DraftKings owes $400M amid potential revenue slowdown
Reality is about to hit home for daily fantasy sports giant DraftKings.
While the stakes are high for both DraftKings and rival FanDuel heading into a key court hearing on Wednesday, DraftKings has even more riding on the showdown with New York Attorney General Eric Schneiderman.
Despite the perception that daily fantasy sports operators are raking in the cash, money-losing DraftKings is weighed down by hundreds of millions in ad commitments, putting it on shakier financial footing, sources said.
DraftKings still owes roughly $400 million under multi-year ad deals with ESPN and Fox, sources said, adding that it is current on its bills after asking for more flexible payment terms.
While FanDuel has marketing deals with several sports teams, the amount is much lower than DraftKings’ commitments, sources said.
DraftKings and Fox declined comment. ESPN did not return calls for comment.
Earlier this month, FanDuel CEO Nigel Eccles told Bloomberg he had no interest in merging with its closest rival because of DraftKings’ ad commitments for air time.
Eccles said he “can see why [a merger] would be attractive to [DraftKings]. I don’t know why they think it would be attractive for us.”
Schneiderman filed a motion last week to keep the daily fantasy sports companies from operating in the state on the grounds that they constitute illegal gambling.
Both companies and the AG will be in court on Wednesday before New York state Judge Manuel Mendez, who will decide whether to grant a preliminary injunction.
As their legal woes mount, both companies are trying to maintain breakneck growth.
Just a few months ago, DraftKings projected tournament revenue would triple in 2016, to $305 million, up from $105 million this year, in a pitch to potential investors, according to a source who saw the presentation.
If the judge grants Schneiderman’s request for a preliminary injunction against the fantasy sports sites, DraftKings’ revenue next year will be flat — at best — and might even fall, industry insiders predict.
FanDuel has already stopped taking New York money while it fights in court, but DraftKings continues to operate here. New York is home to the most daily fantasy sports players, representing 12.8 percent of the market, according to Eilers Research.
After raising $300 million in July, valuing the company at $1.2 billion, DraftKings abandoned a more recent attempt to raise more money from investors after coming under scrutiny from regulators and lawmakers.
“Some investors have informed us that secondary market valuations for FanDuel and DraftKings are roughly 50 percent below the last round given the legal uncertainties,” Eilers Research wrote in a November report.