Is Disney-DraftKings a Done Deal? $250M Reasons to Say “No Comment”
Disney appears to be making a bet with DraftKings, the Boston startup that lets users make fantasy sports bets on a daily, per-game basis.
The entertainment conglomerate’s wager is a little more substantial than a guess about a basketball or football player’s performance; Disney is investing $250 million in DraftKings and its digital media tool, according to a report by The Wall Street Journal.
In return for the investment, DraftKings has agreed to commit more than $500 million to spend on advertising on platforms of ESPN, the sports network owned by Disney, the Journal reported, citing people familiar with the situation. DraftKings operates in a sector that has been expanding, with companies such as FantasyHub, the Louisville, KY-based company that was selected by the 2015 Techstars Austin program, offering players a way to donate to charity and win cash prizes. DraftKings’ biggest rival, FanDuel, is backed by Comcast Ventures and NBC Sports Group, among others.
DraftKings had a busy 2014, making at least two acquisitions and landing a $41 million round of funding, after previously raising $35 million. The company’s investors include Atlas Venture, GGV Capital, and Redpoint Ventures. The Journal says the Disney investment values the company at $900 million.
DraftKings and ESPN both declined to comment on the report. A current investor in DraftKings, reached by e-mail, called the Journal report “not accurate.” The investor, who replied on condition of anonymity, did not clarify what was inaccurate or reply to follow-up messages.
Players using DraftKings pick players they think will perform the best on a daily or weekly basis, and can potentially win cash if they pick the athletes who do the best. That compares with traditional fantasy sports, where players manage a team of players over an entire season. The company’s “betting” is legal because fantasy sports are considered games of skill under federal law, DraftKings says.
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This wasn’t an investment; it was a hold-up. ESPN, the 800 lb gorilla made a run at both companies with an outrageously bad deal. ESPN invests $250M for 25-30% of DraftKings and gets $500M back over 3 years! If DraftKings can’t meet the deal requirements, ESPN may well acquire controlling interest in the company. As a distant and desperate number two, DraftKings had little choice but to accept–or they would have been out of business. ESPN may be in for a big surprise when they discover how much money DraftKings actually loses with all their extreme overlays, a concept which most ordinary business analysts just don’t understand.
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