DraftKings has managed to line up much sought after funding from a major backer, Fox Sports, which leads a $300 million investment that is intended to help the Boston start-up the battle FanDuel in the online fantasy sports business.
In a deal that is to be announced Monday Fox Sports will be providing approximately $150 million which will give them a 11% stake in DraftKings. Other investors include the Boston financial Giant, Washlington Management, the Kraft Group, the Owners of the New England Patriots and several franchise's and sports leagues.
DraftKing has also concluded a separate deal where they will spend $250 million over the next three years on advertising in Fox’s media properties.
Fox Sports, is owned by Rupert Murdoch of 21st Century Fox, they broadcast major league football as well as baseball games, Nascar Races, National Sports Channel and Fox Sports 1, they have approximately 85 million subscribers. Jason Robins who is the Chief Executive of DraftKings said that the money will enable the company to quickly capitalize on the growth of daily fantasy sports.
Mr Robins said, once its known that something is working with the knowledge that there is a big market worth going after, you put your ‘foot on the gas’ which is what they doing right now.
This new investment will allow the company to expand its technology at the same time expanding into the United Kingdom later in the year, added Mr. Robins.
The investment for Fox Sports is a way of increasing their audience of fanatical sports fans who are watching their programs.
Eric Shanks, President of Fox Sports said that, the more people that play daily fantasy, the more likely they are to consume their content, which is good from a strategic standpoint.
Fox Sports Funding would value DraftKings at about $1.2 billiion, according to a acknowledge person in investments, and that DraftKings with FanDuel have helped to fuel growth of fantasy sports games.
Here fans assemble a theoretical roster of highest performing athletes, and thus creating more contests for fans to play on a daily or even weekly basis. Although some of the games are free, there are many of the contests that award cash prizes these are funded from entry fees that are paid by players.
Over the past 2 years daily fantasy game playing has more than doubled to about 16 million, and in 2012 the amount spent increased from $5 per year on average to about $257 annually according to Fantasy Sports Trade Association.
FanDuel said it will be paying about $2 billion in prizes during 2015, while DraftKings said that it expects to be awarding over $1 billion. The two companies keep about 10% of the players fees as revenue and then paying the rest in prizes.
Media analyst, for the consulting arm of Price Waterhouse Coopers, Christopher Vollmer, said that both DraftKings and FanDuel are in a race to lock in as many customers as is possible while daily fantasy sports is still in the hyper-growth stage.
Mr Vollmer said, “You won’t know when the music will stop.” he continued, that it was a good time for all of them, because this category is taking off and becoming more mainstream.
Federal law has banned most online sports betting, however, fantasy sports contests, for money, are allowed as long as they meet several criteria. The most important is that the games are games of skill, this must reflect the player’s ability to be able to analyse statistics and be able to assemble a roster, it must not be a game of chance, such as, betting only on the final score of a game.
In some states online gambling regulations are more strict than federal law, both companies will not allow players from states such as, Arizona, Iowa, Montana, Louisiana and Washington to compete for the
Both companies have done some rigorous analysis legally to ensure that their operations are legal.
But, some legal experts have cautioned that the companies are offering prizes in some states where the laws regarding winning money on fantasy sports are not clear, which leaves the companies vulnerable to legal challenges.
Mr Robins said that Disney backed out of potential investment in DraftKings partly because they did not want their brand associated with companies that have ‘echoes of sports gambling’.
He continued that ESPN was a sports brand, and that Disney was focused on children. He continued that the reality was their product was for little children coming home and watching Disney programs in the afternoon.
DraftKings reached an advertising agreement that is exclusive with ESPN and that they agreed to spend about $250 million on ESPN. However, the Fox advertising deal was not exclusive, which means that Fox can still accept ads from other companies such as FanDuel and Yahoo.
The legal questions have not kept some of the biggest names in media and sports from plunging into the business. DraftKings’ investors include the NHL, Major League Baseball, and Major League Soccer, and FanDuel’s backers include, Comcast Ventures, NBC Sports, and the NBA.
Mr Robins said that all the deals, significant amount of diligence was done on he topic and each one of them came away with a firm conclusion that they were 100% in compliance with all of the applicable state and federal laws.