Reports have surfaced this week that DraftKings is in talks with the Walt Disney Co. (“Disney”) about an investment opportunity that would reportedly value DraftKings at $1 billion.  DraftKings is currently locked in a costly battle with industry leader FanDuel for new customer acquisition, and it is anticipated that any funds raised by DraftKings will go largely towards marketing-related expenses.  While NBC Sports Ventures and Comcast Ventures each have equity stakes in FanDuel, Disney, as the parent company of the ESPN family of networks, would represent an enormously significant media company entrant into the daily fantasy sports arena.

There have been questions about how Disney would feel about getting involved with daily fantasy sports, which some conservative parties consider one step away from gambling, despite the favorable treatment afforded to fantasy sports under federal law.  As a result, ESPN has seemingly struggled regarding whether or not to branch out from offering season-long fantasy games in order to offer its own stand-alone daily competitor to DraftKings and FanDuel.   Should the rumors of Disney’s investment in DraftKings prove accurate, there can be little doubt that Disney is fully embracing the potential of daily fantasy sports, while opting to partner with an established player in the daily fantasy sports space rather than creating a competitor.   Several reasons likely motivated this decision.  First, it is estimated that advertising dollars generated by the likes of FanDuel and DraftKings are one of the biggest growth categories across all media.   Second, despite ESPN’s expertise in disseminating sports information and providing free season-long fantasy games, it does not have the experience in collecting and paying out money every day, which is necessary to run a viable daily fantasy sports venture.

Daily fantasy sports continue to be one of the fastest-growing aspects of the sports business.  In fact, a capital infusion from Disney would be the third such round of funding within the last year for DraftKings alone, as it raised $41 million from the Raine Group, Redpoint Ventures, GCV Capital and Atlas Ventures last summer, as well as an investment in an undisclosed amount from Wellington Management in the fall.   Meanwhile, FanDuel also recently picked up approximately $70 million in funding from Shamrock Capital Advisors, NBC Sports Ventures and KKR & Co.   FanDuel is also rumored to be shopping around for its own new round of funding, which may also value the company in excess of $1 billion.

Continuing Evolution of Fantasy Sports

The news of Disney’s interest in investing significant capital in DraftKings is yet another headline in the news cycle that is the rapidly changing landscape of fantasy sports.  While large investors and media companies alike continue to view fantasy sports ventures as vehicles to generate significant returns on their investment, states that do not currently allow for paid fantasy sports contests continue to debate in committee whether to overturn longstanding bans in order to permit their citizens to participate in this hot sector.

We have recently written about the recent progress in Iowa, where the State Senate voted to designate fantasy sports a game of skill, which would allow Iowans to engage in contests offering monetary prizes.  While the bill would loosen the reins on participation in fantasy sports contests, it expressly would not legalize sports betting in any way at the amateur or professional level.  Additionally, the Iowa Senate bill is noteworthy for its explicit prohibition on the inclusion of high school sports in any fantasy sports contest.  Iowa, with its unique proposal on how to regulate fantasy sports games, is yet another example of the quickly changing legal landscape for fantasy sports ventures and participants.