According to a media report, the proposed investment deal between DraftKings and Disney worth $250 million is off. At the same time, DraftKings will become the only fantasy provider allowed to advertise on ESPN networks, the report at Re/code intimated.
A dead deal
Rumors about trouble with the DraftKings-Disney deal had been swirling for some time; after all, it has been more than 2 1/2 months since initial media reports from the Wall Street Journal and the Sports Business Journal came out that a deal was imminent.
The original deal, as it had been reported then, called for the $250mm investment in DraftKings by ESPN’s parent company, in exchange for $500mm in ad spend by DraftKings across the ABC/ESPN family of networks and media platforms over the course of three years.
Here’s what the new deal entails, according to the Re/code report:
DraftKings CEO Jason Robins says his ad deal with ESPN calls for a “deep integration” with the media company, which he says will give it an advantage against fantasy rival FanDuel. “ESPN is the strongest brand in sports,” he said. “This is something that will definitely catapult us into the leader position.”
Sources familiar with DraftKing’s plans say it is in advanced talks to raise a large round from other strategic investors.
The amount of ad spend in this reported deal has not been released.
The part about ESPN fantasy integration is particularly interesting when coupled with material from the Fantasy Sports Trade Association Summer Conference. There, ESPN senior coordinating producer Seth Markman talked at length about his network’s plan to increase and more seamlessly integrate fantasy content into its football shows and broadcasts.
So why is the deal off?
The Re/code story didn’t get into the “why” behind calling off the investment portion of the deal, so that part of the news is left to speculation. Some possibilities:
- DraftKings can get a better investment deal. With the momentum behind DraftKings right now, they probably have their choice of suitors for their next round of funding. Getting $250mm while sending out $500mm might not have been the deal that made the most sense, even with ESPN exclusivity. The last investment in DraftKings — $41mm — came in August of last year.
- Disney got cold feet about investing in a daily fantasy sports site. Ever since the initial DraftKings-Disney report surfaced, people have questioned Disney’s willingness to get into the the DFS space; the company has historically been against gambling. Even though the industry considers itself not a gambling activity, it’s certainly feasible that some at Disney disagree. If true, that wouldn’t affect the companies’ ability to do business together, it would just stop Disney from owning a piece of a DFS site.
- Something more serious is going on. The deal was reported as done. As one DFS industry insider told Legal Sports Report, it’s rare for an investment deal to get to the stage that DraftKings and Disney got to and then it doesn’t happen. When Disney did its due diligence, could it have come across a red flag?
Of course, all of that is just speculation; it’s unclear if we’ll hear anything from either side about a deal that was never actually made public, outside of leaked information. This might be as good as it gets:
ESPN declined to comment on why the shift away from equity investment from DK. Network source: it was the best strategic decision
— Eric Fisher (@EricFisherSBJ) June 24, 2015
Wait, Fox too?
At the recent Fantasy Sports Trade Association summer conference in New York, several sources said that they had heard Fox was also involved in a possible investment in DraftKings. That information was confirmed by noted journalist and ESPN expert Jim Miller, who tweeted this on Thursday.
— James Andrew Miller (@JimMiller) June 26, 2015
If this is indeed true, as well, it obviously brings up even more questions about DraftKings and its next funding round, which went from a quarter of a billion dollars in April to a pair of deals that apparently won’t happen. Miller also related on Twitter that the Disney deal wasn’t happening, before it was reported elsewhere.
Clearly, DraftKings is going to get money from somewhere, unless there’s something seriously wrong behind the scenes that hasn’t come to light yet. Who and how much is still up in the air.
Even without the investment, the ESPN deal appears to be a coup for DraftKings — at least without knowing the terms of the deal. But anything that takes away from FanDuel’s ability to acquire customers — and ESPN is the biggest sports platform in the world — is good for DraftKings. According to Fisher, DraftKings will be on of ESPN’s top 10 advertisers once the deal kicks in.
A press release from ESPN confirmed the agreement, but didn’t really offer up much in the way of specifics about the deal:
ESPN, the leader in fantasy sports games and content for over 20 years, and DraftKings, Inc., a leading destination for daily fantasy sports, have reached an exclusive agreement that will make DraftKings the official daily fantasy sports offering across ESPN’s platforms.
This exclusive relationship will include branding and promotional opportunities across multiple ESPN and DraftKings’ platforms including integration into digital properties and television programming.
“ESPN and DraftKings share a history of innovating and advancing fantasy sports to serve this passionate fan base,” said ESPN President and Co-Chairman of Disney Media Networks John Skipper. “DraftKings is a dynamic company – deeply connected to its fans – and we’re excited to have them on board as our official daily fantasy sports offering.”
“We are thrilled to be working closely with ESPN,” said Jason Robins, DraftKings CEO. “Together we will provide fans with the most robust, diverse and comprehensive fantasy sports experience.”
The biggest part of the deal is obviously the connection to football, although the reported deal doesn’t start until next year; ESPN currently broadcasts Monday Night Football and has a wealth of football-specific content.
There are also very obvious ways to tie DraftKings into Major League Baseball, which has an equity stake in DraftKings. ESPN broadcasts some MLB games, including Sunday Night Baseball.
ESPN carries NBA games, as well, although the league may not take kindly to DraftKings-specific branding during broadcasts. The NBA owns an equity stake in FanDuel.
Then, of course, there is SportsCenter and other studio shows that deal specifically with many of the sports for which DraftKings offers fantasy contests.
How FanDuel deploys its resources in 2016 in marketing will be an interesting story to follow. But for now, it appears any marketing spend from FanDuel will not be on the “Worldwide Leader in Sports.”