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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.

Related Business Model Types

Platform Business Model

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A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.

Marketplace Business Model

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A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.

Network Effects

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A network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.

Asymmetric Business Models

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In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.

Attention Merchant Business Model

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In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.

Wholesale Business Model

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The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.

Retail Business Model

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A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.

B2B2C

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Crowdsourcing Business Model

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The term “crowdsourcing” was first coined by Wired Magazine editor Jeff Howe in a 2006 article titled Rise of Crowdsourcing. Though the practice has existed in some form or another for centuries, it rose to prominence when eCommerce, social media, and smartphone culture began to emerge. Crowdsourcing is the act of obtaining knowledge, goods, services, or opinions from a group of people. These people submit information via social media, smartphone apps, or dedicated crowdsourcing platforms.

Open-Core Business Model

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While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.

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Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.

Freemium Business Model

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The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.

Freeterprise Business Model

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Franchising Business Model

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In a franchained business model (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.

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