DraftKings CEO: Early interest From MLB, Kraft Group ‘Eye-Opening’
DraftKings is in a growth phase, attempting to draw as many users as possible to its daily fantasy sports website, which in turn the company hopes will drive more sports fans to advertising partners that include ESPN and FOX Sports, according to CEO and co-founder Jason Robins.
The Boston-based startup this week raised a $300 million Series D round led by FOX Sports, a company with which it inked a separate partnership—one that reportedly guarantees DraftKings will spend around $250 million over the next three years on various Fox media outlets. DraftKings has a similar deal already with ESPN. Robins spoke with Xconomy about the deals and the business.
Xconomy: Do you remember when people started taking fantasy sports seriously as a business, rather than just keeping stats about athletes?
Jason Robins: There were two. One was the first conversation I had with Kenny Gersh and Bob Bowman of Major League Baseball Advanced Media. They’ve always been on the forefront of technology. They have always spotted new trends.
XC: And the other?
JR: When I met with Jonathan Kraft, who is the president of the Patriots and The Kraft Group, and who works with his father, Robert Kraft, on building out their businesses. Those two conversations happened in the last year and a half, two years at this point. Both those conversations were ones that really were eye-opening for us. We felt we were a tiny company at that point, and didn’t feel we’d be on the radar screen of these giant sports owners and teams.
XC: What was eye-opening about it?
JR: They were not only aware that fantasy sports is a big business, but they were familiar with the DraftKings brand. They understood the impact we were having on their own world and how we were creating even more popularity. It was something really unexpected to go into those conversations showing data to them. While it didn’t hurt to show the data, they understood our business and the impact it has on their business.
XC: What’s the impact?
JR: We have a huge impact on the function of their live content. When people play on DraftKings, we find that 80 percent of them consume more sports content. That really drives their business up in a big way. From the research we did, we asked how many of our customers started following new sports since they started using DraftKings. Almost half reported that they started following new sports that they previously never paid attention to. When you can have that kind of impact on the consumption of the media content, and all the sports teams and venues we partner with, they naturally take interest.
XC: Hence your recent advertising deals. It’s been pretty widely reported that you have a $250 million ad deal with FOX Sports in addition to the new round of venture funding. Is that right?
JR: We can’t comment on the amount or the specific terms. I can tell you that we do have a commercial partnership with Fox. We had one prior to the equity investment. After working with them for a year or two, we decided they were a partner we wanted to expand our relationship with. It goes beyond advertising. It’s going to call for integration into the actual sporting broadcast in a meaningful way, more so than a traditional advertiser might look at. Given that we are so linked to the games, it’s going to be very organic and natural to the viewer. Fox is very much aligned with that and very quickly got our vision for that combined effort.
XC: Does that mean that it might be a product placement at the end of the commentary, or in it?
JR: I don’t want to talk too specifically; we don’t want to steal the thunder. Those are types of things we’re hypothetically talking about.
XC: You have a similar deal with ESPN, right? That’s also been reported at about $250 million.
JR: We have a similar multifaceted commercial relationship with ESPN, which calls for broadcast, digital and other forms of integration with their fantasy product. On that one, we have the same sort of confidentiality where we can’t talk about the dollar amounts. ESPN has the No. 1 fantasy audience, in terms of size. Fans like the season-long games. ESPN, by providing a season-long experience, and integrating that with the daily experience of DraftKings, will allow us to create the ultimate experience with fans.
XC: Does that mean ESPN won’t get into daily fantasy sports?
JR: That’s another part of the deal I can’t comment on.
XC: You probably are spending in the hundreds of millions in marketing every year, right?
JR: We can’t say the specifics, but I will tell you that right now, we are in a rapid growth phase. We have a product that is very much differentiated from the competition. When you have that kind of advantage to the product line, people are loyal to the brand, and you want to get as many people to try your product as possible.
XC: Do you get any payback in your advertising deals for the number of fans you bring, any financial benefit?
JR: I can’t comment on the specific terms of the deal we have.
XC: How does your business model make you money, and is it directly related to the number of people who use your site?
JR: It is. Certainly we offer free games, but a lot of customers play games that are prize based that have an entry fee associated with them. DraftKings takes a portion of that, a very small portion, which is our revenue model. At the core, we’re mostly just focused on bringing as many customers as possible. Frequency of pay, amount of time people spend on the platform, the number of games they’re playing, how much we’re doing increases the consumption of live sports content. Those are the things that we think create the most value in the long run.
JR: If you can get millions of customers spending time on your platform, it’s almost like Facebook in its early days. It wasn’t really as much as the revenue model at the beginning. It was much more about how you get as many customers to spend as much time on Facebook as possible. When you get customers to spend a lot of time with you, it creates tremendous loyalty for your brand, and revenue follows.
XC: Does that mean advertising is key in the future?
JR: We want to keep all options open. There’s certainly no plans anytime soon to put advertising on the site. It’s a very clean site, a very clean mobile app. I think we’ll keep that. I don’t know where we’ll go down that road. I think once you have tremendous brand loyalty, things flow. While certainly advertising is something we’d consider, we are already making revenue.
XC: If not advertising, then what?
JR: If you have as many customers spending as much time with you as possible, it opens up all kinds of doors. We considered everything from do we want to take advertising, to do we want the sports teams we partner with to merchandize and sell sports memorabilia?
XC: Any other areas you’ve considered?
JR: Right now, it’s honestly the last thing on our minds. We throw things around here and there to answer interview questions like these. It’s just not relevant to even worry about those things if you don’t have a highly engaged customer. We’re not focused on that, and once we get to that point in the future, we can shift our focus. That’s not anytime soon. For the next several years, DraftKings will be about continuing to drive up user base.
XC: You said you expect to give out $1 billion of prizes this year. How does that correlate to revenues you take in from the fees you charge?
JR: The fees are around the same, but our revenue is typically about 10 percent of the prizes.
XC: That’s a lot of revenue for a young company.
JR: We’re only in our third full year. Hopefully that’s nowhere near what we can achieve. There’s over 50 million fantasy players just in the U.S. and Canada alone on DraftKings right now. There’s still a lot of room there. When you consider global opportunities, it wouldn’t be crazy we could have 100s of millions of players on our platform on one day. We’re really just at the infancy stage at this point.
XC: What other countries do you plan to expand to first?
JR: We’re focusing on Europe and Asia. The first country we’ll enter is the U.K. this year. There’s already a very established fantasy sports market. There’s 7 million fantasy soccer players, which is not that much lower than the percentage of the population in the U.S. that plays fantasy sports.