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How Does DraftKings Make Money? The DraftKings Business Model In A Nutshell

DraftKings is an American sports betting and fantasy sports platform founded in 2012 by Jason Robins, Matt Kalish, and Paul Liberman. DraftKings has an interesting and varied revenue generation model. The bulk of DraftKings revenue comes from the sports competitions it hosts. The DraftKings Sportsbook app allows customers in certain U.S. states to engage in sports betting. Under a separate app, DraftKings offers more than 400 casino games. Advertising is also another source of revenue for the company.

Origin Story

DraftKings is an American sports betting and fantasy sports platform founded in 2012 by Jason Robins, Matt Kalish, and Paul Liberman. Robins was known to be a fantasy sports fanatic, participating in over 200 different leagues simultaneously. Kalish also had the idea to condense the traditional fantasy season into shorter time frames of a week or even a single match.

During the early years, the platform was run from the confines of Liberman’s private residence. Created to coincide with a Major League Baseball (MLB) opening day, the first product was a one-on-one baseball competition with a cash prize of just $100. Although a humble beginning, the competition proved the concept was financially viable. This led to MLB investing an undisclosed amount in the company the next year.

By 2014, DraftKings had received millions more in funding and had distributed over $50 million to winners of fantasy sports competitions. These competitions encompass a variety of sports, including hockey, basketball, football, soccer, and baseball. Official partnerships with the governing bodies of these sports followed soon after.

In 2020, DraftKings attained a market cap of more than $6 billion after a reverse merger with Diamond Eagle Acquisition Corp. and SB Tech.

DraftKings revenue generation

DraftKings has an interesting and varied revenue generation model.

Fantasy sports

Perhaps rather obviously, the bulk of DraftKings revenue comes from the sports competitions it hosts.

Players must pay an entrance fee to participate, with 10% of that fee going to the company and the remaining 90% comprising the prize pool.

Sportsbook

The DraftKings Sportsbook app allows customers in certain U.S. states to engage in sports betting.

The company generates revenue when a customer loses a bet and also takes a commission for placing the bet – known in the industry as vigorish.

iGaming

Under a separate app, DraftKings offers more than 400 casino games.

Revenue generation is similar to the Sportsbook app: DraftKings makes money when a gambler bets against it and loses. This model is profitable for the company because it alters the games to ensure it wins more bets than it loses.

Advertising

Advertising is another source of income for DraftKings. Since 2016, it has partnered with companies such as Sprint, Hooters, Jägermeister, and Buffalo Wild Wings.

The nature of the partnership invariably involves the sponsorship of sports tournaments. For example, Jägermeister sponsored a soccer competition called The Real Shot allowing teams to be picked from 2018 World Cup players.

DraftKings is paid to organize the tournament and likely receives additional remuneration based on the number of participants in the competition.

B2B

We mentioned earlier that SBTech was one of the companies involved in the reverse merger in 2020.

SBTech is particularly important in the B2B space because it runs most of the DraftKings suite of gambling and betting products.

With now full ownership of the B2B product, the company can sell it to other online gambling companies and collect a managed service fee. Put more succinctly, the managed service fee is likely to be a share of the resultant revenue in the range of 10 to 20%.

Key takeaways:

  • DraftKings is a sports betting and fantasy sports competition platform founded in 2012 by Jason Robins, Matt Kalish, and Paul Liberman. Kalish in particular was instrumental with his idea of condensing the traditional fantasy sports season into a single week or match.
  • DraftKings charges users an entrance fee to participate in its competitions. It also manages a betting and gambling app where it generates revenue on losing bets and vigorish.
  • DraftKings also works with related companies to provide targeted advertising at competitions. After acquiring online sports technology firm SBTech, the company can now sell it to other companies and collect a share of their income.

Read Also: How Does Twitch Make Money, Epic Games Business Model, Gaming Industry And Its Business Models, The Free-To-Play Business Model.

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"