The daily fantasy sports space is getting more crowded by the moment; however, there are two companies that have been able to really stand out from the pack: FanDuel and DraftKings. In a move to gain strength against its competition, DraftKings announced the acquisition of DraftStreet, another mainstay in daily fantasy gaming. Yet, FanDuel is not impressed by the move.
"At best we think DraftKings may get about 25% of DraftStreet's volume post the integration," said Nigel Eccles, CEO of FanDuel in an interview with FORBES. "The idea that DraftKings is now on a par with FanDuel is laughable. Our estimate is that they will move to about 1/3 of our size (measured by active user numbers). However, we'd love them to publish their numbers if they think that is incorrect."
FanDuel has received roughly $18 million from investors in return for equity and projects $40 million in revenue in 2014. DraftKings does not make its financial information open to the public, but has reported approximately $35 million in investment from outside sources.
A week ago FORBES reached out to DraftKings to seek confirmation of a rumor that the company had purchased or was about to buy 100% of the assets in DraftStreet. DraftKings refused to respond to FORBES concerning this subject. However, its competitor FanDuel has not been shy in its reaction to the deal and claims that it also briefly considered making a play for DraftStreet.
"We spent a long time with IAC evaluating DraftStreet and whether to make a bid," added Eccles of FanDuel. IAC committed to investing in DraftStreet in 2013. "Ultimately we declined to bid for them. Around 70% of the revenues on both DraftStreet and DraftKings comes from players who already have FanDuel accounts. So we would be spending money for players we already had. Additionally, the top reasons for people to play on DraftStreet included their unique pricing and roster configurations, snake drafts and pickems. So trying to bring over the players when you don't have those games is a mistake."
FanDuel does not seem upset with DraftKings' purchase of DraftStreet. Meanwhile, an employee of DraftStreet who spoke on condition of anonymity to FORBES is livid.
"The DraftStreet team was offered one of two options: we could either sign a three-month contract with DraftKings, which included a one-year non compete clause for the daily fantasy space or we could leave and get nothing," explained the employee. "While we had to sign quickly (last Wednesday was the deadline), and I'm not a high-ranking employee, there were some other options out there for me and others. Maybe you know this, but a lot of us applied for jobs with FanDuel as we were informed about the sale in advance of the DraftKings deadline. However, last week Tuesday Jason Robins [CEO and Co-Founder] of DraftKings came to our office in NY and told us that they'd leave DraftStreet open for the foreseeable future. While many of us we were skeptical about that, we thought maybe there was a chance. So with that, many of us signed."
The employee continued to state, "the shutdown surprised me completely and broke my heart. I truly feel Robins lied to us in order to get our signatures. There will be a big layoff of [DraftStreet] employees in three months' time, and thanks to that contract we signed, any of us who would like to remain in the space won't be able to. I'm going to use those three months to start looking for a new job."
Finally, there exists a reaction from the affiliate space. Many daily fantasy sports sites survive and thrive based on referrals and leads from third party affiliates that drive traffic to the operators of the games. Right now, many of those affiliates are unclear how DraftKings is going to treat existing affiliate accounts. Some have reported that DraftKings will not honor current affiliate revenue share accounts, and people who have been making thousands of dollars per month may not be paid by DraftKings moving forward.
Will DraftStreet affiliate accounts be migrated accurately and continue to be connected to the players they referred to DraftStreet? Will the affiliates continue to get paid based on their referred players' DraftKings activity? What happens if that referred player already has a DraftKings player account? These were all concerns brought up by the owner of fantasyfootballmoneyleague.com, a popular daily fantasy football affiliate in a discussion with FORBES. "DraftKings will ultimately be managing affiliates moving forward. The affiliate world is eagerly standing by to hear the official word from DraftKings. A significant monthly revenue stream for many affiliates hangs in the balance."
Darren Heitner is a lawyer and the Founder of South Florida-based HEITNER LEGAL, P.L.L.C., which has a focus on Sports Law and Entertainment Law.
