DraftKings made its name through the daily fantasy sports industry. In just a few short years, it grew from a garage-based startup into a top DFS site.
Of course, the daily fantasy boom has long since passed.
DraftKings is still in the DFS business, but they’re more focused on sports gambling now.
They serve the booming US legal sports betting industry. They’re already one of the top bookmakers in several states too.
How did DraftKings go from a daily fantasy company to being a highly successful US online sportsbook? You can find out here by reading about their history, scandals, and transition into betting.
Brief History of DraftKings
DraftKings launched in 2012. Former Vistaprint employees Matthew Kalish, Paul Liberman, and Jason Robins started the company from Liberman’s Massachusetts home.
They initially only offered a one-on-one baseball game. DraftKings launched this contest on the MLB’s opening day in 2012.
Just a few months later, DraftKings received their first outside investment. Ryan Moore, head of the Cambridge-based Accomplice, and other investors poured $1.4 million into the company.
By April 2013, the MLB put an undisclosed amount into DraftKings. In doing so, they became the first sports league to invest in a DFS company.
DraftKings continued to secure venture capital funds after collecting $24 million from a combination of Accomplice, BDS Venture Fund, GGV Capital, and Redpoint Ventures. Such outside money was necessary when considering that their rival, FanDuel, was also quite good at drumming up investments.
Throughout 2013, DraftKings paid out over $50 million in prizes through its various contests. It had also accumulated 1 million registered players by this point.
Industry studies concluded that DraftKings was officially the second-largest DFS company behind FanDuel in July 2014. Not long afterward, they acquired DraftStreet—the third-largest DFS site—and boosted their membership base by almost 50%.
DraftKings continued to secure more investments and sponsorships over the coming years.
They landed a deal with the NHL to become the official DFS brand of professional hockey.
The company also signed a three-year advertising deal with ESPN for $250 million. DraftKings secured a $300 million investment from the New England Patriots owner Robert Kraft, Boston’s Wellington Management, and Fox Sports.
Thanks to these high-profile investments and advertising deals, DraftKings has become one of the most prominent brands in both daily fantasy and sports betting.
Rise to the Top of Daily Fantasy Sports
DraftKings advertised themselves to the fullest in the mid-2010s. They, along with FanDuel, spent big on spreading their brand and the DFS concept to the American public.
Up until this point, most people simply played season-long fantasy sports leagues, such as those found on CBS or Yahoo.
Season-long leagues are typically played for low stakes, or even free, and only see participants draft once.
DFS differs by featuring new contests every day or week. Players front a buy-in for each game, draft their team, and wait to see if they win.
With the daily fantasy industry quickly rising in 2016 and ’17, DraftKings increased its stock immensely. They’ve remained as one of the top two DFS companies ever since.
DraftKings Employee Scandal
Both DraftKings and FanDuel became embroiled in a scandal in October 2015. The New York Times reported that a DraftKings employee won $350,000 at FanDuel after he also accidentally leaked information on the contest.
An internal investigation concluded that the employee didn’t break any rules or laws in winning the $350k.
Nevertheless, this event drew negative media attention.
New York Attorney General Eric Schneiderman asked both FanDuel and DraftKings for internal data immediately afterward.
Schneiderman wanted to know what steps they take to prevent fraud.
More scrutiny found DraftKings after a study showed that only 1.3% of daily fantasy baseball players were winning 91% of the prize money.
This report blew the cover off the idea that any amateur could realistically win big through DFS. At the time, many DraftKings and FanDuel ads created the perception that amateurs/fans could be highly successful.
State Governments Crack Down on DraftKings
Fantasy sports received an exemption in the Unlawful Internet Gambling Enforcement Act UIGEA. Of course, this exemption is aimed at season-long fantasy sports, which don’t normally involve much gambling.
DFS sites continued to operate as if they were exempt from the UIGEA up until 2015.
But various state attorney generals, such as Schneiderman, began challenging this notion.
Some states viewed daily fantasy as a skill-based form of gambling and accepted it. Others, such as Massachusetts, New York, and Nevada, saw it as unlawful gambling.
Here are some notable actions that were taken against both DraftKings and FanDuel in 2015:
- Schneiderman began investigating whether DFS employees were using insider information on the most-frequently used lineups to gain an advantage.
- The NY Attorney General also declared that DFS was illegal gambling and, with the help of a New York Supreme Court Justice, got DraftKings and FanDuel banned in the Empire State.
- A New York Court of Appeals reversed the ban and granted the DFS sites a temporary stay. DraftKings eventually paid restitution and was allowed to keep operating in New York.
- NCAA banned DraftKings and FanDuel from advertising through college sports games.
- The Nevada Gaming Control Board banned DraftKings and FanDuel. Both companies exited after claiming that Nevada only barred them to protect their land-based casino and online poker interests.
FTC Prevents Merger with FanDuel
In 2017, DraftKings began exploring a merger with FanDuel. This proposed merger would consolidate expenses and create a company with over 5 million registered users.
Both companies were prepared to go through with the merger. However, the Federal Trade Commission (FTC) blocked the move in July 2017.
The FTC took exception to the fact that this merger would give the company command of more than 90% of the daily fantasy market. In short, the DraftKings/FanDuel union would create a monopoly.
The companies broke off talks and chose not to fight the FTC ruling. DraftKings hasn’t renewed the idea ever since.
Legal Sports Betting Becomes Available
Sports betting was illegal in the United States up until 2018. The Professional and Amateur Sports Protection Act (PASPA) banned all states—save for four that were grandfathered in—from offering this type of gambling.
The federal ban dissolved, and states gained the right to offer sports betting.
This decision had an obvious impact on established bookmakers that wanted to expand outside of Nevada and Europe. However, it also gave DraftKings the opportunity to feature this type of wagering too.
DraftKings Enters the Sports Gambling World
DraftKings quickly capitalized on the legal betting market by launching in New Jersey. In doing so, they became the first legal mobile sportsbook in the Garden State.
The DFS giant proved to have a knack for sports gambling by quickly excelling to the top of the NJ market.
Their first-mover advantage helped them earn the most revenue throughout the first few months of regulation.
FanDuel has since caught up to DraftKings and even surpassed them in some states. Nevertheless, DraftKings is still shining.
Furthermore, they weren’t purchased by a big European bookmaker like FanDuel (Paddy Power Betfair) to get them into the sports betting market. They’ve instead navigated that field with their existing crew.
DraftKings continues to expand into other states.
They now operate mobile betting sites in:
- New Hampshire
- West Virginia
They also offer retail sports betting in:
- New York
Sports Betting Is Now Everything for DraftKings
DraftKings has defied the odds by becoming a huge daily fantasy and sports betting site. Launching from a Massachusetts home, they’ve become one of the top US online sportsbooks in the early going.
Many will continue to see DraftKings as a daily fantasy site into the foreseeable future.
However, they’ll gradually build their sports gambling reputation as they move into more states.
Speaking of which, New Jersey is the only market that’s even close to being mature. US sports gambling offers a lot more potential than it’s currently showing.
Over 40 states still have yet to approve mobile betting, which is DraftKings’ specialty. The future looks bright for them with regard to sports wagering.
The daily fantasy sports industry certainly isn’t as lucrative as it was five years ago. But DraftKings has done an excellent job of pivoting into a new venture.
DraftKings has not only entered the sports betting world but also become one of its key operators.
They’re doing quite well in New Jersey and are laying the foundation in other states too.
The US sports betting market is expected to deliver over $5 billion in revenue to operators by 2023. DraftKings is currently positioned well to grab a nice slice of this pie.