of eleven players, each of which cost different amounts based on their past performance and popularity. Once the team is built, fans can choose to enter that team into a head-to-head challenge against a friend or another fan, or they can play in tournaments against many different fans for various pot sizes.
While working at AS Roma and running digital, my initial focus was on building the website, building out e-commerce and social media, but as time passed I started looking at games as opportunities to monetise social media.
I was playing a lot of daily fantasy sports on FanDuel and DraftKings, mostly NFL, just as a fan. I was really starved for the opportunity to see someone do this in soccer, and specifically to see it manifested as a licensed club model, because at Roma we could have worked directly with that company in an integrated manner.
Once I had the whole format clear in my mind, I decided to rally together funds and build an all-star team of people who could help get this up and running.
What is the growth potential for daily fantasy sports, and especially daily fantasy soccer?
In the United States, there are over 40 million people playing fantasy sports, of which reports show that less than 3% of them are playing daily fantasy sports. So, that just shows that there is a huge market ahead in the US alone. We are also eager to capture the Canadian market as around 17% of Canadian males play fantasy sports, which is a higher percentage that in the US.
Internationally, the market is wide open. Fantasy sports are growing at an even faster rate in the UK than in the US.
All over Europe, people have grown up with newspaper versions of fantasy sports, where fans would mail in their team of the week and the newspaper would publish where the fans finished in the standings. Today, that model has moved online in different countries throughout Europe.
The interest is there in Europe, and it is just a matter of going country-by-country and navigating each country’s unique legal and regulatory complexities, which must be handled before opening up the market in a new country.
How do the licensing procedures differ in the United States, Great Britain, Italy, and Brazil, for example?
Anyone in the US with a half-decent website and a half-decent staff can build a daily fantasy sports site. This is part of the reason why we are seeing so many new entrants into daily fantasy sports marketplace.
The US does not require any type of gaming license for fantasy sports, as the Unlawful Internet Gambling Enforcement Act of 2006 (UIEGA) carves out an exception for fantasy sports in which “all winning outcomes reflect the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical results of the performance of individuals (athletes in the case of sports events) in multiple real-world sporting or other events.”2
As UIEGA classifies fantasy sports as a game of skill, it doesn’t require any kind of gaming license. One of the main reasons for this, aside from the fact that if you try to play fantasy sports without any kind of skill, you’re pretty much giving money away, is that the National Football League (NFL) has been adamant about the importance of fantasy football on TV ratings and the overall success of the NFL.3
When we were building Mondogoal, of course we were focusing on soccer, and realised the importance of being based in Europe.
We made a strategic decision very early on to base our company the Isle of Man. Our servers are housed there, our banking and accounting operations are based there, and two of our directors are based there as well.
Because we made the strategic decision to base Mondogoal in a European territory, that allowed us to pursue a gaming license in the Great Britain (includes England, Wales and Scotland, but not Northern Ireland), and it eventually sets us up to tackle the European market.
A US or any non-European entity will have great difficulty going after the same license, as it would have to set up an entirely new company in the Great Britain before even thinking about applying for a gaming license.
Given the way the European Union is structured, one might think that you could go and get a gaming license that would allow a company do business all over the EU, but gaming licenses are a matter of domestic law and we have to take a country-by-country approach.
Italy, Spain, France, and Germany, amongst others are pretty tightly regulated. So, in Italy for example, rather than pursuing our own costly and time-consuming gaming license, we have decided to partner with a company that already has a license. Our partners will oversee the wallet and e-commerce portion and we’re going to leverage our gameplay machine outside Italy from the Isle of Man.
In Brazil, as long as you’re not based there, you can run a fantasy sports site for cash.
The biggest problem in Brazil right now is that the market is not as developed as far as people using the Internet in general and credit card penetration is a lot lower as well. However, as Brazil is such a massive soccer country, it’s definitely a high-priority market for us.
Has there been any resistance from the British Gambling Commission? If, as expected, daily and weekly fantasy sports takes off in the Great Britain, do you think the industry could come under enhanced scrutiny?
