How DraftKings plans to win the fantasy sports startup wars

DraftKings' new mobile app
DraftKings' new mobile app

Time and again, preeminence in professional sports comes down to Boston versus New York . So it is with the fantasy variety: Boston upstart DraftKings is vying with two New York companies for dominance of the emerging “daily fantasy sports” market.

Today, DraftKings unveils a big upgrade to its Apple iOS mobile app that aims to make fantasy sports a more social experience. Novel features include a way for players in the same room to instantly start a game with each other over wireless.

Unlike traditional fantasy sports — characterized by season-long leagues — daily fantasy sports sites let users compete in competitions that last as little as a day. Importantly, users can also play for real money.

The concept is legal in most states because it’s considered a skill-based game, rather than a game of chance.

DraftKings was the third to enter the daily fantasy sports space, launching its site in April 2012. The company says it’s since passed New York rival DraftStreet (and others such as Cambridge’s StarStreet) in terms of the amount of prizes distributed to players.

Another New York startup still stands in its way — FanDuel, which had a nearly three-year headstart. DraftKings co-founder Paul Liberman hopes to chip away at the lead by launching better options for mobile playing, such as the new features announced today.

Mobile will indeed by the focal point of daily fantasy sports growth in the future, said Jeremy Edwards, lead analyst for market research firm IBISWorld. “More people are playing fantasy sports through their phones than through their computers now,” he said.

Consumer success in Boston?

In Boston, DraftKings is one of the most promising consumer tech startups of the moment. The startup boasts a large and engaged user base (more than 1 million users spend an average of eight hours a month on DraftKings) and growing revenue (DraftKings takes a fee from the money paid in).

In 2013, the first full year for the DraftKings service, $45 million in winnings went out. It’s an impressive amount when you consider users are paying just $11 on average for a game.

But 2014 should see DraftKings entering a whole new league: the startup expects to surpass $200 million in prizes during the year, Liberman said.

FanDuel says it’s on pace to give out $400 million for the year*. Liberman contends that DraftKings’ focus on mobile will ultimately allow the startup to carry the day.

The company was the first with a mobile app for real-money fantasy sports, and has seen its user base grow as a result.

Now with the new feature, Local Play, DraftKings is making full use of what mobile can offer to fantasy sports for the first time, Liberman said. Friends sitting around watching a game can now launch a fantasy competition with each other within a few minutes. (The app uses Bluetooth and Wi-Fi to connect players’ devices to each other.)

“We think the mobile space is going to be enormous” for daily fantasy sports, Liberman said, thanks in no small part to the potential of combining mobile with social.

DraftKings has also sought to draw attention by running big-money events. After FanDuel said it would run a single-day football contest in December with $3 million in prizes, DraftKings rolled out a nearly-identical contest for the same month, with a key difference: its prizes would total $3.1 million.

DraftKings users can compete in fantasy leagues for professional football, basketball, and hockey, and baseball is planned to launch later this month. Additionally, DraftKings has a college basketball competition for March Madness.

Venture money flowing in

The fast-moving opportunity has led DraftKings to vigorously add venture capital investment since its founding by three former Vistaprint managers in 2011. The startup has accumulated $35 million in total, including a $24 million Series B round in November.

The funding has helped DraftKings to move quickly in its development efforts, including around mobile. The company now employs 40, with 10 of those added since November, and expects to add another 20 employees this year. The startup’s total funding is also well above the $18 million FanDuel has raised.

DraftKings’ investors include Atlas Venture of Cambridge and Redpoint Ventures of Silicon Valley. Atlas partner Ryan Moore has told me the funding has flowed to DraftKings in part because the company has nailed down a revenue model almost from the start.

All of which adds up to a very Boston-y consumer startup success story in the making.

* FanDuel’s website reports the company is giving out $6 million in prizes per week, for a pace of $300 million for the year, as the initial version of this post stated. A FanDuel representative said the giveaway is now projected at $400 million.

Kyle Alspach has worked in journalism in Massachusetts since 2005 and was one of the original staff writers at BetaBoston.
Follow Kyle on Twitter