As an online American daily fantasy sports company, the DraftKings business model revolves around allowing users to bet daily and weekly on a player’s performance and win money.
The company has five major American sports: Major League Baseball (MLB), the National Football League (NFL), the National Hockey League (NHL), the Professional Golf Association of America (PGA), and the National Basketball Association (NBA).
It also has other sports, such as the Premier League, the UEFA Champions League, tennis, WWE, NASCAR auto racing, the Canadian Football League, the Arena Football League, and mixed martial arts (MMA).
According to reports, DraftKings has over ten million users.
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DraftKings was founded in 2012 by Matthew Kalish, Paul Liberman, and Jason Robins, who were Vistaprint employees at the time.
Robins was a fan of fantasy sports and had played in over 200 different fantasy sports leagues, while Mattew Kalish conceived the idea of compressing the traditional setting into a lesser time frame of a week or even just one match day.
They started the game from the Libeermans’ house in Boston, from which they later moved to the main office at 225 Franklin Street in Boston, Massachusetts, USA. DraftKings grew to have other branches in New York and London, with over 350 employees.
At first, it was just a one-on-one baseball game that was launched on the opening day of MLB in 2012 with a prize of just $100.
A few months after the baseball launch, DraftKings got its first-ever outside investment from the head of Cambridge-based Accomplice, known as Ryan Moore, and other investors who empowered the company with about $1.4 million.
In 2013, DraftKings got more investments from other professional leagues, such as BDS Venture Fund, GGV Capital, and Redpoint Ventures, which gave the sum of $24 million, as well as from MLB, which invested an undisclosed amount.
DraftKings got popular with about 1 million registered users, and that same year, they had a competition that included different kinds of sports, like hockey, football, basketball, baseball, and soccer. They paid over $48 million as a reward prize to winners.
Just before December 2014, DraftKings entered into a long-term agreement with the National Hockey League (NHL), which gave them rights to the hockey league’s intellectual property and made them a monopoly in the league.
In the middle of 2015, DraftKings got another major contract from Major League Baseball, and it became the authorized fantasy sport of DraftKings. Around August of that same year, DraftKings got the license to operate in the UK, which they started later in 2016.
DraftKings bought some daily fantasy sites and finally became the leading brand in the daily fantasy sports industry.
Meanwhile, DraftKings got into some legal issues with the FTC and state attorneys general from New York and Massachusetts, which they resolved and got the Supreme Court ruling in their favor in May 2018, which made New Jersey permit legal online sportsbooks and opened the doors of opportunity for DraftKings. They were able to get their first legal sportsbooks known as DraftKings sportsbooks and also DraftKings casino.
They expanded to other states, which included Indiana, New Hampshire, Pennsylvania, and West Virginia, and then, in 2020, they merged with other companies such as SBTech and Diamond Eagle Acquisition Corporation and made more than $6 billion from the reverse merger.
DraftKings is owned by DraftKings Inc., and the CEO of DraftKings is Jason Robins, the co-founder of DraftKings. DraftKings has ten other shareholders, which are also known as “owners.”
These include The Vanguard Group, Inc., ARK Investment Management LLC, Nikko Asset Management Americas, Capital Research & Management Co., BlackRock Fund Advisors, Raine Capital LLC, T. Rowe Price Investment Management, Wellington Management Co. LLP, SSgA Funds Management, Inc., and Geode Capital Management LLC. The vanguard group has the highest number of shares at 34,122,539.
DraftKings’ mission statement is “Make life more exciting by responsibly creating the world’s favorite games and betting experiences.”
To fully understand how DraftKings makes its money, let’s first get into how it works. DraftKings is a daily fantasy sports company, and users are allowed to participate in this sport through the company’s website or mobile app.
The game is in a traditional fantasy setting, where the players will choose their team, which will earn points according to how they played. For example, a football fantasy league would award points for assists, goals, etc. The player with the most points wins that game.
Due to this idea, DraftKings restricts the time frame so that the players can create their teams on one game day, and at the end, a winner is acknowledged. It continues like that, the next game day, they select their teams and strive for prizes.
Also, the players can play in tournaments and engage in what is known as head-to-head contests and gain cash, but it is dependent on the number of players in the team and the amount of the entry fee for the tournament.
Besides the fantasy league, DraftKings has an app called DraftKings Sportsbook, where users from a few selected states can bet on the final results of games, and also another app called iGaming, which gives users access to an online casino where they can play interesting games like blackjack.
Finally, DraftKings operates through the NFT marketplace in partnership with the Autograph platform of Tom Brady, and users can access this platform through the company’s website or mobile app. Now let’s look at the revenue.
Most of DraftKings’ revenue comes from this sport. The users have to pay the entry fee, which would be divided into two — 10% to the company and 90% to the prize that would be given to the winners.
Users from the selected states are allowed through this app to place bets on games. The concept is that DraftKings would get revenue when the user loses the bet and take the commission for setting the bet. And this is called “vigorish” in the industry.
The mode of revenue generation from iGaming is similar to that of DraftKings’ sportsbook. They would provide over 400 casino games and generate money when the player bets on the final result or outcome of a game and lose the game. This model is even more profitable because it is set by the company in such a way that it distorts the game to win rather than lose the bet.
After fantasy leagues, advertising is another major source of revenue for DraftKings. Since 2016, DraftKings has partnered with so many companies, including Buffalo Wild Wings, Hooters, Jägermeister, and many more. This partnership brings about the sponsorship of sports tournaments. For instance, if any of the companies partnering with DraftKings is sponsoring a tournament, DraftKings would be paid to advertise the events, and they would be paid even more if the competition happens to have many participants.
DraftKings merged with SBTech in 2020. And SBTech plays a significant role in the B2B space because it operates as the salesperson for gambling and betting products. So the merger between SBTech and DraftKings gives DraftKings a complete license to the B2B products, which they would sell to other online-based gambling firms and get a managed service fee for. The managed service fee is the share of the profit from the sales, and it’s about 10 to 20%.
DraftKings Business Model can be explained in the following business model canvas:
DraftKings’ customer segments consist of:
DraftKings’ value propositions consist of the following:
DraftKings’ channels include:
DraftKings’ customer relationships include:
DraftKings’ revenue streams include:
DraftKings’ key resources include:
DraftKings’ key activities include:
DraftKings’ key partners include:
DraftKings’ cost structure includes the following:
DraftKings’ top ten competitors include:
Below, there is a detailed swot analysis of DraftKings:
Allowing consumers to play daily fantasy games and rewarding the winners with prizes is essentially the basic idea behind DraftKings’ business model. Despite having numerous rivals and other difficulties, the company still holds the top spot for fantasy sports brands in the market. With the opportunities available to them, DraftKings is well-positioned to make greater progress within the industry, which would keep them at the top for a long time.
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