Sports Betting Plot Twist: ESPN Owner Disney Now Holds Stake In DraftKings

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ESPN Disney and DraftKings Sportsbook 2019

DraftKings and ESPN, together at last?

One small part of the massive deal between the Walt Disney Company and 21st Century Fox included the stake in daily fantasy sports and sports betting company DraftKings, Legal Sports Report confirmed.

DraftKings + Disney

The interest in DraftKings — originally acquired by Fox as part of a funding round in 2015 — is now owned by Disney “through one of its subsidiaries,” a spokesperson for DraftKings told LSR.

It’s an interesting twist for Disney and DraftKings, which had initially committed to an investment deal in 2015 before it fell through. (Disney has controlling interest in ESPN.)

It appears the stake in DraftKings did not move alongside the Fox Sports Networks, as Disney sold them to Sinclair Broadcasting earlier this month. Disney had acquired the regional sports networks in the original Fox deal, but had to divest as part of the terms.

The confirmation also comes as Fox Sports — a part of the remaining Fox Corp. — announced its plans to launch a betting app in conjunction with The Stars Group.

In any event, it’s an interesting development in the sports betting world, and given the history of DraftKings and Disney.

Disney and DraftKings once had a deal …

Back in 2015, jaws were sent dropping when it was initially reported that Disney/ESPN was taking interest in DraftKings as part of a proposed $250 million investment.

Still, DraftKings ended up with exclusivity on ESPN for DFS advertising against its rival FanDuel in the heyday of daily fantasy. But even that exclusivity fizzled.

Why the investment deal got called off has been the source of speculation and rumors over the years. But many corners pegged it to cold feet from Disney.

The proposed stake came ahead of the legal issues DraftKings would face later in the year that made DFS akin to gambling, according to several attorneys general around the US.

Disney has traditionally been an opponent of gambling, and recently spent a lot of money to support an amendment that would make it harder to expand gambling, and possibly sports wagering, in Florida. (DraftKings, for its part, opposed the amendment alongside FanDuel; the amendment passed.)

But then Fox would step in …

DraftKings managed to plug in one media company for another, as Fox would lead a $300 million round.

Outside of ad spend DraftKings originally committed to and integration related to that, it’s not clear the company overtly got any special treatment from Fox.

Fox would end up writing down its nine-figure investment down by 60%.

DraftKings is certainly in a better spot than it was in three years, as it’s one of the leaders in New Jersey sports betting. Its value within an expanding US sports betting market exceeds its ceiling during the downtimes of DFS.

Disney said it was avoiding getting into gambling …

The revelation that Disney now holds interest in DraftKings is at odds with what its CEO said just a few months ago.

Here’s Bob Iger in a February earnings call:

 I don’t see The Walt Disney Company, certainly in the near term, getting involved in the business of gambling, in effect, by facilitating gambling in any way.

I do think that there’s plenty of room, and ESPN has done some of this already and they may do more to provide information in coverage of sports, as a for instance, that would be relevant to and of particular interest to gambling and not be shy about it, basically being fairly overt about it. But getting into the business of gambling, I rather doubt it.

Well, Disney seems to be in the sports betting business now, unless it has plans to offload the DraftKings stake.

It’s even in the casino gambling business, as DraftKings includes non-sports gambling in its DraftKings Sportsbook app in NJ.

The DraftKings – Caesars – ESPN triangle

…with Caesars Entertainment for sports betting?

Yes, it does. It recently signed an agreement with Caesars to put a studio in the Linq in Las Vegas. Caesars branding and odds will be integrated into ESPN programming.

The stake being acquired by Disney certainly doesn’t mean any promise of pushing DraftKings.

Caesars can benefit from such a deal for sports betting with sports betting live in several states (Nevada, New Jersey, Pennsylvania and Mississippi) and more to come.

DraftKings, meanwhile, only has sports betting in NJ and a retail sportsbook in Mississippi, although it also has designs on a wider footprint.  (It should also have a betting app in West Virginia soon.)

On the third side of the triangle is a deal that Caesars and DraftKings struck a deal for market access in states in which Caesars has a foothold.

What does it mean when you add it all up? Who knows, other than all three companies now have business ties.

So what’s next for DraftKings and Disney?

That’s not at all clear.

What we do know is DraftKings could benefit from either more funding, or an exit via initial public offering or sale to another entity.

Is it wild to think that Disney, now that it has interest in DraftKings, could end up buying the whole thing? The pricetag would certainly be in excess of $1 billion, currently, to buy DraftKings in its entirety, depending on the exact percentage Disney already owns.

Short of that, it would seemingly make sense for DraftKings and ESPN to work more closely than they did before.

No matter what, it’s interesting that Fox and ESPN, two of the biggest names in sports media, now have interest in sports betting companies.