The Complete History of DraftKings

In the last six years, daily fantasy sports (DFS) has grown from a simple idea to a multi-billion dollar industry. In this post, we will walk you through the growth of DraftKings, one of the most controversial DFS destinations, a company that paid out over $1 billion in 2015 and conquered the daily gamers in this industry.

Who?

DraftKings is a company based out of Boston, MA and operated by Rotowire, Inc. It is a website that allows punters from US, Canada, and UK to enter into daily (and weekly) fantasy sports related contests in order to win cash based on individual players and team performances in 5 major American sports (the NFL, the NHL, the PGA, the NBA, and MLB), UEFA Champions League soccer, Premier League, Mixed Martial Arts (MMA), NASCAR auto racing, as well as American college basketball and football.

According to the company, everything they offer is 100 percent legal, and their main marketing angle is that they offer “rapid-fire” contests in comparison to other leagues. Another interesting fact is that even though they have only been in business for roughly 4 years, they are widely considered a reputable online fantasy sports destination.

History of DraftKings

DraftKings was established in 2012 by Matthew Kalish, Paul Liberman, and Jason Robins, former VistaPrint executives. The company initially started operating out of Paul Liberman’s house. The first product developed was a baseball competition, launched to coincide with MLB’s opening day in 2012.

After a few months, in July 2012, DraftKings received the first outside funding, a $1.5 million investment from investors such as Ryan Moore at Accomplice in Cambridge, and a few others.

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April 2013 saw Major League Baseball investing an undisclosed amount of money in DraftKings, thus becoming the first US professional sports organization to announce an investment in daily fantasy sports. It happened after a great presentation by Jason Robins at the time to MLB Advanced Media.

November 2013 saw the company receiving $24 million of Series B funding from investors such as Accomplice, Redpoint Ventures, BDS Venture Fund, Jordan Mendell, and GGV Capital.

February 2014 – the company had awarded $50 million in prizes in 2013 to players in daily fantasy baseball, weekly fantasy football, daily fantasy hockey, and daily fantasy basketball. DraftKings also reported 50,000 active daily players and 1,000,000 registered players.

In mid-2014, DraftKings became the 2nd largest company in the DFS industry, announcing the acquisition of the 3rd largest company, rival DraftStreet. That key acquisition reportedly increased DraftKings’ user base by roughly 50%.

August 2014 – the company received a $41 million funding from investors such as The Raine Group, as well as existing investors GGV Capital, and Redpoint Ventures.

November 2014 – DraftKings announced the exclusive multi-year agreement with the NHL. The contract gave DraftKings exclusive rights to use NHL’s intellectual property. It was a key move.

April 2015 – DraftKings signed a multi-year deal with Major League Baseball, becoming the “Official Daily Fantasy Game” for the sport.

The DraftKings/FanDuel Scandal

The ‘legal’ issue started in 2006, when lawmakers signed the Unlawful Internet Gambling Enforcement Act, and specifically did not ban “skill-based” contests. While Iowa, Arizona, Louisiana, Nevada, Washington, and Montana created their own laws with quite more restrictive requirements on what is “skill based,” 45 states went along with the federal decision.

FanDuel was started in 2009. DraftKings was started in 2012. Both companies raised hundreds of millions in funding since then.

On September 27th, 2015 DraftKings employee Ethan Haskell accidentally posted some team ownership data on the official DraftKing’s blog. Users possessing this data had a huge competitive advantage, mainly because DFS revolves around picking key players that your opponents have not drafted.

On October 4th, 2015, when FanDuel’s large Sunday Millions contest ended, the second place was claimed by the DraftKings employee who had access to the previous weeks line-ups. While the former company denied that Haskell had access to such information before FanDuel lineups for the week locked, it looks quite suspicious.

The next day both companies released a joint statement which restricted employees from playing on competitors sites.

A federal investigation was started on October 14th into whether DFS is a form of gambling, hence violating federal law.

On October 15h, the Nevada Gaming Control board ruled that daily fantasy sports is traditional gambling. That was a huge hit to DFS, since most states look to this board as a trendsetter in gambling regulation. The DFS industry fumbled and on November 10th, 2015, New York State ruled Daily Fantasy illegal, ordering both DraftKings and FanDuel to stop taking bets.

Where is DraftKings Operating?

45 of the 50 US States allow skill based gaming, thus DraftKings is perfectly legal in these US states.

The company also operates in Canada and has a huge base of users there.

Most users are active in North America as the main sports competitions featured in fantasy games are located in the US and Canada.

The beginning of February 2016 saw DraftKings enter a huge market overseas – specifically the UK industry. In an interview with WIRED, DraftKings chief international officer Jeffrey Haas said: “You are not placing a bet on the individual results of a certain club, what you are doing is actually using your inner statistical skills to analyse and understand the likelihood of players’ of several teams and their likelihood to succeed in those games,” emphasizing that this is a game of skill.

In the United Kingdom, DraftKings seeks to focus on what the brand calls “proper soccer”, as opposed to the US variety that the Draftking’s business is built upon. The games offering will be based on the UEFA Champions League and English Premier League. DraftKings is in talks with Arsenal and Liverpool to sign marketing deals.

How Does It Work?

On any given day, you can find a fantasy game contest to join. During the weekdays, online contestants seems to be around 3,000-5,000 users. On the weekends, however, the number of users increases dramatically. Finding a Head 2 Head, tournament, or 50/50 game will be easy. The contest offerings are hugely diverse and contests usually vary in prize money from $1,000,000 guaranteed prize pool, to 1 on 1 battles with a $2 payout.

Loyal players are rewarded with “FPP” or Frequent Player Points. Such points are simply earned by playing money games. DraftKings gives out DK dollars to frequent clients, which can be redeemed for prizes and participation in money leagues.

Why is DraftKings Legal

DFS is perfectly legal for people at least 18 in each state that allows daily and season-long fantasy games, with the exception of a few states such as Nevada, which actually ordered DF sites to acquire gaming licenses before resuming operations. (Fanduel, DraftKings and other DFS websites said in October 2015 that they had stopped operating in Nevada.) Daily fantasy sports is also in murky legal or completely illegal territory in states such as Iowa, Arizona, Washington, Louisiana, and Montana. DraftKings successfully operates in Canada as well and has launched its services in the UK a few weeks ago.

Although it allows users to win cash on random sporting events, the US government doesn’t consider it a type of gambling.

Why is it legal? While the governments label sports betting as a game of chance (therefore based on luck), the Unlawful Internet Gambling Enforcement Act of 2006 labels daily and season-long fantasy sports as a game of skill.