The vast amounts of money pouring into daily fantasy sports came into even sharper focus last week as FanDuel completed a $275 million Series E round of venture capital fund, and chief rival DraftKings neared a similarly massive fundraising of its own.
The funding for the New York-based FanDuel, valuing the company at more than $1 billion, was led by existing FanDuel investor KKR. The private equity giant was joined by previous investors Comcast Ventures, NBC Sports Ventures, Google Capital, Time Warner Investments, Turner Sports and several individual NFL and NBA team owners. The Boston-based DraftKings, meanwhile, is nearing completion on its own Series D venture capital round, with a closing expected in the next week to 10 days. After a potential investment from ESPN turned instead into a marketing-based relationship with the sports media giant, DraftKings instead will have Fox Sports as a prominent investor. Specific numbers for DraftKings’ pending funding have not been disclosed, but also will be well in excess of $200 million and value the company in the neighborhood of $1 billion.
The two fundings combine to far exceed the entire investment history to date in fantasy sports, including each company’s own prior rounds. But over the past year, daily fantasy sports has exploded in popularity, and FanDuel and DraftKings have been locked in a spirited battle for market share and partnerships with dozens of pro sports leagues, properties and facilities. Neither company, however, has yet turned a profit.
“Having partners like KKR, Google Capital and Time Warner/Turner Sports invest in FanDuel underscores the way this company is transforming sports entertainment,” said Nigel Eccles, FanDuel chief executive and co-founder. “This roster of investors, with expertise across finance, technology, advertising and sports entertainment, is committed to the growth and success of FanDuel as a game changer for the sports industry.”
The FanDuel Series E round was oversubscribed, and industry sources said that DraftKings similarly has more funding offers than the coming round calls for. The rounds could also be the last for each company before an initial public offering.
A recent study from California-based Eilers Research underscored how attractive and engaged the daily fantasy sports audience has become. The research found that daily fantasy players on average spent at least five hours a week engaging in research and often more than 10 hours, that they are predominantly ages 25-35, and that 59 percent of daily fantasy players earn at least $75,000 a year. Other elements confirmed widely held suspicions about the daily fantasy audience, such as it being 98 percent male and 92 percent white.
Both DraftKings and FanDuel, however, have uphill climbs in building their Net Promoter Scores, a common indicator of customer loyalty and how likely a brand is to be promoted to others by consumers. DraftKings scored a Net Promoter Score of 21 on the scale of negative 100 to positive 100, while FanDuel scored a 2. The scores are small fractions of those for widely popular brands such as Apple, Amazon and the NFL, each of which surpass 50. And in FanDuel’s case, the score indicates that its promoters and detractors are nearly equal.
“Our survey results indicate that roughly 70 percent of players are not generating a positive return-on-investment from daily fantasy sports,” the Eilers study reads in part. “Nonetheless, most survey participants said they ‘love it and would never quit,’ and the industry as a whole received a Net Promoter Score of 46. ‘It makes sports more fun/engaging’ was the most-often cited reason for what users love about DFS, while ‘rake structure’ and ‘unlimited [guaranteed prize pool] entries’ was the most frequently cited response for what users hate.”
