High entry costs and slick products stack the house in the duopoly’s favor. Absent a regulatory crackdown, it looks like years of red ink will finally pay off.

Both companies’ roots lie in speculative chance. FanDuel and DraftKings were founded in 2009 and 2011 respectively as daily fantasy sports websites. They operated on the fringes of sports-betting proper, because a U.S. federal statute prohibited running sportsbooks outside of Nevada. The pair’s implicit gamble was that rival gaming hub New Jersey would challenge the law of the land. Lady luck was on their side: in 2018, the Supreme Court ruled, opens new tab that each state could regulate wagering on its own terms.

The decision opened the flood gates. So far, 38 states and Washington DC have legalized, opens new tab sports punting in some form. Nearly one-fifth of American adults have put money down on football, basketball and other games, according to a 2022 Pew Research Center survey, and the total amount wagered, opens new tab ballooned from $13 billion in 2019 to $135 billion last year, per Sportsbook Review, landing operators almost $13 billion of gross revenue. Two of the most populous states, Texas and California, are still mulling whether to allow betting.

Punters’ unbridled enthusiasm has left analysts and executives continuously dialling up their estimates of the possible market size. Take Flutter Entertainment, the $48 billion company that owns FanDuel as well as European brands Paddy Power and Betfair. Back in 2022, it reckoned the total addressable market for U.S. sports-betting would be $23 billion at maturity in 2030. Last September, it raised that estimate to $39 billion because legalized states were on track to surpass its original expectations.

The string of fortune has nicely positioned FanDuel and $20 billion DraftKings, run by co-founder Jason Robins and which went public via a special purpose acquisition company in 2020. Both were ahead of the game roping in customers and building a slick mobile app and complex IT systems to address multiple rules, outcomes, and payment types. The historic sales and marketing investment stands out. In 2021, DraftKings put roughly 75% of its $1.3 billion in revenue towards that line item, while FanDuel shoveled nearly 50%. That beats other infamously high-cost customer acquisition businesses like Uber Technologies (UBER.N), opens new tab, which spent one-third of its top line on sales and marketing in 2019, the year of its initial public offering.

Rivals are circling the table. BetMGM is a partnership between MGM Resorts International (MGM.N), opens new tab and UK-listed Entain (ENT.L), opens new tab. Penn Entertainment (PENN.O), opens new tab struck a 10-year deal with Walt Disney’s (DIS.N), opens new tab sports network ESPN to use its brand for $1.5 billion and rename its product ESPN Bet. Even collectable and sports apparel brand Fanatics launched its own betting and gaming network.

Still, FanDuel and DraftKings command 44% and 34% of the market respectively, according to H2 Gambling Capital figures for operator gross wins, which is gambling-industry parlance for the amount staked minus payouts for winning bets. That advantage should perpetuate itself, since scale gives the duo more money for marketing and product development. Bigger gambling companies can also typically afford to offer tighter odds without sacrificing their revenue, mostly through smarter pricing, which keeps customers coming to their apps.

In many ways, betting helps sports teams too. The National Football League and National Basketball Association are just some of the franchises, along with collegiate sports, that have attracted punters. Betting sites give wagerers a reason to keep their eyes on the screen with in-game parlays, which depend on multiple outcomes to hit the jackpot. In turn, leagues’ viewing figures improve, allowing them to charge ever-more for the right to air their matches.

It all adds up to a financial jackpot for FanDuel and DraftKings, which probably both generated meaningfully positive EBITDA in 2024, according to analyst estimates gathered by Visible Alpha, after years of massive losses. Those figures should quickly grow, however. Analysts reckon DraftKings will bring in $2 billion of EBITDA in 2027, while Flutter is aiming for $2.4 billion from FanDuel that year, at a healthy 25% margin. The companies’ relatively modest forward valuation multiples of 10 times 2027 EBITDA, using Visible Alpha data, imply further upside for their stock if they hit those numbers.

Success has its drawbacks. Regulators have lurked for years. In 2017, FanDuel and DraftKings scrapped their plans to merge after the Federal Trade Commission sued to block, opens new tab the deal because the two would control 90% of the daily fantasy sports market. In December 2024, U.S. Senators Mike Lee and Peter Welch called, opens new tab on the Department of Justice to investigate the duo, citing concerns that they were working together to stymie competition. The same month, the chamber's Judiciary Committee held a hearing on the dangers of addiction brought on in part by the ease of online sports gambling, citing that 2.5 million adults have a severe problem.

The industry is trying to get ahead of such challenges, including by founding the group Responsible Online Gaming Association. Even if that move proves ineffective, it’s nonetheless hard to see the administration of President Donald Trump, with its de-regulatory zeal, from cracking down any time soon. FanDuel and DraftKings took a major punt on growth, and it looks set to pay off.