The fact that an exclusive deal signed between DraftKings and ESPN last June was going to end was perhaps the worst-kept secret in daily fantasy sports.
The writing had been on the wall for some time — a live fantasy football final scheduled to be promoted and aired by ESPN was moved to Fox. The news became official when Yahoo reported on Tuesday that the deal officially ended.
What’s this all mean for the DFS industry?
The other half of the DFS duopoly is perhaps the only clear winner after Tuesday’s news.
The DraftKings-ESPN deal would have blocked FanDuel from advertising at all on the biggest sports-first media platform in the world. After just five weeks of the deal actually being in place — exclusivity didn’t kick in till the start of January — FanDuel can presumably start buying ads again, if it so desires.
Whether it takes advantage of this in the short term is unknown — its ad spend declined precipitously as football season came to an end — but it’s fair to say you’ll eventually see FanDuel on ESPN again.
On the flipside, FanDuel wins even if it doesn’t buy any ads: ESPN viewers and readers presumably won’t be inundated with DraftKings-themed content across the TV and online platforms anymore.
Maybe ESPN isn’t necessarily a big winner, but it certainly does not look like a big loser, either.
Yes, ESPN was getting guaranteed a lot of money through 2017 for ad spend from DraftKings — DraftKings was at one point in ESPN’s top 10 advertisers. And yes, this an unceremonious end to a much-ballyhooed partnership signed just eight months ago that made DraftKings “the official daily fantasy sports offering across ESPN’s platforms.”
But, in the current environment for DFS and DraftKings, it was not likely that DraftKings would have the capital or revenue to meet its obligation to ESPN anyway:
According to reports, DraftKings is selling off some of its ad commitment, so ESPN might get paid for some or all of this money anyway.
ESPN may very well resell some, or most, of the ad inventory previously held by DraftKings. Much bigger blow to DK.
— Eric Fisher (@EricFisherSBG) February 10, 2016
ESPN is now free to do things it couldn’t under the terms of the previous deal:
- Take money from any DFS operator (see FanDuel, above). Of course, it doesn’t seem like any operator other than FanDuel might have the money to do this, right now.
- Frame its coverage of daily fantasy in anyway it sees fit, instead of just sticking with DraftKings content.
Finally, ESPN looks like it dodged the proverbial bullet by not agreeing to take an equity stake in DraftKings for even more ad spend than DraftKings had committed in the deal that just ended.
Some think that DraftKings is a winner in all this, in that it’s no longer beholden to a deal that had it committing perhaps hundreds of millions of dollars over the next two years. It’s certainly not an untenable position — DraftKings, after all, is saving lots of money, theoretically.
But DraftKings is really only a winner if you really believe that ESPN was ever going to hold DraftKings to a contract it couldn’t possibly afford currently. If you think ESPN forcing DraftKings to stay in the deal was a likely scenario, then, sure, it’s a win for DraftKings.
But considering the fact that DraftKings is partnered with Major League Baseball, the NHL, NASCAR and Major League Soccer, creating acrimony to squeeze blood out of a stone doesn’t seem like something that would be in ESPN’s best interest.
Yes, DraftKings is saving money to use on other fronts — legal efforts, lobbying, and UK expansion, to name a few. But consider this report from Awful Announcing:
Sources tell Awful Announcing industry insiders were not all that surprised by the move as it has been rumored DraftKings had been selling off some of their committed ad buys to other advertisers at a discount, essentially losing money to NOT run ads.
If DraftKings is now paying money not to run its own ads, it’s hard to see this as a win for DraftKings.
The ESPN deal, when it was signed, was seen as a coup against its rival FanDuel. Eventually, it probably became clear that it was a luxury it couldn’t afford rather than a necessity.
Where does Fox come out in all of this? The Boston Globe reported yesterday that Fox had marked down the value of its shares in DraftKings by 60 percent.
At the same time, if DraftKings is no longer committed to spending money on ESPN, that means it can keep buying ad time and paying for integration on Fox, the leading investor in a $300 million round last year. At the time, the New York Times reported that the ad spend commitment was $250 million.
To what extent DraftKings will have the resources to spend money on Fox is an unknown variable, but the ad spend was tied to Fox’s investment.
If Fox continues to pull in money from the ad deal even while the value of its investment in DraftKings drops, then is at least feasible that it becomes a wash for Fox, eventually? That all depends on the future prospects, and current financial state, of DraftKings.