Disney’s ESPN, Ventures into Fantasy Sports Betting Business via DraftKings

The Wall Street Journal (WSJ) reported last April 03, 2015 that the Walt Disney Company through its multi-media sports entertainment subsidiary ESPN, intends to invest $250 million on Boston-based fantasy sports betting company DraftKings Incorporated. WSJ further disclosed that a major provision of the investment deal is for DraftKings to spend roughly $500 million of its advertising money on ESPN’s multi-media platform, in the coming years ahead.

The recent development could further get the goat of fiercest rival FanDuel. The WSJ report has it that FanDuel, albeit allowed to continue with its advertising spots and places at ESPN, will not enjoy the same premium benefits of the advertising positions allotted to DraftKings. Only last month, FanDuel lawyers sent a demand letter to DraftKings, ordering the latter to take down advertisements that FanDuel contends as containing false and misleading information. The demand letter included a deadline within which DraftKings must take action. Otherwise, FanDuel will initiate the filing of a lawsuit against the Boston-based company.

Apparently, FanDuel threatens to take legal action against DraftKings’ claim of being the “Number 1 destination in the Internet for daily fantasy sports.” DraftKings Vice President Femi Wasserman told Forbes that he is unsure of FanDuel’s reaction and is confused over their competitor’s displeasure, saying the use of verbiage stating a claim of being “a leading provider” is typical. He added that they have to learn more about FanDuel’s real concern before they can give comments regarding the issue. The Boston-based startup fantasy sports betting company was founded in 2011 by three young American businessmen Matt Kalish, Paul Liberman, and Jason Robins. The company recently disclosed that last year, DraftKings received as much as $300 million in fees paid by online players, in order to access and engage in the site’s quick-turnaround games. The fantasy sports betting website announced with pride that for this year, the company would be paying $1 billion in cash prizes.

On the other hand, the Walt Disney Company’s venture into the fantasy sports betting business is seen as part of a so-called “assertive strategy” of investing in entertainment-related estates. The most recent of which is the acquisition for $500 million of Maker Studios a YouTube multi-channel network. There are those, however, who think that the DraftKings deal does not make sense, considering Disney’s family-friendly image and the uncertainty of whether online fantasy sports betting services falls under the online gambling category.

DraftKings like FanDuel offers daily and weekly sports contests for different sporting events like National Football League and Major League Baseball, allowing real money stakes placed on a per game basis. Both companies have been attracting attention from big companies. Aside from Disney-ESPN, some of DraftKing’s financial investors include Atlas Venture, GGV Capital, The Raine Group and Redpoint Ventures. FanDuel, which currently holds the reputation for being the largest player in the fantasy sports betting arena, announced in September 2014 that it had raised as much as $70 million, in a round of funding led by Shamrock Capital, NBC Sports, and private equity firm KKR.

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