DraftKings CEO on Failed Merger, IPO Plans, Sports Betting Prospects

Xconomy Boston — 

DraftKings has been busy since its proposed merger with FanDuel was scrapped last summer, after the two daily fantasy sports rivals decided not to fight a federal agency’s antitrust challenge to the deal.

Boston-based DraftKings has since made a series of small moves to expand its business beyond its core paid daily fantasy sports contests. It has taken a first step into streaming live games through its app; co-produced a television broadcast that offered fantasy sports commentary in parallel with a New York Knicks basketball game; and offered DraftKings users discounted tickets to live sporting events through a partnership with Fanxchange.

And now, as the U.S. Supreme Court weighs a decision that could pave the way for legalized sports betting nationwide, DraftKings CEO and co-founder Jason Robins says his company will be ready. In anticipation of the Supreme Court ruling, the company’s engineers have been working for several months to develop products that would enable people to place wagers through DraftKings, he says. (More on this later.)

When the FanDuel merger fell through, there was some disappointment among DraftKings employees, but people didn’t let it distract them, Robins says.

“I think it was pretty much, ‘What’s next?'” Robins says of employees’ attitude. “The team responded really well.”

The reality is they had no choice after returning to the heated competition with top rival FanDuel. The Federal Trade Commission estimated the two companies control more than 90 percent of the U.S. paid daily fantasy sports market, and it challenged their merger over monopoly concerns.

Xconomy caught up with Robins by phone on Monday afternoon, while he was wrapping up an appearance at the South by Southwest Festival in Austin, TX—and crossing his fingers that an impending snowstorm in Boston wouldn’t ground his return flight.

One of the notable takeaways from the conversation: Robins claims DraftKings’ core daily fantasy sports business became profitable in the fourth quarter of last year. (As a privately held company, DraftKings doesn’t disclose detailed financial results.) That’s an important milestone for a company that spends heavily on advertising, although the big caveat is that DraftKings’ overall business remains in the red, Robins says.

“As a company, we are not profitable yet—nor do we want to be,” Robins says. “We are still making investments into some of these growth and expansion areas.”

One of those is content, including live streaming of sporting events. DraftKings’ first foray into that area was through a deal, announced in November, with EuroLeague Basketball that would enable DraftKings users in the U.S. and Canada to watch certain games within the company’s mobile app. In the press release announcing the planned offering, Robins said the goal is to make DraftKings a “one-stop destination” for sports fans. He framed the deal as a glimpse of the future of sports.

In our conversation, he says the move is primarily aimed at winning more daily fantasy sports customers—and getting them to spend more with DraftKings. In these short-term contests, users pay a fee to play against millions of opponents and potentially win large sums of money. Users draft a custom lineup of players and earn points based on how well those players perform. Adding the capability for users to stream games is a “natural expansion” of DraftKings’ offerings, and ideally will make its users “more engaged” with the company’s products, Robins says.

“There’s such a powerful impact for us on creating a stickier daily fantasy sports product and having customers view us as a superior platform because we offer those sorts of things,” Robins says.

New York-based FanDuel has also started to incorporate more live content. Through a partnership with TuneIn, FanDuel users can click a button in its app to listen to live audio of play-by-play commentary for certain games. FanDuel also has a partnership with NBA League Pass through which its users can tap a button and be directed to League Pass’s live streams of games.

Robins is quick to note that DraftKings isn’t interested in launching its own “over-the-top” video streaming service, a la Hulu, Sling TV, YouTube TV, and a horde of other competitors. “We probably wouldn’t be able to keep up with much more deep-pocketed companies,” Robins says.

Instead, DraftKings intends to form partnerships with sports leagues, streaming services, and other entities that hold the rights to broadcast games, he says. Part of DraftKings’ pitch is its users have already stored their payment info with the company, and it has accumulated a ton of data about what types of games will interest them.

“Our platform has millions of highly engaged sports fans,” Robins says. “There’s a direct linkage between what our customers are doing playing the fantasy games and consumption of the content. … What we do creates a lot of demand for that content.”

For consumers, Robins thinks DraftKings has an opportunity to make it easier for its customers to access live streams of games, ideally if it can strike more deals that enable it to embed video in the DraftKings app. But he recognizes that it’s a “complicated web of who owns the rights” to broadcast the games, which depends on the sport and the viewer’s location, among other things.

“We’ll hopefully create a frictionless experience for the customer,” Robins says. “They don’t mind paying for the content. But they don’t want to have to jump through hoops to access it.”

When asked if the live streaming play makes it more likely that DraftKings would be acquired by a Hulu, ESPN, or Comcast someday, Robins responds with a “maybe.” “I haven’t thought about it in that way,” he adds.

But he says an initial public offering is the goal for DraftKings, which has raised hundreds of millions of dollars from investors. An IPO won’t happen “for at least a couple years,” he adds.

“I think an IPO is probably the most realistic exit for us and probably also the best, but we’re open to other things,” Robins says. “You can control your own path to IPO. You can’t control whether someone else wants to buy you.”

A couple of years ago, much of Robins’s time was spent traveling to various state capitals to lobby for DraftKings as legislators began to regulate the emerging daily fantasy sports industry. He says regulatory discussions take up less of his time these days, although it might always be part of his job at DraftKings.

The company and its competitors have relied on an exemption in a 2006 federal law that banned online poker but allowed fantasy sports, which were categorized as games of skill and not chance, and therefore don’t fall under the purview of gambling laws. Critics have questioned the legality of the industry, saying the games are basically the same as sports gambling, which is illegal in most states. As daily fantasy sports have grown in popularity—and come under more intense scrutiny—a number of states have approved laws intended to explicitly legalize the industry, while instituting consumer protections.

Now, in an ironic twist, DraftKings—which has argued forcefully that its main product is not a form of gambling—is preparing to offer digital products that would explicitly involve betting on sports.

But launching those products depends on how the Supreme Court rules in a case that could invalidate a 1992 federal law prohibiting most states from authorizing betting on college and professional sports. (It’s legal in Nevada, Delaware, Montana, and Oregon, according to an NPR report.) There are a few ways the case could play out. But if the Supreme Court rules in a way that enables states to legalize sports betting, DraftKings would still have to wait for states to enact such laws before the company could launch related products for residents of those states, Robins says.

He says legalized sports betting could be an “enormous” opportunity to grow DraftKings’ business. He doesn’t think it will cannibalize the company’s fantasy sports revenues.

“It’s not like [sports betting] is a new activity that all of a sudden is going to be there,” Robins says. “It already exists. It’s just happening on the black market now.”