In the Great Britain (England, Wales & Scotland), there is already a high level of scrutiny at the very beginning of the licensing process. In order to get a gaming license, there is a rigorous vetting process from reporting processes to setting up player protection features where our users can set monthly limits for themselves.
Before entering the British market, we first needed to get a license in the Isle of Man. The Isle of Man Gambling Supervision Commission does such a rigorous job of vetting applications, and we submitted a 130-page business plan as part of the process.
We also had to build out lots of features, which ninety-nine per cent of US-based daily fantasy sites don’t have. When we built our platform, our time to market was initially slowed by an intense focus on becoming operational in Europe. That said, the Isle of Man Gambling Supervision Commission told us that we were the fastest-approved new gaming license in the history of the island.
The Isle of Man license was recognised in the Great Britain until very recently, but a new law went into effect on 1 November called the Gambling (Licensing and Advertising) Act 2014, which requires companies wanting to remain in the British market to secure a license from the Gambling Commission.4
The Gambling Commission told us they were extremely pleased with our diligence and thoroughness in the Isle of Man, and as a result, they were quickly able to grant our British license.
Our COO and CFO, Daniel Feldman, was previously a senior attorney in the Enforcement Division of the United States Securities and Exchange Commission and also has an LLM from Georgetown University in Securities and Financial Regulation. Thus, we are focused on making sure we do things by the book and adhere to our licensing requirements. Daniel also has twenty years of experience working in international law throughout Europe, and he has been our point person in working with the commissions in both Great Britain and in the Isle of Man.
What are some of the intellectual property, licensing, and image rights issues to be aware of when entering a sponsorship agreement with a club that involves using the club's branding and logos?
First, the US market is very different than the Great Britain in this respect. I was previously involved with a start-up that was working with Major League Baseball (MLB). Major League Baseball Advanced Media (MLBAM) controls all of the different club rights, and similarly, the NBA and NFL have various permutations of that.
It’s very difficult to do things digitally without going league-wide in the US. When you do a deal in the US, there are typically revenue sharing arrangements where the individual team is required to share the net proceeds with the rest of the clubs in the league. Conversely, in European soccer, there’s an “eat what you kill” culture where the club that makes the deal gets all of the revenue from that deal.
This creates additional motivation for the club to strike their own direct deals, but at the same time, and rightly so, there is a bit of a “lemmings” approach. A fan of Liverpool is not also a Manchester City fan or is not also an AS Roma fan. So, if on the business side, one of those clubs is doing something that is working well, there’s a collaboration that goes on, and it’s common to tell your peers at other clubs about what’s working for you and your club.
With regards to image rights specifically, each league has its own regulations. For example, in the English Premier League, we have been asked to show a minimum of three players at all times, otherwise the marketing may be deemed to imply a specific player’s endorsement, and then player image rights might be infringed upon. While, in Italy and Spain, we have been asked to show a minimum of five players not just three.
As Mondogoal continues to form strategic partnerships with major soccer clubs that compete against each other both on and off the pitch, do you anticipate any conflicts in the future where a rival club may not want to Register with a company that has strong relationships with other clubs? Or are these pre-existing relationships actually viewed by clubs as a benefit, as it demonstrates that Mondogoal is a well-established and reliable partner?
It’s definitely the latter, as reliability is key.
We’re excited to work with many teams, both in the US and all over the world. One of the great things about working with multiple teams from our perspective is that in some cases, what works well in one market or for one team, may not work well in another market. In general, though, what works with one club usually works with all clubs.
Right now, our focus is on the top tier of the English Premier League. We’re specifically focused on the top tier because of the massive difference with regards to social media fans at the top, and therefore the ability to market Mondogoal to the right audience.
It takes us the same amount of time to produce landing pages, banners, and all kinds of other marketing assets for a big team as it does for a small team. Right now, we’re focused on growing our user base and adoption to many users.
