NBA Strikes Partnership Deal With Daily Fantasy Sports Operator FanDuel

Fantasy sports (like fantasy baseball) is a huge business – 41.5 million people in the U.S. and Canada spend $3.6 billion on fantasy league and related fees each year.

A relatively small(1) but extremely fast growing sub-segment of the industry is daily fantasy sports. As that part has grown, sports leagues are taking notice and looking to get in on the trend. With that in mind, the NBA announced yesterday that it has signed a four-year strategic partnership with venture-backed Fanduel, the largest player in the space with an estimated 75 percent market share, to promote the one-day fantasy sports website.

The agreement establishes FanDuel as the NBA’s official daily fantasy basketball outlet. FanDuel will unveil the first “Official One-Day Fantasy Basketball Game of the NBA,” that will be free to all fans on and, the prizes for which will include regular-season tickets, unique NBA experiences, NBA merchandise and memorabilia. While the NBA and its properties will only promote the site’s free fantasy games, FanDuel retains the right to have pay-to-play versions of such free games as well, with cash prize payouts. Other fantasy sports websites will still be able to offer fantasy basketball to customers, but FanDuel will be the only such company featured on the league’s digital properties, including its official website and mobile apps.

The NBA is hoping the partnership will drive more engagement with, and more interest in, the league among its fan base. Fantasy participants spend an average of 8.7 hours per week on fantasy and, after placing a bet, increase their weekly intake of sports TV programming from 17.5 hours to 24 hours.

The NBA will receive an undisclosed ownership stake in FanDuel as part of the deal, believed to be less than 10 percent.

The startup hosts online fantasy sports games, where players put up as little as $1 to act as managers of a sports team for a day or week rather than a full season. They draft real players for their virtual teams and then measure the actual performance of their players to tally up whose virtual team beats others. Winning managers collect most of the money that’s pooled from all the participants, and FanDuel takes a cut.

FanDuel takes in funds in the form of entry fees received from its users to participate in its daily fantasy games, and then returns approximately 90 percent of it to its users in the form of prize pools. It recognizes the difference – roughly 10 percent of the face amount of entry fees generated on the site – as revenue. For guaranteed tournaments where total entry fees are less than prizes, FanDuel accounts for the difference as negative revenues.

FanDuel generated $20 million in revenues for the first three quarters of 2014, taking in about $250 million in entry fees and paying out about $230 million in prize money. It expects to add another $35 million in revenue in the fourth quarter – by far the strongest quarter of the year, thanks to the NFL regular season – taking in an additional $350 million in entry fees and paying out another $315 million in prizes, generating total projected revenues for the year of more than $55 million.

Revenues were about $14.3 million last year, up from $5.0 million in 2012 and $1.2 million in 2011. The FanDuel concept was born in March 2009, and received its first paying customer three months later.

FanDuel has engaged in a relentless blitz of advertising on digital and radio platforms to achieve that growth. It’s a worthwhile investment, however costly, because the lifetime value of each customer it acquires is extremely high. Active users tend to spend a great deal of money on the site, and the retention rates of users in the daily fantasy sports industry are incredibly strong. With enough scale, the business model should produce very high profit margins.

FanDuel had 519,310 active paying players on its site in the third quarter of 2014. Prior to that, the company never had a single quarter with more than 200,000 active players. It expects total paid actives on the site to top 1.0 million by the end of the year.

Investors are betting big that the growth will continue.

In August, FanDuel closed a $70 million Series D financing round, led by Shamrock Capital Advisors (which last year sold the Harlem Globetrotters, and has invested in numerous other sports ventures), with involvement from KKR, NBC Sports Ventures, the media giant’s venture capital arm, and the company’s existing investors. No post-money valuation was publicly disclosed for the round, but the post-money valuation has been estimated at around $300 million.

The round was more than six times larger than its last capital raise of $11 million in January 2013, led by Comcast Ventures, the venture arm of Comcast Corp., along with Piton Capital, Pentech Ventures, Bullpen Capital and serial investor Richard Koch, and brings the company’s total amount raised to $88 million.

The round was secured just days after DraftKings, the company’s biggest rival(2), completed a $41 million Series C round of its own, bringing its total amount raised to roughly $75 million, at a post-money valuation of less than $250 million.

Almost overnight, what historically had been a small offshoot of the entire fantasy sports industry has exploded into a major force, backed by more than $200 million in venture capital money(3).

Flush with cash, the race for strategic partnerships across the sports world has reached a fever pitch. These fantasy sports operators are now aggressively looking to teams, events and leagues, in addition to their advertising efforts, to accelerate their customer acquisition efforts and build out their brands.

FanDuel has now locked up a league-level partnership with the NBA, as well as local sponsorship deals with the Brooklyn Nets, Chicago Bulls, Dallas Mavericks, New York Knicks and Orlando Magic.

DraftKings has secured league-level partnerships with MLB and the NHL, as well as with World Series of Poker, World Poker Tour and the Breeders Cup. It also has local sponsorships with seven NHL teams (Boston Bruins, Chicago Blackhawks, Colorado Avalanche, Detroit Red Wings, Los Angeles Kings, New York Rangers and St. Louis Blues) and two NFL teams (New England Patriots and Pittsburgh Steelers).

The largest prize out there for daily fantasy operators is a league-level NFL deal, a pact that would dwarf all others given the size of the NFL and how fantasy football drives the entire fantasy sports industry.

The real challenge for these sites, though, isn’t necessarily for partnerships or user growth but rather if that growth will cause regulators at the state and/or federal level to reexamine their legality. At issue is whether daily fantasy sports is a game of skill or a game of chance. The Unlawful Internet Gambling Enforcement Act, passed in 2006 by the federal government, declared most online gambling explicitly illegal, but created a carve-out for fantasy sports on the grounds that it was a game of skill. Although such a bill exists, online sports betting is still legal in some countries and some states in America, if you’re wanting to learn more take a look at sports betting in NJ.

Sports betting is something enjoyed around the world, far and wide. The sites enjoy huge popularity, including 농구중계 in South Korea.

FanDuel and DraftKings argue that they continue to offer games of skill, by pointing to data showing how their best players use statistical analysis to win consistently. Of course, that’s something that some online poker companies also have tried (and failed) to argue.


  1. Daily fantasy sports still represents just 3 percent of the overall fantasy sports market. Yahoo! remains the leading provider of season-long fantasy play.
  2. DraftKings plans to give away $200 million in prizes this year. FanDuel expects to give away $500 million.
  3. Other daily fantasy sports providers have popped up as well. For example, TopLine Game Labs, parent of daily fantasy operator DailyMVP, completed a $25 million initial round of financing in June 2013.

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