The world’s largest daily fantasy site is wading deeper into the choppy waters of sports betting in the USA. This morning, DraftKings announced that it has entered into an agreement with the del Lago Resort & Casino in Waterloo, New York to operate a retail sportsbook.

The agreement also has provisions in place for DraftKings and del Lago to coordinate in mobile and online sports betting if future legislation permits. In a press release issued this morning, DraftKings CEO Jason Robins said this:

“New York is one of the largest revenue opportunities for future sports wagering operators and we are thrilled to partner with del Lago Resort & Casino to offer sports fans a unique and novel sports betting experience, both at a physical sportsbook and on mobile when permitted.”

This is just the latest move for DraftKings as it seeks to grow beyond its daily fantasy roots and enter the world of sports betting. Jason Robins announced his intention to target the sports betting market back in February and then hired a new “Head of Sportsbook” before the Supreme Court had even ruled on the New Jersey sports betting case.

DraftKings then began the search for its first sports betting partner in New Jersey. They eventually landed a deal with Resorts Casino & Hotel and have plans to begin taking sports wagers there before the start of the NFL season. Now, DraftKings is already looking at New York.

New York a Prize for Sports Betting Operators

Although New York doesn’t even have legal sports betting at this point, companies are already clamoring for a piece of the potential action there. In a report prepared for the American Gaming Association last year, Oxford Economics projected that New York could become the second-largest sports betting market in the US, behind only California in terms of revenue generated.

DraftKings’ chief competitor FanDuel is likewise on the move in New York. Betfair US, which now has a majority stake in FanDuel, reached an agreement with Tioga Downs in New York to operate what would likely be a FanDuel-branded sportsbook once sports betting is legalized.

This is a dramatic turnaround for both fantasy sites in the one state that caused them more headaches than just about any other well before either site had expressed an interest in sports betting. Back in 2015, New York Attorney General Eric Schneiderman issued cease-and-desist letters to FanDuel and DraftKings on the basis that daily fantasy meets the state’s definition of unlawful gambling.

FanDuel and DraftKings unsuccessfully fought the order for more than a year, but the legislature finally crafted a bill to legalize and regulate fantasy sports sites. Governor Cuomo signed the bill in August of 2016 and both sites have been active in New York since.

Now, less than two years later, both sites have entered into partnerships with local venues to offer sports betting in New York. The turnaround from not even being allowed to offer fantasy sports games as recently as 2016 to now openly discussing their plans to open actual sportsbooks is remarkable.

With a population of nearly 20 million in New York state alone, the potential market has operators salivating. FanDuel and DraftKings would also be primed to take advantage of their name brand recognition and massive player databases once sports betting becomes legal in New York.

This all assumes New York does eventually legalize sports betting, but that seems increasingly likely of late. State lawmakers have made it clear they want to legalize sports betting and all the major operators are gearing up as if it’s already a foregone conclusion. With neighboring states also moving on sports betting, state lawmakers are feeling the pressure. Legal NY sports betting will likely be a reality in 2019.

How Sports Betting Will Be Regulated in New York

What form future legislation will take is up in the air. A bill introduced just last month sought to allow New Yorkers to bet on pro and college games both in-person at authorized venues and online. The bill was introduced as a sort of last-ditch effort to get something done before the end of the legislative session on June 20th, but time ran out before lawmakers could move it along.

If that bill serves as any sort of preview of things to come, DraftKings and other sports betting operators are going to be working in a mostly favorable environment. Online betting should prove particularly lucrative for the daily fantasy sites which already have experience in online gaming, not to mention their customer databases and brand recognition.

Potential trouble spots will be taxes and the inclusion of a so-called integrity fee. However, bills that have surfaced in New York so far have included pared-down integrity fees demanded by the leagues and tax rates that are similar to what other states have proposed.

Last month’s bill called for a 0.25% “royalty” fee (rather than the 1% sought by the leagues) as well as an 8.5% tax on gross revenues. The tax rate is similar to what New Jersey imposes on sports betting operators, but the royalty fee will be extra. One thing legislators will have to consider during the next legislative session will be how to balance their desire for tax revenue with allowing operators to remain competitive with underground and offshore operations.

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