By The Daily Payoff @TheDailyPayoff
Experts will say a key factor in driving business is healthy competition.
“You want to be the Avis to their Hertz,” the late Jay Larkin, former head of Showtime Sports, once said, when referring to his network’s ability to create opportunities for boxing when going up against rival HBO. “Healthy competition makes for a great marketplace and challenges you to do better and stay sharp. Without it, you go flat.”
Perhaps the same can be said of the pay fantasy space, where competition was at its peak last week. The attacker brand in the multi-billion dollar business, Boston-based Draft Kings , put on a 48-hour splurge of competitive activity that would have made Larkin very pleased.
On Thursday it was revealed that Major League Baseball Advanced Media had renewed its investment with Draft Kings and had used that investment to push the brand forward as the league’s official pay fantasy partner.
Later on Thursday it was also learned through industry sources that the company would be the official and exclusive partner of all Major League Baseball teams. The move effectively locked out its bigger rival, Fan Duel, from a critical growth area in pay fantasy, the sport of baseball and the millions of dollars in transactions and promotion that will take place as Opening Day arrives this weekend.
It was the first time that a team or a league with an investment had moved to lock out a competitor with its clubs, making Thursday a landmark day for the brand and the business.
Then late on Friday, The Sports Business Journal broke the long-rumored story that ESPN was going to make an equity investment in Draft Kings, with a number in the range of $250 million while valuing the company at roughly $900 million. http://www.sportsbusinessdaily.com/SB-Blogs/On-The-Ground/2015/04/0403-ESPN-DraftKings.aspx
The key component of the deal, Sports Business Journal reported, will be a premium ad spend by Draft Kings across ESPN, somewhere in the range of $50 million, with lots of incentives and cross promotions factored into the deal. The official announcement will not come until May when Draft Kings announces its next round of funding.
“An affiliation with ESPN is industry redefining,” Geoff Reiss, a former ESPN executive who was in a similar position two decades ago when ESPN parent Disney bought Starwave, which became ESPN.com told SBJ in their story. “ESPN represents the largest and most consistent promotional platform in sports for daily fantasy. The only other kingmaker as far as this industry goes is the NFL.”
All this rapid news for Draft Kings is by no means the end of the road for the much larger Fan Duel business. The New York-based company received a similar investment from Comcast Corp.’s venture arm last year, and has the NBA as an equity investor as well, along with an engaged audience which some experts say is about 60 percent bigger than Draft Kings.
The company also had a huge share of the very lucrative pay fantasy space for football this past fall, and with the NFL announcing last month that teams will now be able to take on pay fantasy partners in 2015 for the first time, the competition to have affiliate partners market by market will be very heated.
By the way, Draft Kings has an investment from Kraft Sports Group as well, and has announced partnerships with both the New England Patriots and the Denver Broncos in place.
The “official” partnership with MLB for Draft Kings in no way excludes Fan Duel from pay fantasy baseball in any way either, as the data used for games can be licensed from any number of sources. It limits exposure and the use of rights and likenesses but does not mean that Fan Duel could not buy advertising on broadcasts or partner with former players on endorsement deals. Their trove of marketing dollars is very deep, which has propelled them to a leadership position in the space to date.
Despite the massive investments in both fantasy companies, multiple reports suggest neither is near profitability yet, as the space is still too new, and the dollars too small, to bring either company into the black.
“It’s the Wild West for sure, with everyone trying to position themselves for leadership in a growing space,” added Chris Lencheski, a longtime sports marketer now running the firm Phoenicia. “The hedge for all these companies is legalized wagering at some point in the future, which will lift the pay fantasy business beyond where it is. But for now it certainly is impressive what Draft Kings has done, and it will be interesting to see Fan Duel’s next moves as well.”
Officials for ESPN, Draft Kings and Fan Duel declined comment Friday, which was of course Good Friday for many, but a Great Friday for Draft Kings and their backers .