Inside DraftKings’ reign: Online sports meets offline experiences

In June, 12 people headed to Boston for three days: They watched a Red Sox game at Fenway Park, then retired next door to a bar, where they themselves competed for a grand prize for $150,000. The only thing was, they weren’t physically playing an actual sport. 

The 12 were competing in a real-time fantasy sports competition to become “King of Boston” in an event organized by daily fantasy sports site DraftKings, an online company that has experienced a meteoric rise to become the biggest fantasy sports franchise in the country, which is valued at a cool $1.2 billion.

DraftKings is a daily fantasy sports site where users can log on and create a team from a roster of real players. Each user gets $5,000 in Draft King ducats to spend on drafting players (how much a player costs depends on how well he has been playing in real life). Once you have a team, you can enter contests — entry fees range from $5 to $500 in real money. How much you win and if you win is determined by how well real-life football, baseball, soccer or hockey games go.

DraftKings raised a massive Series D funding round just last week — $300 million led by major media players like 21st Century Fox and sports leagues MLB Venture, MLS and the NHL. It also crossed the 100-million user mark this month and is expected to award $1 billion in prize money this year. The signup process takes about a minute: Anyone can join as long as they have a credit card. Research firm Eilers estimated that DraftKings has about 10 times the customer satisfaction and loyalty than its closest competitor, FanDuel. And people play on average for four hours a week — longer than the average American exercises.

COO and co-founder Paul Liberman said that aligning itself with influencers in the sports community was a big part of its brand strategy. DraftKings now has a deal with the MLB, Nascar, the NHL, UFC and the MLS.

“That brings our brands to the masses in a way that’s trustworthy, because people know that the MLB will provide a great product,” said Liberman. Trust, he said, is especially important in fantasy sports, where people hand over credit card info and play for real cash. (Fantasy sports is not illegal unlike other sports betting — it is considered a “skill game,” although critics say that the line is not so clear, one possible pain point for a brand like DraftKings.)

Ryan Bonini, vp of fantasy sports solutions at USA Today, which launched its own daily fantasy league last year, said, “Leagues aren’t just embracing fantasy sports, they’re wrapping their arms around them with a hug.” That’s because for the leagues, having a cluster of dedicated fans who will watch even the most boring games because they have money invested in them is just what they need.

Along with advertising and marketing spending, Liberman said the company’s brand strategy has also been to focus on the customer in an “unprecedented” way. That means a lot of events and real-life opportunities like King of Boston. DraftKings will invite finalists to play million-dollar games in places like the Bahamas, or get players to throw first pitches at baseball games. The brand also promises a response to 90 percent of customer queries within five minutes online. “The idea is to be a company that focuses on our players,” said Liberman.

And for a digital brand, there’s a lot of focus on the offline customer. DraftKings now operates a sports bar and restaurant with its name on it at sporting venues like the Staples Center in L.A. and Madison Square Garden, which let people watch games, play fantasy and watch fantasy content on big screens. There’s even a DraftKings-branded bar at the Cleveland Hotel in South Beach.

Jason Kint, CEO of Digital Content Next, who spent 18 years in fantasy sports at companies like CBS, said that “daily” fantasy appeals more to people since they can come back and start fresh with each game. “It plays into the instant gratification trend.” (DraftKings’ own TV ads make that point: “It’s a new season every day,” says one.)

High-profile media investment has also helped DraftKings scale quickly: The company signed a recent deal with ESPN where DraftKings has committed to spend $250 million in ads on ESPN over the next two years — and it will be exclusive starting in 2016, which means No. 2 fantasy site FanDuel will not be able to advertise on the network. Its deal with Fox, signed last week, deal is non-exclusive, but still very important, as it means DraftKings now runs ads on the enormous football network as well.

Critics of the industry say that the biggest challenges are the legality issue — many people still denounce fantasy sports as gambling. And there can be low margins on customers: A person familiar with the matter said economics can be questionable since the companies often only keep a small percentage of prize money. Right now, funding is at an all-time high, so those issues can often be swept under a rug.

Content is also part of DraftKings’ plan: There is a “Twitch-like” model where people also log on just to watch other people play via video. The MLB deal has also meant the company can run baseball game clips on the site so players can do their “research” right there.

And women are also an increasing focus: While the Fantasy Sports Trade Association estimates that 66 percent of players are male, DraftKings has been advertising heavily with ESPN Women and has relationships with women’s teams like basketball team New York Liberty so it can grow that base. “Women love to play games, and they are participating. It was a demographic that took us longer to reach, but we’re getting there,” said Liberman.

“DraftKings’ success really legitimizes the whole industry,” said Bonini. But with success come competitors: Yahoo also launched its daily fantasy effort just a few weeks ago. And there are rumors that the NFL is holding out on signing full-fledged deals because it may want to create its own product. For Liberman, all is well: “From our perspective we love the competition, we’re growing the space together,” he said. “The more eyeballs on daily fantasy, the better for the industry.”

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