A major selling point of daily fantasy sports is how little commitment they require. You just play for a day and walk away.
For the companies hoping to dominate this fast-growing market, however, it's anything but a short-term, low-stakes gamble, as events of the few days show. On Tuesday, FanDuel, the best-established daily fantasy provider, announced that it had secured $275 million in new venture funding, with KKR, Google Capital, Time Warner Investments and Turner Sports all participating in the round. Although the company didn’t disclose the valuation attatched to the new funding, the Wall Street Journal reports it to be $1.275 billion.
FanDuel’s major rival, DraftKings, is also said to be on the verge of announcing a massive new funding round that would give it a comparable war chest and valuation. Both moves follow closely on the heels of Yahoo, by far the biggest player in traditional season-long fantasy sports, launching its own daily offering.
Yahoo’s entry came as a significant surprise to many, not least to the people running FanDuel and DraftKings. I interviewed FanDuel CEO Nigel Eccles in January for a story in our Best Industries package, and asked specifically whether he was worried that Yahoo, ESPN or CBS would make a play of their own for the hundreds of millions of consumer dollars pouring into daily fantasy sites. Eccles predicted they wouldn’t because FanDuel (and DraftKings) had an insurmountable head start and because media companies don’t want to be in the business of handling payments. He pointed out that those companies had all been reluctant initially even to accept advertising from FanDuel, worrying that it was too close to gambling.
Indeed, that squeamishness is reportedly the reason Disney walked away from a plan to invest $200 million in DraftKings, even though much of that money would have flowed right back into its coffers in the form of guaranteed commitments to advertise on ESPN properties. Typically, a major investor pulling out of a deal might scare off other parties, who would view it as a red flag. That DraftKings was reportedly able to replace Disney’s stake in the round with new pledges from Fox News and other investors is a sign of how frenzied the daily fantasy space has become.