Business

Five years later, DraftKings readies for its second act

The three co-founders of DraftKings are, left to right, Matt Kalish, Paul Liberman, and Jason Robins.
Pat Greenhouse/Globe Staff
The three co-founders of DraftKings are, left to right, Matt Kalish, Paul Liberman, and Jason Robins.

In early 2012, after months of working part time on their idea for a startup company, Paul Liberman, Matt Kalish, and Jason Robins decided to get real.

The trio left their jobs at the Lexington e-commerce company Vistaprint, where they had learned the finer points of online marketing, and set up shop in Liberman’s house. After years as a season-long hobby for both casual and stats-obsessed sports fans, fantasy sports was morphing into a fast-moving daily game with big cash prizes, and the three entrepreneurs saw an opening for a big business.

“Estimates are that there are something like 30 million fantasy sports players, and only about 50,000 of them have tried daily so far,” Kalish told the Globe at the time. “That’s a huge opportunity.”

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Their startup, DraftKings Inc., launched its first contest a few weeks later. Entries for that baseball game were free, and 160 people signed up for a chance at $100 in total prizes. The first-place winner scored a cool $50.

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Now celebrating its fifth anniversary, DraftKings has logged some impressive stats of its own: It has signed up 7 million customers, who collectively have submitted more than 680 million contest entries, and some of DraftKings’ biggest games offer prizes of $1 million or more. And DraftKings has raised more than $830 million from investors, emerging as one of the signature Boston tech startups of its generation.

“DraftKings showed founders that you can rapidly build a consumer phenomenon and massive household name in Boston,” said Rob Go, a partner at Boston’s NextView Ventures who is not a DraftKings investor. “They also dispel the myth that Boston-based founders and investors don’t take risk, by leaning into a business full of risk and uncertainty and pulling out ahead of multiple competitors on both coasts.”

Along the way, DraftKings survived a near-death battle with multiple states that questioned if the nascent industry was in effect running an illegal gambling operation. Today, it’s in the middle of another risky bet that could have a huge payoff: merging with FanDuel Inc., its biggest and bitterest rival.

The deal is awaiting approval from federal regulators, as the combined company would control more than 90 percent of the roughly $3 billion daily fantasy sports market. Robins, DraftKings’ chief executive, would be CEO of the merged company, while FanDuel CEO Nigel Eccles would be chairman.

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In the meantime, DraftKings is preparing for NFL season, the daily fantasy industry’s biggest cash cow. And while managing those important daily tasks with a merger looming sounds like a recipe for distraction, it’s hardly the toughest challenge this young executive team has faced.

“I think that a lot of the team has come to trust us, especially after the last few years,” Liberman said. “They understand the constraints we operate under, and they’re sticking with us.”

DraftKings’ rise has been fueled by a level of ambition that critics have often said is lacking in Boston tech startups. When DraftKings debuted in 2012, for example, FanDuel had a considerable head start.

But as the underdog, DraftKings developed a reputation for creative, entertaining games, said Daniel Barbarisi, a professional player and author of “Dueling With Kings,” an account of the industry’s early history.

“I’m very curious how you’re going to merge those corporate cultures. DraftKings continually has proven to be much more aggressive,” Barbarisi said. “They have very different ways of doing business, and that has led to a lot of the discord between them over the years.”

Jessie Haffey worked in the Boston office of DraftKings.
Pat Greenhouse/Globe Staff
Jessie Haffey worked in the Boston office of DraftKings.

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The costly regulatory battles affected DraftKings’ ability to improve its products, mostly notably in the prices it charges players to enter contests, Kalish said. A merger with FanDuel, he argued, would produce cost efficiencies that allow the combined company to reinvest in games and perhaps even lower fees.

Some in the industry question whether the merger would result in better prices. Moreover, Robins, the CEO, recently found himself in the midst of a controversy that reminded some players of the industry’s early missteps involving employees playing — and winning — against the general public on competing sites.

In late April, Robins reversed himself and said he would not invest in a new fantasy-sports startup founded by a top-ranked player, Boston’s Saahil Sud, after players questioned whether he was favoring an important customer.

“Hopefully, that ends up being a good thing, that people realize I’m responsive when our customers have concerns or questions,” Robins said. “I read it wrong. But all I could do once that occurred was to correct it, and I hope people see that.”

The episode was a reminder that, for all of the growing up it’s done, daily fantasy sports is still a young business finding its footing.

“They never expected to be as big as fast as they were,” Barbarisi said. “These guys almost brought down their own industry with some of the things they didn’t account for. But at the same time, look, they survived, and they deserve credit for it. That didn’t happen by accident.”

Curt Woodward can be reached at curt.woodward@globe.com. Follow him on Twitter @curtwoodward.