DraftKings Is Nearing A Deal With ESPN

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Hey Friends,

FanDuel has put together an impressive media strategy over the last few years. They have signed exclusive partnership deals with Pat McAfee and Bill Simmons, and they officially launched FanDuel TV in August, becoming the first U.S. sportsbook to have its own broadly distributed linear cable television network.

These partnerships—both new and old—have enabled FanDuel to take a commanding lead in the U.S. market. For example, FanDuel currently has a 51% market share in the U.S. sports betting market, they have the highest gross gaming revenue in 13 of the 15 states where they operate, and they even became the first major US online gaming operator to report a profitable quarter, bringing in $22 million in EBITDA last quarter.

And for additional context, according to estimates from Eilers & Krejcik Gaming, FanDuel routinely generates more U.S. online sports betting revenue in a given month than the other 50+ online sports betting brands currently active in the U.S. combined.

But now the nation’s second-biggest sportsbook is fighting back.

Because according to Bloomberg and Action Network, DraftKings is close to signing a “massive, exclusive partnership” with ESPN that would include sports betting shows and perhaps even odds integrated into live game broadcasts.

This pleased investors, of course, with DraftKings stock popping about 8% on the news. But still, their equity is down more than 65% over the last year, and their market cap has gone from 28 billion in March 2021 to 7.5 billion today (-73%).

We don’t have many details behind this rumored tie-up between ESPN and DraftKings, including price and terms, but I think it’s interesting for several reasons.

First, ESPN has been investing in sports gambling for a few years now — they have hosted betting-related shows like Daily Wager since 2019 and have integrated odds on their website with click-throughs to Caesars & DraftKings — but they have been hesitant to take bets themselves and would much rather license their name.

For example, the Wall Street Journal reported in August 2021 that ESPN was seeking to license its brand to major sports-betting companies for at least $3 billion over several years. We are a year removed from that article, but is that the price?

Secondly, the terms of this deal will be much more important than the price.

ESPN spends billions of dollars each year on premium broadcast rights. Their mobile app has been the number one sports app in the U.S. for several years. They have 100 million followers across Instagram, Twitter, and TikTok, and their YouTube channel receives more than 325 million unique viewers and 2 billion views each month.

My point is we all know DraftKings would be required to write a large check for a partnership with ESPN — but what will the access and integration look like?

For example, will ESPN reduce friction on their website and mobile app enough to enable potential customers that see a betting opportunity to create an account on DraftKings and execute that bet within just a few clicks? I think that will be key.

And thirdly, I’m interested in seeing how DraftKings incentives ESPN.

The deal will probably include a large (and potentially upfront) cash guarantee, regardless of performance. But the ultimate goal for DraftKings is customer sign-ups and deposits, of course, so it will be interesting to see how they incentivize ESPN to reach new customers — I’m talking about sign-up bonuses, revenue share, deposit share, and more.

But regardless, DraftKings is set to take a big swing with one of the world’s most powerful sports media operations. And when you combine this with their exclusive deal with Amazon’s Thursday Night Football, it’s apparent that they aren’t just going to sit back and watch FanDuel take over the media landscape.

I hope everyone has a great day. We’ll talk tomorrow.

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