DraftKings Inc., the Boston-based fantasy sports company, said Wednesday it inked a major marketing deal with ESPN, but the agreement didn’t include an expected investment from Disney Co., the cable network’s parent company.
The three-year-old startup is still negotiating to raise about $250 million from investors, according to a person familiar with the matter. That’s in the same ballpark as the amount Disney had discussed pumping into DraftKings, The Wall Street Journal reported in April.
The new investment round is expected to close in the near future, with a mix of strategic and financial backers, but the valuation it will put on DraftKings has not yet been determined, the person said.
The exclusive marketing deal with ESPN, terms of which weren’t disclosed, will bolster DraftKings’ visibility as it battles its larger competitor, FanDuel Inc. The loss of Disney as a potential investor, meanwhile, would likely be a temporary setback if the new financing is lined up quickly.
Adam Krejcik, a digital games analyst at Eilers Research, said the bigger question for DraftKings is how many players it can attract from its advertising deal with ESPN. “People are knocking on their doors to give them money at this point, so there’s no shortage of willing investors,” he said.
FanDuel and DraftKings are the two largest companies in the fast-rising niche of daily fantasy sports, which lets contestants in most states compete for cash prizes in short-term games.
Instead of managing a virtual roster of athletes for an entire season, daily fantasy players can compete for the best statistical scores in a single day’s games. That keeps players coming back for more games, seeking to assemble what they think will be the best-performing group of players from around the league — Seattle Seahawks running back Marshawn Lynch paired with New England Patriots quarterback Tom Brady and the Denver Broncos’ receiving corps, for example.
Betting on fantasy sports is essentially a legal form of online sports gambling in many states, owing to an exemption in federal gambling law based partly on the notion that assembling a team is a test of skill, rather than chance. People who live in Arizona, Iowa, Louisiana, Montana, or Washington aren’t allowed to compete for cash prizes on either DraftKings or FanDuel.
Disney’s possible investment in DraftKings had been expected to value the company at about $900 million, the Journal reported last month. On Wednesday, DraftKings CEO Jason Robins confirmed the two companies had been in extended talks, but said the new ESPN marketing deal didn’t include an equity investment.
“There were a number of discussions which resulted in us coming together with a deal that we thought made the most sense for both companies. ESPN and DraftKings are both very excited about the partnership,” he said.
“This is the deal that was the best strategic decision for our company,” ESPN spokeswoman Katina Arnold said.
Neither company would discuss how much the ESPN marketing deal was worth. DraftKings becomes ESPN’s exclusive daily fantasy sports provider as part of the deal, which includes advertising across ESPN’s huge footprint of digital and TV sports properties.
Sports leagues and major media companies are scrambling to get a piece of the action. NBC, the NBA, and Comcast Ventures have all invested in FanDuel, and Major League Baseball is a DraftKings investor. The Fantasy Sports Trade Association reports that more than 41 million people in the U.S. and Canada play fantasy sports.
ESPN already runs a very popular series of fantasy sports contests on its websites. The company said more than 12 million people play its online fantasy sports games, and claims the most popular fantasy football game. The partnership with DraftKings should help ESPN compete with Yahoo, which also operates popular fantasy sports leagues and announced in April that it planned a new daily fantasy sports option, expected to launch this summer.
FanDuel has said it collected $622 million in game fees last year, amounting to more than $57 million in revenue after paying out prizes. DraftKings reported $304 million in fees and about $40 million in revenue for 2014. On its website, DraftKings advertises that it will pay more than $1 billion in prizes this year.
DraftKings has previously raised about $75 million in private investment from backers including Redpoint Ventures, GGV Capital, and Cambridge-based Atlas Venture. The company’s cofounders are Robins, Paul Liberman, and Matt Kalish, who met while working at the Lexington office of printing company Vistaprint.
Re/code reported on Tuesday that Disney would not be buying a stake in DraftKings.
Updated 7:30 p.m. Wednesday with new information