Paddy Power Betfair Pays $48 Million For Daily Fantasy Sports Co – Forbes
A pending merger of FanDuel and DraftKings could considerably reshape the daily fantasy sports industry, providing the combined entity with an estimated 95% market share. Instead of serving to dissuade investment in a competitor, it has actually stimulated investment, with a major acquisition announced overnight.
Ireland-based Paddy Power Betfair has acquired U.S.-based DRAFT, founded by nine-year fantasy sports veteran Jeremy Levine. The deal contemplates Paddy Power Betfair paying $19 million up front, with a total of $48 million to be paid over a stipulated period of time per the terms of the deal.
It is a full acquisition of DRAFT by Paddy Power Betfair; however, Levine and his co-CEO Jordan Fliegel will remain with the company as salaried employees and will be incentivized to continue to scale the product. Levine, only thirty-years old and already seasoned in selling fantasy sports-related products (he formerly sold StarStreet to DraftKings in 2014), says that scale is the key word with this acquisition and expects that the company will grow from ten people to twenty very quickly, as well as increase its marketing spend by roughly 100x over what was spent last year. Paddy Power Betfair chief executive Breon Corcoran estimates that the substantial marketing investment will cause DRAFT to incur a $20 million operating loss during this financial year.
The influx of money will also assist in growing the DRAFT fantasy sports product beyond its current geographic footprint of thirty-five states.
“There are some states that have passed bills specifically legalizing fantasy that we’re not in because of cost of compliance that we will now go in,” says Levine. “Those states are Virginia, Indiana, Colorado and Missouri.”
When I spoke with Levine about DRAFT in December 2014, he explained that at that point-in-time, no one credible had ever built a mobile-first game for daily fantasy sports.
“Everyone’s favorite part of fantasy [sports] is the draft,” explains Levine. “That’s really what daily fantasy is. What we’re building is essentially Words With Friends, but instead of making a word you are picking a player.”
Levine respected the mobile applications built by FanDuel and DraftKings, but noted his belief that salary cap style daily fantasy sports is “so definitely not a mobile game.” Thus, Levine built something different. He created a conduit for friends to engage in a quick, easy snake draft system that did not require fancy algorithms or a special skill-set for “professionals” to continuously prevail over novices.
“I think [Paddy Power Betfair] saw our game and the kind of user experience and the team and realized we were in a really good position to quickly take market share,” says Levine. “Everyone else kind of offers the same salary cap game. We learned the downfalls of it and how hard it is for casual fans to win. Tens-of-millions of people want to play fantasy sports and many of them have realized they have little chance of winning with FanDuel and DraftKings and other salary cap games.”
The money will mean a great deal to Levine and DRAFT. While the company had raised a $3.5 million Series A round of funding in March 2015, various state attorneys’ general opinions stating daily fantasy sports gaming was illegal served to “rock DRAFT’s world.” Marketing plans were scraps and employees were terminated.
In 2016, Levine stated,
“I looked back recently to an investment update I had in January. I basically told a group of investors that there was a 50% chance that this is going to kill our ability to offer real money games. I had to determine if we still wanted to do it. I made the decision to stay the course. If turned out well, it would create an even bigger opportunity for us.”
Staying the course ended up working out for Levine and his team as DRAFT has gone from barely surviving to receiving a substantial sum of money in acquisition.
Darren Heitner the Founder of South Florida-based HEITNER LEGAL, P.L.L.C. and Sports Agent Blog. He authored the book, How to Play the Game: What Every Sports Attorney Needs to Know.