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Volume 22 No. 49
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A look into DraftKings’ MLB deal

Jason Robins, DraftKings co-founder and chief executive, immediately knew he was in for a different deal during his negotiations with MLB.

He was spending more time with lawyers than with business executives.

“Usually it’s the business development guys I’m working with at the various leagues and teams. But this time, it was a whole lot of attorneys,” Robins said. “But baseball was spending a lot of time examining every facet of our business.”

DraftKings’ renewal with MLB includes content integration on MLB.com.
DraftKings’ recently announced contract extension with MLB may appear similar to many of the deals between daily fantasy companies and pro sports properties, but the five-year pact goes much deeper. It includes the use of official league marks on DraftKings’ pay-based games; content integration for DraftKings on MLB.com, MLB Network, and MLB Advanced Media’s mobile products; and the creation of experiential baseball prizes for DraftKings game winners.

MLB increased its equity stake in DraftKings, first acquired in 2013, to an undisclosed single-digit percentage, described by league executives as sizable enough to reap meaningful benefit from the rise of daily fantasy. MLB will be part of a coming financing round for the Boston-based DraftKings that is slated to close soon and is poised to include the Walt Disney Co. and ESPN. DraftKings also acquired from baseball a series of online and offline promotional rights, such as designation as the official daily fantasy game of MLB, and gained inventory across MLB’s jewel events. The wider use of IP rights and a league designation lends authenticity to the product, and MLB-specific prizes that can’t be replicated elsewhere.

Robins intends to use the MLB deal as a template for future sports partnerships.

“It is certainly our hope that we can replicate what we’ve done with baseball with others,” Robins said. “It is such a monumental move to have their official marks behind the pay games. That’s something we haven’t been able to do yet elsewhere. And with the content stuff, we’re just getting started. There’s much more to come on that front, particularly with video. But baseball set the path for the industry two years ago when they were the first league to do a deal in daily fantasy. Everybody else then followed suit, and I think the same can happen again.”

DraftKings and MLBAM first signed a three-year deal in 2013 that wasn’t even announced at first. After the 2014 season, the two sides discussed what an extension might look like.

MLBAM wanted a deeper involvement across the entire sport. But it had to make sure it was comfortable with DraftKings specifically and the legality of daily fantasy at large. Over the past winter, MLBAM conducted an extensive background check on the company, its senior executives and business practices, and reviewed the Unlawful Internet Gambling Enforcement Act of 2006 that includes a specific federal carve-out for fantasy games.

Mike Mellis, formerly MLBAM senior vice president and general counsel and now MLB executive vice president and general counsel, led much of that review process, which employed several outside consultants. Mellis worked closely with Bob Bowman, MLB president of business and media, and Kenny Gersh, MLBAM executive vice president of business, as they structured the expanded DraftKings deal.

“I think there is a clear legal line, and quite frankly, we’ve spent some considerable effort and money to make sure we knew where DraftKings was in relation to that line,” MLB Commissioner Rob Manfred said. “We’re very comfortable with the idea that it’s fantasy.”

The enhanced DraftKings partnership, however, did result in adjustments with the players, and the league struck a deal with the MLB Players Association to prohibit players from playing daily fantasy baseball games for money. They remain permitted to play free ones and can sign endorsement deals with daily fantasy operators.

Bowman said the expanded DraftKings partnership is “as important philosophically as it is economically” to the league.

“Daily fantasy skews very young and drives great awareness in the game,” Bowman said. “And don’t forget, we are the daily game. We play every day. If there’s any sport that applies itself perfectly to daily fantasy, it’s baseball.”

Robins declined to discuss the pending financing for DraftKings. But he marveled at the growth of daily fantasy. DraftKings is projecting to increase revenue in 2015 fivefold to $150 million, and chief rival FanDuel is on a similar growth run.

“Honestly, the trajectory has been quicker than we thought originally, but we’re very encouraged by the path we’re on,” he said.