Disney Makes Bet on Sports’ DraftKings; The deal is the latest sign Disney is betting on growth in digital media.
The Wall Street Journal Online
By Shalini Ramachandran and Amol Sharma
April 3, 2015
Walt Disney Co. is investing $250 million in online fantasy sports business DraftKings Inc., putting the value of the company at roughly $900 million, people familiar with the matter said.
The Boston startup lets fans play fantasy sports with real money at stake. They can do so on a per-game basis rather than committing to manage teams for an entire season.
It is an area of digital media that is rapidly growing and attracting attention from some of the biggest media companies. Comcast Corp.’s venture arm, for example, backs a rival company FanDuel Inc., which is the biggest player in the space.
In return for Disney’s investment, DraftKings has committed to spend large sums of advertising dollars—just north of $500 million—on Disney property ESPN’s platforms in coming years, the people said. That provision is a major attraction of the deal for Disney.
FanDuel can continue to advertise on ESPN but won’t have the premium positions afforded to DraftKings. Fantasy sites are churning through cash to market themselves and acquire subscribers. Others that have invested in DraftKings in earlier funding rounds include Raine Group, Redpoint Ventures, GGV Capital and Atlas Venture.
The DraftKings deal is the latest sign Disney is betting on growth in digital media. The media giant last year paid $500 million for Maker Studios—one of a crop of “multichannel networks,” companies that distribute online videos via YouTube and other sites.
With big-ticket acquisitions like Marvel Entertainment and Lucasfilm under its belt, the company has bolstered its portfolio of intellectual property and creative talent and is now using deals to enter new digital businesses that complement its existing brands.
Disney has a mixed track record for its technology acquisitions. Its 2010 deal to buy social gaming company Playdom Inc. for $563 million was badly timed, as the sector soon fizzled.
Sports fans have long had an array of online options for fantasy leagues—from Yahoo to ESPN to CBS—where they can pick players in mock drafts and follow their performance over the course of a season.
DraftKings and FanDuel are different in that people can play for cash. That gives such services a potentially lucrative revenue stream that advertising-supported websites don’t have and explains why media giants are interested in getting in on the action.
There is some uncertainty among media companies whether such services constitute online gambling. DraftKings says on its website the business it is in is a “game of skill” and legal under U.S. and Canadian law. DraftKings says it offers daily and weekly contests for cash prizes covering all major sports, including Major League Baseball, the National Football League and the National Basketball Association.
An ESPN spokeswoman declined to comment. A DraftKings representative declined to comment.
Fortune.com last month reported Disney was in talks with DraftKings.
The ESPN ad deal comes as ad sales overall have been soft for cable networks and sports rights fees continue to rise, weighing on ESPN’s profits. For the quarter ended Dec. 27, Disney said cable operating income was down 2% to $1.3 billion due to a decrease at ESPN driven by higher costs.
Ben Fritz contributed to this article.