ESPN Accepts DraftKings' Request To Ends Its Exclusive Advertising Partnership Early

ESPN has "gotten out early from an exclusive advertising relationship" with DraftKings after first announcing the deal in June, according to sources cited by Daniel Roberts of YAHOO FINANCE. The "exclusive" part of the deal "did not kick in until January." ESPN before the new year "was welcome to sell ad space to DraftKings' rival FanDuel," and "so it did." ESPN had never "stated exactly how long the exclusive deal would last, but it was widely believed to be a multi-year deal" (FINANCE.YAHOO.com, 2/9). The exclusive ad relationship gave DraftKings deep placement within several ESPN shows, and immediately vaulted DraftKings among ESPN's top 10 advertisers. The deal also represented the first-ever, large-scale integration between a season-long fantasy sports operator and a daily fantasy company, and came after prior conversations about a potential equity investment in DraftKings by ESPN and parent company Disney did not come to fruition. Sources said that DraftKings, given the company’s mounting costs fighting its many legal battles, sought to exit the deal and ESPN agreed. The news comes on the same day that Fox reported the $160M investment Fox Sports made last summer in DraftKings for an estimated 11% equity stake has declined in value by about 60% to $65M (Eric Fisher, Staff Writer). CNBC's Michael Santoli notes there was a "lot of fanfare" around the fact DraftKings had an exclusive deal with ESPN. Santoli: "That whole industry immediately seemed like this indispensable thing for the advertising market for networks. And then the clamp came down on it, and now we can do without it” (“Squawk Box,” CNBC, 2/10).

LATEST OBSTACLE TO OVERCOME: ESPN.com's David Purdum noted this is the "latest blow to the daily fantasy industry, which is embroiled in a legal battle with New York Attorney General Eric Schneiderman to remain open in the Empire State and reportedly is under investigation by the FBI and a Florida grand jury (ESPN.com, 2/9). The DFS industry was featured on last night's episode of "60 Minutes Sports" on Showtime, with Armen Keteyian noting DraftKings and FanDuel "find themselves in the crosshairs" of Schneiderman. FanDuel CEO Nigel Eccles said what reports of “insider trading” really "hammered home to me is that we’ve not done a good enough job to make people aware of how we’re ensuring fairness.” Schneiderman said his efforts against DFS were not politically motivated because the “law in the state of New York is clear: There’s a constitutional prohibition against gambling." He added, "Second of all, based on the reaction of the fans, I’m not sure this is something a politician would want to be doing in terms of increasing your popularity” (“60 Minutes Sports,” Showtime, 2/9).

UNDER THE SPOTLIGHT: The DFS industry also was examined by PBS' "Frontline" last night, with narrator Will Lyman noting “fantasy sports has been around for decades, but not like this.” As part of a year-long joint investigation with the N.Y. Times into the industry PBS analyzed the "world of online sports betting and what was behind the explosion of daily fantasy sports.” Lyman noted the majority of DFS players are under 35-years-old, which is a “demographic that appealed to venture capitalists and private equity firms," which pumped "hundreds of millions dollars into the industry. Lyman: "Maybe the most surprising support came from professional sports leagues and teams. They’ve long opposed sports gambling, which is illegal in most of the country, saying it fosters corruption.” Gaming industry attorney Daniel Wallach said, “The sports leagues have always been of the view that sports gambling will lead to match fixing and it will create a negative perception in the minds of fans that the games are not on the level.” But Lyman said “that didn’t discourage them from embracing daily fantasy sports.” FanDuel CFO Matt King said the NBA, MLB, NFL and NFL teams have partnered with with his company or DraftKings because the “sports teams and the leagues want to make sure that sports is as relevant for today’s millennial generation as it was for the generation that is now in their 40’s or 50’s." King: "What they see in FanDuel is an opportunity to engage a younger generation of fans, get people to watch more sports.” The influx of money resulted in an "advertising blitz worth hundreds of millions of dollars in the run-up to this year’s football season." Legal Sports Report Editor Chris Grove: “They were everywhere. I’m not sure that we’ve ever seen that level of spend for any kind of gaming product -- or frankly, any product" ("Frontline," PBS, 2/9).