DraftKings completes eighth round of funding at lower valuation

DraftKings completes eighth round of funding at lower valuation

Tuesday, September 6, 2016 Posted by Andy McCarron
The DFS operator raises $153m in eighth funding round

There was some measure of surprise last week among the DFS community that DraftKings had managed to secure another round of funding given the regulatory backdrop that has afflicted the prospects of the sector ever since DFS went mainstream this time last year.

The $153m raised from investors included Revolution Growth, a venture capital investment firm co-founded by NHL and NBA franchise owner Ted Leonsis and AOL founder Steve Case. As part of the deal Revolution’s Steve Murray will also join the DraftKings board.

But the timing of the deal should be no surprise given that it coincides with the beginning of the NFL regular season. The cash will be of use if DraftKings intends to attempt to emulate in any small way the marketing blitz that took place at the start of the last football season when in tandem with major rival FanDuel the DFS largely took over the airwaves with a saturation advertising campaign.

That campaign appeared to signal the high-water mark for DFS, with the subsequent regulatory squalls – including a ban on the activity in New York State – seeing the sector coming under intense scrutiny.

DraftKings will hope that this investment round will dispel fears about the long-term viability of daily fantasy. Yet, though the new money represents a slice of good news, more worrying will be the fact that this new investment almost certainly constitutes a down round – i.e. the value of the company has gone into reverse compared with the reported post-money valuation at the time of its last investment round in the summer of 2015.

That funding round saw Fox Sports chip in a reported $150m for a valuation of $2bn and was the seventh round of funding the company has received in its short existence. According to the website Crunchbase, the company has now received a total of just shy of $600m in funding, but reports would suggest that the latest injection values the firm at circa half last year’s valuation.

Jason Robins, chief executive and co-founder at DraftKings, told Fortune magazine that Revolution was “tremendous partner, with an entrepreneurial outlook and spirit of innovation”.

That spirit will be tested over the next 12 months as the daily fantasy industry continues its fight for legitimacy across a number of states while also attempting to launch in the UK.

It recently won a battle in New York when daily fantasy was officially sanctioned in early August. However, in other key such as California, states the prospect of legislation remains in abeyance.

Paul Leyland, partner at Regulus Partners, said it was clear the timing of the latest funding round was not coincidental with the NFL opener drawing near, but also given the opening up of New York as a viable DFS market. “This will likely have reassured investors as to the scale of possible growth as well as the sustainability of the business model,” he told TotallyGaming.com.

“It will be interesting to see how DraftKings spends any marketing budget,” he continued.

Eyes will now turn to Edinburgh-based FanDuel to see if it is able to follow DraftKings’ lead with its own investment round. Its most recent results for the year to June 2015, posted with Companies House in May this year, it said that in its series D and E funding rounds it had raised a total of $339.6m from investors. However, in the year since June 2015, the company said that cash resources had shrunk significantly, from $274m to $47.8m, largely as a result of the 2015 marketing blitz.

Totally Gaming Says: The fact DraftKings has been able to raise this money at this time is impressive given this deal likely represents a substantial downgrading of the company's valuation. Whether it means DraftKings and its major rival FanDuel will be hoping to emulate last year's weight of advertising is, though, doubtful.

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