FANTASY OVER ‘DRAFT’
Deals sap income
Reality is about to hit home for daily fantasy sports giant DraftKings.
While the stakes are high for both DraftKings and rival FanDuel heading into a key court hearing on Wednesday, DraftKings has even more riding on the showdown with New York Attorney General Eric Schneiderman.
Despite the perception that daily fantasy sports operators are raking in the cash, moneylosing DraftKings is weighed down by hundreds of millions in ad commitments, putting it on shakier financial footing, sources said.
DraftKings still owes roughly $400 million under multiyear ad deals with ESPN and Fox, sources said, adding that it is current on its bills after asking for more flexible payment terms.
“DraftKings is an innovative technology and entertainment company with a very healthy business model,” a spokeswoman said. “We are confident in the sustainability of our product and in the passionate support of the millions of Fantasy Sports customers who love to play our games.”
Fox declined comment. ESPN did not return calls.
While FanDuel has marketing deals with several sports teams, the amount is much lower than DraftKings’ commitments, sources said.
Earlier this month, FanDuel Chief Executive Nigel Eccles told Bloomberg he had no interest in merging with its closest rival because of DraftKings’ ad commitments for air time.
Eccles said he “can see why [a merger] would be attractive to [DraftKings]. I don’t know why they think it would be attractive for us.”
Schneiderman filed a motion last week to keep the daily fantasy sports companies from operating in the state on the grounds that they constitute illegal gambling.
Both companies and the AG will be in court on Wednesday before New York state Judge Manuel Mendez, who will decide whether to grant a preliminary injunction.
FanDuel has already stopped taking New York money while it fights in court, but DraftKings continues to operate here. New York is home to the most daily fantasy sports players, representing 12.8 percent of the market, according to Eilers Research.
As their legal woes mount, both companies are trying to maintain breakneck growth.
Just a few months ago, DraftKings projected tournament revenue would triple in 2016, to $305 million, up from $105 million this year, in a pitch to potential investors, according to a source who saw the presentation.
After raising $300 million in July, valuing the company at $1.2 billion, DraftKings abandoned the latest attempt to raise more money from investors.
“Some investors have informed us that secondary market valuations for FanDuel and DraftKings are roughly 50 percent below the last round given the legal uncertainties,” Eilers Research wrote in a November report.