DraftKings

History

DraftKings was established in 2012 by Jason Robins, Matthew Kalish, and Paul Liberman, former Vistaprint employees. The company initially operated out of Liberman's house. The company's first product was a one-on-one baseball competition, launched to coincide with Major League Baseball's opening day in 2012.

In July 2012, the company announced its first outside funding, a $1.4 million investment from Ryan Moore at Accomplice in Cambridge, along with other investors.

In April 2013, Major League Baseball invested an undisclosed amount in DraftKings, becoming the first US professional sports organization to invest in daily fantasy sports, after a successful presentation by CEO Jason Robins to MLB Advanced Media, the league’s technology and media wing. The investment was not disclosed at the time.

In November 2013, the company received $24 million of Series B funding from a group of investors including Redpoint Ventures, Accomplice, BDS Venture Fund, GGV Capital and Jordan Mendell.

In February 2014, it was reported that the company awarded $50 million in prizes in 2013 to players in weekly fantasy football, daily fantasy baseball, daily fantasy basketball and daily fantasy hockey. The company also reported 50,000 active daily users and as many as one million registered players.

In July 2014, when the company was the second largest company in the daily fantasy sports industry, it announced the acquisition of the third largest company, rival DraftStreet, owned at the time by New York media company IAC. The acquisition reportedly increased DraftKings' user base by 50%. The company announced it would keep the DraftStreet NY office open and retain some employees.

In August 2014, the company announced $41 million in funding from a variety of investors, including The Raine Group, as well as existing investors Redpoint Ventures, GGV Capital, and Accomplice. The company also announced that it was acquiring the assets of Somerville, MA, competitor StarStreet.

In November 2014, DraftKings announced an exclusive multi-year agreement with the National Hockey League. The deal gave DraftKings exclusive rights to use NHL-owned intellectual property and all of the NHL’s assets. The company would also get prominent placement on the NHL’s digital platforms, including NHL.com, NHL Mobile, the NHL Network and the NHL’s social media accounts.

In April 2015, DraftKings and Major League Baseball announced a multi-year deal making DraftKings the "Official Daily Fantasy Game" for the sport. The agreement allowed DraftKings to offer co-branded MLB daily fantasy games and extend its relationships with individual MLB clubs to offer in-stadium fantasy-related experiences. The company also announced it had received $304 million in users' entry fees in 2014.

In July 2015, DraftKings entered into a three-year advertising deal with ESPN Inc. valued at $250 million. This deal includes "integration" of the service within ESPN's television and digital content and having exclusivity for advertising within the daily fantasy market on ESPN networks beginning in January 2016.

Also in July 2015, DraftKings announced a round of funding totaling $300 million, led by Fox Sports, along with the Kraft Group, owners of the New England Patriots, and Boston financial giant Wellington Management. The agreement included an arrangement that DraftKings would spend $250 million on advertising with Fox Sports over the next three years.

In August 2015 DraftKings was granted a license to operate in the UK and after a delayed start, on February 5, 2016 DraftKings.co.uk officially launched as a mobile app for players in the UK to join and play.

In November 2016 [FanDuel] and DraftKings, the two largest companies in the daily fantasy sports industry, reached an agreement to merge. Pending approval by the Federal Trade Commission, the merger will close in late 2017. DraftKings and FanDuel, combined, have about 5 million users while an estimated 57 million people in North America play some type of fantasy sports

Contests

DraftKings offers a variety of fantasy sports contests for players at a range of different skill levels. Contests include beginner contests for novice players, "Step" contests where players win tickets at different levels to advance to the next level, "Multipliers" (also known as "Boosters"), which allow players to quickly boost their entry fee by earning higher scores, three man leagues, "50/50" contests, where players win by finishing in the top half of their league, "Head to Head" contests, where two players face each other, and "Guaranteed Prize Pools" (GPPs), tournaments where a smaller number of players can win larger amounts.

Players can use the DraftKings web site, or manage their fantasy games using a mobile app that supports iOS or Android. According to DraftKings, a greater focus on mobile users is part of its growth strategy.

