DraftKings Inc. raised around $200 million this summer in a previously undisclosed investment that valued the fantasy sports startup at about $2 billion, a person with knowledge of the company’s finances said Friday.
The latest round of investment means the Boston-based fantasy sports operator was able to raise a half-billion dollars in a matter of weeks as it prepared to buy enormous amounts of airtime for the start of the NFL season. In late July DraftKings announced a $300 million round led by Fox Sports.
DraftKings declined to comment.
The company filed documents in Delaware on Aug. 11 indicating it had created a new group of company shares that it would sell at a higher price than what investors paid in the July round. The person with knowledge of the financing, who was not authorized to speak publicly, said DraftKings closed on the $200 million round shortly after the Fox Sports-led investment.
The investment came before DraftKings and its main rival, FanDuel Inc. became embroiled in a controversy that has drawn the attention of federal and state officials and threatened to increase regulation of the industry.
Large fund-raising rounds and billion-dollar valuations for venture-backed private companies are more common, particularly after Facebook Inc. was able to raise huge sums before going public in 2012, Harvard Business School professor Paul Gompers said.
“People are looking to find that next opportunity that’s going to be a $10 billion or $25 billion company, and that certainly leads to this kind of rapid fund-raising,” Gompers said. “Whether or not this is rational or a bubble or whatever is a deeper metaphysical and philosophical question that is hard to disentangle — we’ll know after the fact.”
DraftKings has used much of its new funds to buy a flood of commercials during the NFL season. It is also preparing to launch overseas for the first time, which could dramatically increase the amount of money flowing through its contests. It recently obtained a license from the United Kingdom’s Gambling Commission, and chief executive Jason Robins this week said DraftKings expects to begin offering contests there later in November.
The company has an office in London with about 12 employees focused on business development and marketing, Robins said in an appearance at the Sports Media and Technology Conference in New York City.
“I’m very excited about the UK, not just because I think the UK is a tremendous market, but also because it’s the beginning of our real global expansion,” Robins said. “If it starts exploding the way we see in the US, we’re going to be growing that office very, very quickly.”
The UK launch will be a crucial test, Robins said, as DraftKings will need to manage currency conversion and support customers in other time zones, among other issues unique to its overseas business. If the company succeeds there, the London office would become the hub of DraftKings’ operations in other European countries, he added. DraftKings is also eyeing Australia and Asia as potential growth markets, he said.
The UK “will be the first foray we’ve had outside North America and I think we’ll learn a lot,” Robins said. “That will allow us to expand much more quickly afterwards.”
Fantasy sports companies have grown quickly in the US by offering big cash prizes and games that can last just one day or one week. DraftKings has said it plans to award $1 billion in prizes this year, and FanDuel has said it plans to award $2 billion.
Regulators have taken a closer look at fantasy sports following the disclosure that a DraftKings employee won $350,000 playing on FanDuel after mistakenly posting critical company data online. Both companies said the worker was unable to alter his FanDuel entries when he accessed the data, but the controversy led DraftKings and FanDuel to ban employees from playing public contests anywhere online.
Federal prosecutors in Boston and New York have subpoenaed DraftKings over the incident.
Meantime officials in numerous states are questioning if fantasy sports games for cash are legal under their local gambling laws.
The Nevada Gaming Control Board recently ruled that DraftKings and FanDuel needed a license to operate in the state, prompting both companies to suspend contests there. The Massachusetts Gaming Commission is examining the legality of fantasy sports in this state, and plans to have recommendations for a potential regulatory system in the coming weeks.