The future of sports is radically changing. NewTV contracts, old forms of revenue and different ways to consume content have made the way we watch sports almost as important as the events themselves. While we don't know the future, we now know one of the major players in the market.
DraftKings helped take the concept of daily fantasy sports become a multibillion-dollar industry. Two recent moves will take daily fantasy sports to an even higher level. And the deals soon might on a MUCH MUCH higher level because DraftKings just raised $300 million (not a typo) in funding to grow its business. The major investor is Fox, which invested $150 million for 11% of the company according to the report. Fox will also get $250 million in advertising from DraftKings over the next three years.
This is the second massive deal for DraftKings this summer. DraftKings struck a deal with ESPN, agreeing to a $250 million ad buy in exchange for having exclusive ad access to the series of networks. That means rival FanDuel and other daily fantasy leagues can't advertise on ESPN, which carries the NBA, NFL and MLB.
The moves suggest two massive trends that aren't going away anytime soon. For starters, fantasy sports may soon drive the fantasy sports bus. Just look at these revenue numbers and try to match them in any other industry.
- DraftKings and FanDuel will give away more than $3 billion in prizes this year.
- Draftkings gave out $300 million in 2014, FanDuel gave out $560 million.
- In 2011 FanDuel gave away $10.35 million.
The DraftKings deal also suggests networks are seeking new ways to optimize revenue in the face of declining subscriber numbers. If DraftKings is the only daily fantasy sports league that can advertise on ESPN, what prohibits Coca Cola, Lowe's or Toyota from doing the same for a far greater value?
Fox also has a vested interest in daily fantasy sports because it has an ownership stake in DraftKings. The idea of diversifying your business model to include sports-related activities isn't new (remember the ESPN restaurant), but the DraftKings investment is a new approach. Keep in mind, Yahoo already created daily fantasy earlier this summer.
Daily fantasy sports already has exclusive deals with some leagues; those rights could also grow; leagues might even take the plunge and run their own leagues if the profit margins look good enough.
The startup world is full of bubbles that burst. And while the daily fantasy sports world has quickly inflated over the last four years, $500 million worth of deals in three months suggest that balloon still has plenty of room to expand.