That said, there’s a counterargument that we’re very excited about. We have found that the smaller clubs can move faster and still activate large fan bases. Their tactics might be focused less on digital and more in the stadium experience, but a clubs at the bottom end of the Premier League or even a Championship club could reach the right 20,000 people, which isn’t a large number at the end of the day, but they could actually do better than a major club with regards to the revenue share, so it’s really about activating user base.
There is more money in football than ever before, but as Simon Kuper pointed out in a recent Financial Times article,5 despite the massive global reach these clubs enjoy, Real Madrid, the world's highest-grossing club, would only be the 120th largest company in Finland.
How, if at all, does Mondogoal help clubs convert fans into consumers, and what are some of the social strategies you and your partner clubs are working on?
The key for us is to educate the British audience. The response we get in Britain has been overwhelmingly positive once the concept of daily fantasy sports is explained. In fact, one Premier League club we’re working with commented that they plan on outperforming their marketing obligations to us, as they see that the harder they work, the more money they will make. Another Premier League partner told us that when they first heard about Mondogoal, they thought it was something that could result in them making around £20,000 per year. However, after meeting with us they realised that if activated correctly, they could end up making enough from the partnership to pay their entire front office costs.
I think Twitter, for better or for worse, is not a great vehicle for Mondogoal right now. Daily fantasy sports is not a well-known concept in Europe yet, and 140 characters is not a lot of space to create awareness and educate consumers. Conversely, some of the video formats and editorial formats have been very strong.
I think it’s going to be a constant evolution, and one thing about any website, online product, or consumer-facing company is that everything is always improving and evolving.
At the same time, nothing beats cold hard cash, and so as people are winning money, they tell their friends. Word of mouth and bragging to your friends really becomes important, because on a social network, when you share that with other fans of that same time, you can get a significant ripple effect.
Finally, are there any other legal issues that you can envision affecting your growth strategy?
We think we’re well positioned because of our decision to base ourselves in Europe and focus on the European market.
In the US, just last month, Adam Silver, the commissioner of the NBA, wrote an op-ed in the New York Times advocating for sports betting to be legalised, a fairly dramatic shift from the position of the NBA and other major professional sports leagues in America have taken on sports betting over the past twenty years.6
If sports betting in the United States shifts to the European model, where it is legal, but regulated, then perhaps some daily fantasy sports players in the US will shift their dollars into online betting.
Our reliance on the British market is showing that we can work within the licensing constraints and existing regulations and still have a very captive and eager audience.
As we have been licensed by two jurisdictions, we are required to have stringent rules and procedures for, most importantly, the protection of player funds and ensuring that no underage players are involved. Additionally, we pay close attention to guidelines for contest rules and prize payouts and have implemented important anti-money laundering mechanisms. Unregulated sites do not have to adhere to such strict licensing requirements.
Other issues include taxation, and potential changes to UIEGA, but it’s extremely difficult for me to foresee fantasy sports being declassified as a game of skill, because it is most definitely a game of skill and the major sports leagues in the US are incredibly supportive of daily fantasy sports, unlike poker, which had few major institutional supporters. Unless we redefine “skill gaming” in the United States, it’s likely that we are going to see a lot of winners in this space, because with less than 3% of over 40 million fantasy sports players being tapped into today for daily fantasy sports, there’s many more that can grow this market.
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- Tags: Anti-Corruption | Barcelona | Fantasy Sport | France | Gambling | Gambling (Licensing and Advertising) Act 2014 | Gambling Commission | Isle of Man Gambling Supervision Commission | Italy | Major League Soccer (MLS) | National Basketball Association (NBA) | National Football League (NFL) | Premier League | Spain | United Kingdom (UK) | Unlawful Internet Gambling Enforcement Act of 2006 (UIEGA)
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About the Author
Jake is a Consultant Mills & Reeve and an attorney working on both sides of the pond.
He has worked in the sports team at Mills & Reeve, and also writes about legal, economic, and financial issues in European sport for the Wall Street Journal, ESPN, and other publications. He has been cited as an authority by media outlets all over the world.
At one time, he was a serviceable fly-half.