Sources: ESPN Agrees To Invest Millions For Up To 20% Ownership Of DraftKings

DraftKings is "close to getting significant financial backing from arguably the most powerful brand in sports," as ESPN has "agreed to invest hundreds of millions of dollars" for up to a 20% stake in the daily fantasy sports operator, according to sources cited by Lefton & Ourand in this week's SPORTSBUSINESS JOURNAL. The "major investment" will be part of DraftKing's "next round of venture capital financing in May." Sources said that DraftKings as part of the deal will "sign a three-year advertising commitment that will, in turn, pay hundreds of millions back to ESPN." The ad commitment "will give DraftKings exclusive status on much of ESPN’s fantasy content across all of the company’s media platforms, including fantasy sports analyst Matthew Berry’s columns and podcasts." DraftKings CEO Jason Robins last month said that he was "actively developing a Series D venture round that would value the company" at $1B. ESPN’s investment "could increase that, and 10-figure valuations are generally reserved for only the hottest of startups." Lefton & Ourand note neither DraftKings nor its "chief rival FanDuel have turned a profit." Sources said that ESPN "elected to buy into DraftKings after a 'bake-off' in which executives for both DraftKings and FanDuel pitched their companies and their business prospects" to senior ESPN execs, including President John Skipper. Among the key factors "elevating DraftKings in the minds of ESPN executives was its less cluttered and conflicting ownership structure" (SPORTSBUSINESS JOURNAL, 4/6 issue). The WALL STREET JOURNAL's Ramachandran & Sharma cited sources as saying that DraftKings in return for the investment "has committed to spend large sums of advertising dollars" -- just north of $500M -- on ESPN’s platforms in coming years. That provision is a "major attraction of the deal" for Disney, which owns ESPN. FanDuel can "continue to advertise on ESPN but won’t have the premium positions afforded to DraftKings" (WSJ.com, 4/3).

CHANGING HIS STANCE: CNBC’s Jim Cramer said Disney's investment into DraftKings “took my breath away," as Disney Chair & CEO Bob Iger a few years ago "was on the fence about the importance” of fantasy sports. Cramer: “I was telling him, ‘Fantasy is reality.’” CNBC’s David Faber said ESPN has been ‘all over it, believe me,” and they have “e-mail addresses for a great demographic” (“Squawk on the Street,” CNBC, 4/6).