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DraftKings Worth Drops by 60% Due to DFS Legal Scrutiny
- February 10, 2016 By Oliver Young -
Ever since the legal scrutiny of the daily fantasy sports has began, the valuation of DraftKings, a well known DFS operator, has fallen down sharply by 3/5. The news was announced by one of the major investors of the operator in a 10-Q filing.
Twenty-First Century Fox Inc. reported in the form 10-Q with the US Securities Exchange Commission that it had given up approximately $95 million of the $160 million stake the company had taken in DraftKings in July last year. The stake is equal to 11 percent of the company.
Approximately 60% Devaluation in Fox’s Stake
According to Fox, the company arrived at about 60 percent devaluation of its stake related to information regarding the current valuation of DraftKings in a financing transaction. It appears that the DFS operator has been trying to increase its capital at very low rates from its two previous funding rounds last year before things went down in the DFS department.
The records of DraftKings reveal that in the last funding round the company gathered $200 million in August 2015 before bad news started flooding in the DFS sector. During that time the company’s valuation was approximately $2 billion. DraftKings is still in legal fights with Eric Schneiderman, the attorney general of New York, and because of this situation resulting in negative publicity for the operator, DraftKings finds it difficult to catch the eyes of investors.
The DFS operator also accused the attorney general for disrupting its relationships with the financial institutions. Both Citigroup, credit card operator, and Vantiv Inc, a deposit processor, want to get out of the daily fantasy sports sector.
After Six Years ESPN Ends Its Deal with DraftKings
Bad news for the DFS operator continues to arrive. For the past six years, DraftKings had an exclusive deal with ESPN regarding advertizing rights. However, the sports broadcaster ended the deal which should have made DraftKings the official DFS offering across all ESPN platforms starting first of January.
Now, according to media reports, ESPN is in negotiations with other DFS operators related to advertizing opportunities. According to Yahoo Finance reporter Daniel Roberts the deal has less to do with ESPN not wanting to be committed; instead it has more to do with DraftKings and its inability to meet the annual commitment of $200 million in order to advertize itself on ESPN.
The news isn’t that unexpected. Ever since the original deal was signed in the summer of 2015, the DFS operator as well as the entire daily fantasy sports industry has been affected by regulatory and legal uncertainty and this requires more of the time of the DFS industry as well as resources. With NFL now gone for this season, which was the main money maker, it would be very difficult to increase the capital and attract investors.