By Lora Kolodny
Sports subsidiaries of Walt Disney Co., Time Warner Inc. and
21st Century Fox Inc. are jockeying to acquire stakes in nascent
digital fantasy-sports businesses.
Media companies want a piece of the latest revenue stream: daily
fantasy-sports games played online for cash. What started as a
quiet obsession among sports fans has in the past year morphed into
a big bet by television-sports networks on investments in online
fantasy-sports audiences.
In the latest such deal, Fox Networks Group has led a $300
million venture-funding round for daily-fantasy-sports startup
DraftKings Inc., said Eric Shanks, president and chief operating
officer of Fox Sports. Fox Networks' expected $150 million
position, for 11% of DraftKings, would give the startup a
post-money valuation of more than $1.2 billion, according to
another person familiar with the matter.
The move follows the $275 million that rival online
fantasy-sports startup FanDuel Inc. raised this month in a funding
round that included the venture arms of Time Warner and Comcast
Inc. The infusion garnered FanDuel a nearly $1.3 billion post-money
valuation, people familiar with the matter said.
Daily fantasy sports is expected to produce an estimated $2.5
billion in annual revenue in the U.S. alone by 2020, according to
forecasts from Eilers Research. The industry also offers
sports-media companies the promise of increased fan engagement with
a broad spectrum of sports content, including live events,
television programming and digital media.
Online fantasy sports opened a new chapter with the advent of
its daily element played for cash. Sports fans can now draft teams
of players one game at a time online, as opposed to competing in
season-long fantasy-sports leagues.
Daily fantasy-sports companies charge these fans entry fees and
take a commission of about 10% on each game. DraftKings, founded in
2011, generated $30 million in revenue last year FanDuel, founded
two years earlier than DraftKings, generated $57 million in revenue
in 2014.
For sports-media businesses, ownership stakes in these startups
represent opportunities for corporate parents to tap into
fast-growing lines of digital revenue. Such deals also position the
media companies to acquire consumer data that helps drive
programming decisions.
The question is whether the investment positions will lead to
acquisitions. FanDuel and DraftKings "are doing quite well," said
Sam Hamadeh, chief executive of PrivCo, a financial-data service.
"I wouldn't be surprised at all to see an [initial public offering
of stock] or an acquisition. Media boards, however, are picky. It
would have to be a very big public-company buyer--or an IPO."
So far, rather than buying their own daily fantasy-sports
platforms, sports-media companies are entering the industry through
investments or partnerships amid the websites' rapid uptick in
users and revenue.
To be sure, daily fantasy-sports websites face significant
challenges. Costs run high, as the startups pay out large cash
prizes and remain heavily dependent on advertising to attract
customers. DraftKings, for instance, gave away $300 million in
prize money in 2014, according to Chief Executive Jason Robins.
Talks over Disney possibly funding DraftKings collapsed this
year, according to people familiar with the matter. Yet soon after,
the startup announced a $250 million advertising deal with Disney's
ESPN that locks out competitors from placing ads on the
cable-sports network in 2016--including during football season,
when the use of daily fantasy-sports websites surges.
DraftKings also has struck a three-year agreement with Fox
Networks in which the startup will spend $250 million on
advertising across Fox properties as well, a person familiar with
the matter said. (21st Century Fox and News Corp, owner of The Wall
Street Journal, were until mid-2013 part of the same company.)
Meanwhile, DraftKings competitor FanDuel is poised for exposure
among National Basketball Association fans. Time Warner's Turner
Sports plans to integrate FanDuel with Turner's NBA on TNT and NBA
Digital properties, according to Turner Sports General Manager Matt
Hong.
There is no shortage of interest in daily fantasy sports among
professional sports leagues and franchises. DraftSHYKings's latest
funding round also included new investors such as the National
Hockey League, Major League Soccer and Madison Square Garden Co.
Existing investors that took part in the round included Major
League Baseball, Atlas Venture, Dodger Ownership Group and DST
Global.
Write to Lora Kolodny at Lora.Kolodny@wsj.com
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