Posted on Friday, Jul 21st 2017
According to Juniper Research, the entry fee revenues in the fantasy sport industry are estimated to grow from $2.6 billion in 2016 to $5.3 billion by the year 2020. However, the industry is witnessing several legal and regulatory concerns that have slowed down the growth of Billion Dollar Unicorn DraftKings.
Boston-based DraftKings was founded by VistaPrint alumni Matt Kalish, Paul Liberman, and Jason Robins in 2011. The company’s first offering was a one-on-one baseball competition released on the opening day of the Major League Baseball. DraftKings allows users to enter daily and weekly fantasy sports-related contests with winnings based on individual player performances. The company offers fantasy sports in major sports including MLB, the NHL, the NFL, the NBA, the PGA, the Premier League, and UEFA Champions League soccer, NASCAR auto racing, Mixed Martial Arts (MMA), and American college football and college basketball.
DraftKings earns revenues in the form of entry fees for games played by the subscribers. Revenues have grown from $3 million in 2013 to $105 million in 2015, but it still has not turned profitable.
DraftKings is venture funded with $715 million in funding from Eldridge Industries, Revolution, 21st Century Fox, Atlas Ventures, BDS Venture Fund, Boston Seed Capital, First Mark Capital, GGV Capital, Kraft Group, Major League Baseball Ventures, Major League Soccer, Melo7 Tech Partners, National Hockey League, Redpoint Ventures, and the Raine Group. Its last funding round was held in March this year when it raised $118.65 million from Eldridge Investors at an undisclosed valuation. Earlier rounds of funding had pegged its valuation at $2 billion.
DraftKings’ FanDuel Merger
DraftKings is not the only big name in the industry. New York-based FanDuel was founded in 2009 by Nigel Eccles, Tom Griffiths, and Lesley Eccles. The company was founded when the three figured that there was an opportunity for a simpler fantasy sport market that could also increase the winnings for their players. FanDuel came up with the idea of playing fantasy sports by announcing winners almost every day instead of once a year. FanDuel’s revenues have grown from $57 million in 2014 to $170 million in 2015. It has so far raised $416 million from investors including KKR, Google Capital, Time Warner, Shamrock Capital Ventures, Bullpen Capital, the Scottish Investment Bank, Comcast Ventures, and Piton Capital. The company’s last disclosed valuation was of more than $1 billion as of July 2015.
For a while now, the fantasy sports industry in the US was dominated by these two key players, who between them had nearly 4 million users in the US. But the fantasy sports industry has been embroiled in several legal controversies. Even though gambling is illegal in many states, these companies have been getting away by citing the online gambling laws that exclude fantasy sports from their remit. Additionally, DraftKings was involved in a controversy when news broke out that its employees were not only participating in the games, but earning big winnings. The news led both DraftKings and FanDuel to issue statements taking stronger measures to prevent employees from playing.
Last year, driven by increasing competition and tougher regulatory and legal boundaries, the two players announced plans to merge. The merger would have allowed these two to combine their efforts to deal with the rising legal concerns surrounding the industry. However, in June 2017, the Federal Trade Commission (FTC) announced its objection to the merger, citing that the merged entity would “control more than 90% of the US market for paid daily fantasy sports contests”. The companies have decided not to appeal the ruling and will now continue to operate as competitors again. But elusive profits and high legal and marketing costs will be big hurdles for future growth.
More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.
This segment is a part in the series : Billion Dollar Unicorns
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