Draftkings
Draftkings
DraftKings is an American daily fantasy sports content provider. The company allows users to enter daily and weekly fantasy sports–related contests and win money based on individual player and team performances in five major American sports (MLB, the NHL, the NFL, the NBA and the PGA), Premier League and UEFA Champions League soccer, NASCAR auto racing, Canadian Football League, the Arena Football League, Mixed Martial Arts (MMA) and Tennis.
As of April 2016, the majority of U.S. states consider fantasy sports (including daily fantasy sports) a game of skill and not gambling, although a number of states have prohibited or created specific laws making daily fantasy sports illegal.[2] In November 2016 FanDuel and DraftKings, the two largest companies in the daily fantasy sports industry, reached an agreement to merge. However the merger was terminated in July 2017 due to it being blocked by the Federal Trade Commission as the combined company would have controlled a 90 percent market share. As of July 2017, DraftKings has eight million users.[3][4]
History
DraftKings was established in 2012 (FanDuel, a competitor was launched in 2009) by Jason Robins, Matthew Kalish, and Paul Liberman, former Vistaprint employees.[5] The company initially operated out of Liberman's house.[5] The company's first product was a one-on-one baseball competition, launched to coincide with Major League Baseball's opening day in 2012.[5]
In July 2012, the company announced its first outside funding, a $1.4 million investment from Ryan Moore at Cambridge-based venture firm Accomplice, along with other investors.[6]
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.[7]
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.[6]
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.[1]
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.[8] The acquisition reportedly increased DraftKings' user base by 50%.[9] The company announced it would keep the DraftStreet NY office open and retain some employees.[8]
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.[10] The company also announced that it was acquiring the assets of Somerville, MA, competitor StarStreet.[8]
In November 2014, DraftKings reached a two-year deal to become the official daily fantasy sports service of the National Hockey League. The deal included sponsorships of video features and other content across the NHL's digital outlets, co-branded free games with fan-oriented prizes, and in-venue ad placements during marquee NHL events. Yahoo! Sports remained the league's official season-length fantasy sports provider.[11][12]
In April 2015, DraftKings reached a similar deal with Major League Baseball.[13] 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.[13] The company also announced it had received $304 million in users' entry fees in 2014.[13]
In July 2015, DraftKings entered into a three-year advertising deal with ESPN Inc. valued at $250 million. This deal included "integration" of the service within ESPN's television and digital content, and having exclusivity in advertising DFS services on its networks beginning in January 2016.[14][15]
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.[16] The agreement included a condition stating that DraftKings would spend $250 million on advertising with Fox Sports over the next three years.[9] Due to the acquisition of 21st Century Fox by Disney in March 2019, Fox's stake is now owned by The Walt Disney Company.[17]
In August 2015, DraftKings announced that it had been granted a license by the Gambling Commission to operate pool wagering services in the United Kingdom, and that it planned to open an office in London. The company also hired Jeffrey Haas, a veteran of the online poker industry, to serve as Chief International Officer to lead the company's international expansion.[18] DraftKings officially launched in the UK on February 5, 2016 with daily fantasy soccer. As part of the launch, DraftKings enhanced its handling of soccer on the platform to appeal to the local audience.[19] The following year, DraftKings was subsequently awarded a controlled skill games license in Malta, which would allow the service to expand into any European Union country that allows gambling services to operate under licensing from another EU country, such as Germany.[20]
On November 18, 2016, DraftKings and FanDuel announced an intent to merge. The combined company would serve over 5 million users.[23] On June 19, 2017, the Federal Trade Commission (FTC) announced that it would seek a preliminary injunction to block the then-proposed merger. The FTC felt that the proposed transaction would give the combined company 90% of the U.S. DFS market, which it considered to be a monopoly position.[24] On July 13, 2017, the merger was officially called off due to the threat of litigation.[4] At this time DraftKings CEO Jason Robins also announced the company was approaching 8 million users.[25][26]
In September 2017, DraftKings and FanDuel each paid $1.3 million to settle with the Massachusetts Attorney General's office over allegations of unfair and deceptive practices by the companies prior to 2016.[27]
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,[31] and "Guaranteed Prize Pools" (GPPs), tournaments where a smaller number of players can win larger amounts.[32]
Partnering agreements
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.[14]
In November 2017, DraftKings announced that it had acquired digital rights to EuroLeague basketball games in Canada and the United States. The company planned to, beginning in 2018, stream games to those who participate in associated DFS contests with an entry fee of $3 or more, and offer one free streaming game per-week. DraftKings CEO Jason Robins stated that he was aiming for the service to become a "one-stop shop" for fantasy players, so they would not have to "hop around to necessarily five or six different places to consume the game content". He envisioned that major sports leagues could reach similar partnerships in the future.[37][38]
Vince McMahon owns an unspecified minority stake in DraftKings. It will be the official fantasy sports platform for the XFL and will also host the league's exclusive sports betting platform if legal circumstances allow it.[39]
In September 2019, the National Football League (NFL) announced an official partnership with DraftKings, becoming the first daily fantasy sports platform to enter a formal relationship with the league.[40]
Legality
There is controversy regarding whether or not daily fantasy sports constitutes as gambling.[41][42][43] 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.[43] 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.[2][44]
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..."[45] 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."[46]
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.[47] DFS websites have also been the subject of false advertising lawsuits.[43][48][49]
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.[50]
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.[51]
On November 10, 2015, New York attorney general Eric Schneiderman declared that daily fantasy sports constitutes illegal gambling in New York.[52] 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.[53][54] 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).[55][56]
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 three's 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.[57] 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."[58] 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.[59] ESPN announced on October 6 that they would no longer be running segments sponsored by DraftKings, though paid DraftKings advertisements would continue.[59]