DraftKings Rounds Up $24M for Fantasy Sports Games

11/26/13Follow @curtwoodward

It’s kind of a no-brainer that running a gambling business can make you money. But the laws around that industry are, shall we say, a bit restrictive.

There’s also a bit of social backlash to contend with—just ask the people who wanted to plant new casinos outside of Boston, only to see voters respond with a resounding ‘no.’

There are, however, some exceptions. A big one right now is fantasy sports, a range of games in which people “draft” a group of actual athletes and stack up their roster’s combined real-world performance against other people’s dream teams.

Fantasy teams can be an addictive little side dish to the sports season and a good way to keep up some friendly competition with your buddies—just ask my often middling fantasy football squad. And you can even win a little cash, depending on whether your pals decide to make the games interesting with a pool of prize money.

For online entrepreneurs, that last part can be especially good news. That’s because federal regulators do not consider betting on fantasy sports illegal, deeming them displays of skill rather than traditional games of chance. (Companies do have to block some players who are in states with more restrictive gambling laws.)

One of the companies making some hay in this realm is Boston-based startup DraftKings, which has just landed a big vote of confidence from investors: a $24 million Series B round, led by Redpoint Ventures.

That puts DraftKings’ total venture backing to date at more than $35 million, a pretty hefty sum considering that it’s all been raised in less than 18 months. The startup’s other backers include GGV Capital, Atlas Venture, and BDS Ventures.

As the big bankroll would indicate, DraftKings is in a pretty competitive field right now, with a small handful of private companies competing to get the biggest base of users spending dough for their chance to win prizes.

DraftKings and others compete in a particular niche of fantasy sports that relies on daily and weekly contests, rather than season-long slogs of team-building. Those contests have quicker turnaround, which gives them more chances to attract paying customers.

How big is this slice of the fantasy sports market? The Fantasy Sports Trade Association, in research cited earlier this year by The Wall Street Journal, reported that daily contest fantasy competitions were taking in $465 million per year in fees from players as of last summer.

DraftKings wouldn’t discuss revenue numbers, but says it has “tripled its customer base” since August, and CEO Jason Robins told me that DraftKings has more than 1 million users across its Web and mobile applications. The company also says it has awarded more than $50 million in prizes this year, with the football season not even over yet.

The company’s major competitors include DraftStreet, which has Barry Diller’s IAC as an investor, and FanDuel, which raised $11 million early this year to build its own fantasy footprint. So don’t be surprised if you see a lot more advertisements for these fantasy games. Right now, at least, there’s plenty of real money being spent on these mythical matchups.

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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