Partnering agreements

Major League Baseball (MLB) has an investment stake in the company and is a partner. The company has an exclusive $250M advertising contract with the American sports network ESPN, and a $250M non-exclusive advertising deal with 21st Century Fox's Fox Sports unit.

In addition to MLB, ESPN and Fox, as of July 2015, DraftKings also had partnership agreements with the National Football League, media property Bleacher Report, two sport promotional bodies (NASCAR and UFC), two venues (Madison Square Garden and Staples Center), five NFL teams, eight NBA teams, twenty-five MLB teams, seven NHL teams, and the New York Liberty of the WNBA.

Legality

There is controversy regarding whether or not daily fantasy sports constitutes as gambling. In most US states, fantasy sports (including daily fantasy sports) are considered a game of skill and therefore not considered gambling. However, some states, such as Arizona, Montana, Louisiana, Iowa and Washington, either use a more restrictive test of whether a game is one of skill or have specific laws outlawing paid fantasy sports. Despite not being considered as gambling in most states, in 2015, the NCAA banned student athletes from participating in daily fantasy sports, while the NFL limited the amount of money its players could win from daily fantasy sports.

At a US federal level, fantasy sports is defined and exempted by the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA). The bill specifically exempts fantasy sports games, educational games, or any online contest that "has an outcome that reflects the relative knowledge of the participants, or their skill at physical reaction or physical manipulation (but not chance), and, in the case of a fantasy or simulation sports game, has an outcome that is determined predominantly by accumulated statistical results of sporting events, including any non-participant's individual performances in such sporting events..." However, all prizing must be determined in advance of the competition and can not be influenced by the fees or number of participants. To be compliant, fantasy sports must follow the rule that: "prizes and awards offered to winning participants are established and made known to the participants in advance of the game or contest and their value is not determined by the number of participants or the amount of any fees paid by those participants."

Since fall of 2015, daily fantasy sports websites have faced legal challenges in various states. On October 6, 2015, the New York Attorney General opened an investigation into DraftKings and FanDuel over whether employees from both websites won money on each other's site using inside information. DFS websites have also been the subject of false advertising lawsuits.

On October 15, 2015 the Nevada Gaming Control Board, responsible for all gambling regulations in Nevada, ruled daily fantasy sports should be considered gambling and ordered daily fantasy sites such as DraftKings and FanDuel to cease operating in the state immediately. Both daily fantasy companies suspended operations in Nevada immediately, releasing statements which declared the declaration "self-serving" and "exclusionary" as Nevada and its casinos banned daily fantasy to protect their own gambling operations.

On October 20, 2015, the NCAA informed FanDuel and DraftKings via letter that both companies would be barred from advertising at NCAA championship events, including television broadcasts.

On November 10, 2015, New York attorney general Eric Schneiderman declared that daily fantasy sports constitutes illegal gambling in New York. On December 11, 2015, a New York Supreme Court Justice ruled that DraftKings met the criteria of an illegal gambling operation and banned it from operating in New York, a state with 1.2 million daily fantasy users as of December 2015. The ruling was overturned later that day when a judge in the New York Court of Appeals granted the website an emergency temporary stay. In January 2016, Schneiderman filed an amended lawsuit to include a demand for restitution, which would require DraftKings and FanDuel to repay the entry fees of all players from New York and be fined up to $5,000 per person who lost money on the fantasy sports gaming sites (DraftKings and FanDuel collected $200 million from 600,000 New Yorkers in 2015).

Controversy

On October 5, 2015, a New York Times article indicated that an employee at DraftKings admitted to inadvertently releasing data before the start of week 3 of NFL football games. That same employee had won $350,000 on rival fantasy site FanDuel the same week. An internal review concluded the employee obtained the data after lineups were locked and couldn't have used that data for an unfair advantage. Both DraftKings and FanDuel released statements saying that "Nothing is more important... than the integrity of the games we offer to our customers," and they would work with the entire fantasy sports industry "so that fans everywhere can continue to enjoy and trust the games they love." The following day, New York Attorney General Eric Schneiderman opened an inquiry into DraftKings and FanDuel, asking each site for a range of internal data and details on how they prevent fraud. ESPN announced on October 6 that they would no longer be running segments sponsored by DraftKings, though paid DraftKings advertisements would continue.