DraftKings Gets Bigger, Richer as Football Season Starts

8/25/14Follow @curtwoodward

If you run a fantasy-sports league, the start of the NFL season is like Christmas morning and New Year’s all rolled into one. If your business is based around paying fantasy players for their smarts, the stakes are even higher.

Boston-based DraftKings is girding up for the new season in a big way today, announcing a $41 million investment round and the acquisition of a neighbor, Cambridge, MA-based StarStreet.

It’s the second acquisition in as many months for DraftKings, which is one of the top fantasy-sports betting sites in the country. Competitors include industry-leading FanDuel.

These companies operate in a niche known as daily fantasy sports. Instead of getting players to create teams and ride them out for an entire season, daily fantasy sites give players short-term contests—draft your team, and watch those players’ real-life statistics translate to virtual points. In the case of the NFL, the matchups typically last for just one week’s worth of games.

The real point to all of this, however, is cash. Fantasy sports are technically considered games of skill under federal gambling laws, rather than games of chance like taking the house’s odds on who will win. That distinction means it’s perfectly legal in most parts of the country to bet and win real money on fantasy sports.

(Five states have their own specific laws against cash payouts, and companies like DraftKings have to block players in those places.)

Helping the cause along is the interest of the professional sports leagues themselves, some of which see a promising opportunity for keeping fans eyes’ on the field.

As The New York Times noted, DraftKings has an official partnership with Major League Baseball to pipe its fantasy contests onto the league’s website—yes, the same league that considers insider gambling so damaging that it issues lifetime bans for otherwise Hall of Fame-caliber players.

DraftKings doesn’t disclose how many users it has, and it’s also not known how much money is flowing through the site as people bet on their fantasy prowess. But it certainly does offer big prizes, including what it says is a guaranteed pool of $5 million for the NFL’s opening weekend.

The latest investor in DraftKings is the Raine Group, a merchant bank and private-equity investment firm. It led the new round, with returning investors Redpoint Ventures, GGV Capital, and Cambridge-based Atlas Venture.

DraftKings had previously raised more than $35 million in total private backing, including a $24 million Series B round in November.

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

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