Amid US legal battle, DraftKings set to kick off soccer contests in UK

“It’ll be a more difficult market than the US. . . . There are a lot of options out there,” said Robert Melendres, chief executive of IPro Inc.DraftKings

Suddenly, DraftKings Inc.’s expansion into the United Kingdom seems less like a bet on growth and more like a hedge against being shut out of markets at home.

While the UK move was planned months ago by the Boston company, it has taken on added importance in the wake of New York Attorney General Eric Schneiderman’s ruling last Tuesday that its fantasy sports contests for cash constitute illegal gambling. On Monday, requests for restraining orders against Schneiderman by Draft-Kings and New York rival FanDuel Inc. were rejected by a judge. [See story, page A1.]

“Of course [the scrutiny] has made our international expansion efforts more important,” said Jeffrey Haas, a veteran Internet gambling executive hired by DraftKings in September to lead its overseas push. “It’s an opportunity to effectively mitigate any risks that may come into play in the US as some states take different view on our products.”

Haas expects a daily fantasy customer base of roughly 1.1 million people in the UK, a market that could be worth $60 million to $100 million depending on how frequently British users play and how much they wager. He noted it took four years for the American market to bloom, but said, “our intent is to get there much sooner” in the UK. He also hopes more Americans will enter DraftKings’ soccer contests once the flood of UK entrants swells shared prize pools.

By the end of the year, the company plans to debut in Britain with a revamped fantasy soccer contest featuring bigger rosters and more comprehensive stats than those now available. Its National Football League and other US contests will also be offered in the UK.

If things go well in the UK, the company said, DraftKings will look to branch out into the rest of Europe, then Asia and Australia, perhaps adding rugby and cricket contests along the way.

DraftKings won’t be alone. FanDuel said recently it was seeking a UK gambling license. And Yahoo! Inc., the third-largest daily fantasy sports operation in the United States, has partnered with fantasy firm Mondogoal, which already holds a UK license.

Haas expects the competition between the three companies to begin in earnest next summer, when a new season of the Premier League, the top tier of English professional soccer, will start.

“Next August, it’ll be a gold rush,” Haas said. “Everyone will be trying to carve up as much land as possible.”

DraftKings will also be competing with other forms of gambling, which are nearly unlimited in the UK. Britons who feel lucky can bet on anything from whether there will be a white Christmas to the eye color of the next prime minister. As a result, the company’s marketing will emphasize how its contests are different from existing gambling products — namely, that they require more skill and analysis.

“It’ll be a more difficult market than the US, where there’s a big demand for sports betting but we can’t do it most places,” said Robert Melendres, the former general counsel for international gambling giant IGT and the current chief executive of daily fantasy startup iPro Inc. “Daily fantasy is a unique product, but the UK is a matured market. There are a lot of options out there.”

“It’s an opportunity to effectively mitigate any risks that may come into play in the US as some states take different views on our products,” said Jeffrey Haas, DraftKings’ chief international officer. DraftKings

DraftKings’ UK contests will feed into the same prize pools US players compete for, Haas said. The UK interface will be slightly different, though, emphasizing soccer and using the Brits’ version of English.

DraftKings’ UK version also includes required location and age checks, plus the ability for gambling addicts to set deposit limits and cooling-off periods, or exclude themselves entirely — features that could come in handy back home if state legislators enact measures requiring them.

Haas acknowledged the UK launch has been delayed by “executive inattention,” as DraftKings’ leaders contended with the scandal that erupted in September. That month, an employee prematurely published data on the company’s NFL contests the same weekend he won $350,000 in a FanDuel contest. While a company investigation later found the employee had not used insider data to win, the incident prompted officials to question the companies’ practices.

Both firms withdrew from Nevada last month after regulators there said it was a form of gambling that required a license. In Massachusetts, Attorney General Maura Healey has said there is no clear state law on the contests and that she will not shut them down.

The UK launch marks the first time DraftKings has sought and received a gambling license. At home, DraftKings is at pains to describe its contests as predominantly skill-based and therefore not subject to most states’ gambling laws, which govern games of chance. In the UK, however, an expansive 2005 law says any game for cash involving even a smidgen of chance is gambling.

DraftKings holds two licenses in the UK, one for “Gambling Software” and another for “Pool Betting.” Before awarding them, regulators with the UK Gambling Commission turned the company inside-out, Haas said.

“There were a tremendous amount of questions about every aspect of our business,” Haas said.

Among other requirements, the commission demanded an audit of the company’s computer code, financial projections, proof it has 12 months’ worth of funds, internal conduct policies, a “social responsibility plan,” various training certifications, charts of its corporate and management structure, loan agreements, and six months of bank statements.

Individual executives and investors who hold more than 10 percent of the company, meantime, were the subjects of extensive background checks, and had to submit references, detailed employment histories, and even personal bank statements.

DraftKings will face routine and random audits, pay a 15 percent betting tax, and must submit major changes to its software to the gambling commission for approval.

Julian Harriscq, a London gambling attorney, said that UK gambling commissioners probably were not deterred by the controversy facing DraftKings in the United States. But that could change.

“The commission does now look at operations of any company around the world,” Harris said. “If you have a business in another jurisdiction where there’s a chance you’ll be enforced against, or where the law is likely to change in the near future, they get concerned about your financial stability.”