Early last evening news broke that Boston-based DraftKings, the second largest daily fantasy sports site after FanDuel, was acquiring DraftStreet, the third largest competitor in the space.
While the merger creates a larger user base for DraftKings and could lead to larger prize payouts for users (according to a USA Today article), the new DraftKings/DraftStreet daily fantasy league could have large implications for other companies (including a struggling Internet giant) besides major market competitor FanDuel.
One of the biggest local impacts on the DraftKings/DraftStreet news is Jeremy Levine’s fantasy sports startup StarStreet.
While both sites launched their daily fantasy offerings around the same time in 2012, StarStreet had been around a bit longer, initially as an athlete stock market. However, as DraftKings grew rapidly, overtaking New York-based DraftStreet in the size of its player payouts and raising $35 million in funding (including $24 million in November), StarStreet has taken a backseat to its crosstown rival.
For a long time, there were rumors that the founders of DraftKings — Jason Robins, Matthew Kalish, and Paul Liberman — and StarStreet’s Levine have bitterly disagreed on who initially had the idea for a daily sports site based in Boston. However, recently, the word on the street has been that the animosity between StarStreet and DraftKings has cooled to the point that StarStreet was rumored as a potential acquisition target for DraftKings.
StarStreet likely appealed to its competitor because of the relationship it has with places such as the Playboy Mansion, where all of StarStreet’s big winners are invited for payout parties. (I reached out to Levine for comment on the DraftKings/DraftStreet acquisition and will add an update if I hear back.)
Additionally, the news of the merger must put FanDuel on its toes quite a bit. With the addition of DraftStreet, DraftKings expands its user base by 50 percent. Early word on Twitter is that users are pretty happy with the merger, as DraftKings has made the transition from one service to the other relatively easy and seamless for DraftStreet customers.
As Kyle Alspach reported in March, DraftKings wants to become the industry leader in the daily fantasy sports sector and is well on its way to making that a reality, with more funding than FanDuel and the addition of one of its competitors in DraftStreet.
(Potentially) Big Winner
So why all the fuss over fantasy sports? Well, it is a monster industry that is growing every year. And, most importantly, even with large payouts to winners, the fantasy sports sector brings in tons of revenue.
According to the Fantasy Sports Trade Association, there are more than 40 million fantasy sports participants in the United States and Canada who spend an average of $111 per year on league fees and other costs. Currently, fantasy sports is a more than $3.6 billion industry, and its popularity is growing rapidly.
Between 2010 and 2014, the number of fantasy sports users has grown 25 percent. So who stands to gain the most from the rapidly growing industry?
One of the biggest players already in the fantasy sports industry: Yahoo. Along with rumors of the StarStreet and DraftKings love/hate fest were whispers that Yahoo has been waiting in the wings to acquire DraftKings.
With a lot of chatter about the company’s slow demise and speculation on how Marissa Mayer plans to fix Yahoo, what better place to turn around Yahoo than in the sector and industry that it not only already has found a lot of success but also carries a ton of credibility—sports. Yahoo Sports is like the non-evil, uncorrupted version of ESPN.
With all its fawning over specific sports stars like Lebron James, Johnny Manziel, and, for too long, Tim Tebow, ESPN’s news website has somewhat devolved into nothing more than a click-bait site featuring overpaid talking heads who often seem to create more news than they cover.
Meanwhile, Yahoo Sports become one of the most credible resources for sports news, thanks in large part to the excellent reporting of folks like Adrian Wojnarowski and Marc Spears. Additionally, Yahoo and ESPN have been battling over fantasy sports supremecy for a long time. Reports last year stated that for the first time, ESPN overtook Yahoo in Fantasy Football users (by a small margin).
Making a play for more of the fantasy sector by grabbing the new larger DraftKings/DraftStreet property, could be the positive bump that Yahoo and Mayer have long sought. Although it is unconventional, and doesn’t go along with acquisitions of the companies that Yahoo sees as its rivals (Google with Boston Dynamics, among others, Facebook with Oculus and WhatsApp), a move to become the industry leader in fantasy sports could not only be lucrative for Yahoo but also puts it head to head with Disney, which owns ESPN.
Yesterday’s merger makes DraftKings that much more appealing to a company like Yahoo and could lead to an acquisition that would be beneficial to both companies. The only other possibility for DraftKings is to continue to battle FanDuel, something it is in a much better position to do today.
Additionally, there have been rumors being reported by BostInno saying that DraftKings is on the cusp of large new round of funding. That could end up being true, which will just be more good news for DraftKings, but could also be a bit of gamesmanship aimed at pumping up the value of DraftKings to push a company like Yahoo to make a move.