Fox cuts value of DraftKings stake by 60 percent
Twenty-First Century Fox Inc. has marked down the value of its $160 million investment in DraftKings Inc. by about 60 percent amid increasing challenges to the legality of daily fantasy sports contests.
In a filing Monday with the Securities and Exchange Commission, the media giant controlled by Rupert Murdoch said it made the decision “based on information concerning DraftKings’ current valuation in a recent financing transaction.” A spokesman declined to provide further details.
Fox purchased an 11 percent stake in Boston-based DraftKings in July in a financing round that valued the company at $1.2 billion. The filing said the value of its holdings had dropped by $95 million by the end of the year.
The most recent information available on DraftKings’ fund-raising is from early August, when the company gathered $200 million at a valuation of about $2 billion.
That investment came just before state regulators and federal investigators began probing whether daily fantasy sports contests violate gambling laws. The company declined to comment on details about its financing.
“Our relationship with Fox is strong and in good standing,” DraftKings spokeswoman Sabrina Macias said.
Other hot startup companies are also seeing their once-lofty valuations lowered as the technology sector undergoes a broader pullback. Investors in privately held Snapchat and Dropbox have reportedly marked down the value of their holdings, for example, while Square Inc. went public in November at a significantly lower valuation than it enjoyed as a private company.
There is some leeway for investors when valuing privately held companies. Other DraftKings investors — among them the Kraft Group, owners of the New England Patriots; Boston financial giant Wellington Management; Major League Baseball; the National Hockey League; and the owners of the New York Knicks, New York Rangers, Los Angeles Dodgers, and Dallas Cowboys — have not disclosed how much they think the company is worth.
But mutual funds owned by John Hancock Financial and Hartford Financial Services Group Inc. have cut the value of their stakes in DraftKings’ August financing round by about 15 percent, from $7.67 per share to about $6.52 per share.
The impact of shifting valuations depends on when DraftKings investors bought into the company. For example, DraftKings shares purchased in late 2014, at a price of about $1.80 per share, were valued at $6.52 per share as of Hartford Financial’s Oct. 31 filing and John Hancock’s Nov. 30 filing.
There also isn’t agreement among investors about how to value private stocks like DraftKings. Mutual funds owned by Franklin Resources, Inc. reported no change in value for its stakes in DraftKings as of Oct. 31, according to SEC filings.
DraftKings and its prime rival, FanDuel Inc. of New York, are also facing the threat of losing access to key parts of the financial system.
Payment processor Vantiv Inc., which helps fantasy sports companies take in money from customers and pay out prizes that can top $1 million, has said it plans to stop serving the industry at the end of February. DraftKings, however, has a restraining order binding Vantiv to its contract.
Two large banks, Citigroup Inc. and Bank of America Corp., have blocked their customers from paying for daily fantasy contests in New York, where the state attorney general is seeking to have DraftKings and FanDuel banned under state gambling law.
Several state attorneys general have said in recent months that daily fantasy sports violate state gambling laws. The most serious challenge is in New York, where state Attorney General Eric Schneiderman has asked a judge to ban DraftKings and FanDuel from the state. The companies are fighting that lawsuit.
The industry has fared better in some other states, where officials have said that local laws do not squarely address daily fantasy sports. Massachusetts Attorney General Maura Healey is finalizing a suite of consumer protection regulations that would require daily fantasy companies to ban players under 21, restrict how the companies advertise, and outlaw fantasy contests based on college sports, among other steps.
Lawmakers in California, New York, and Illinois are also among those weighing bills that might regulate and explicitly legalize the industry.
DraftKings has sought to insulate itself from the increasingly dicey domestic market by expanding overseas. Last week, it launched fantasy sports games in the United Kingdom, which has much more permissive gambling regulations than the US.
Fox’s interest in DraftKings’ success extends beyond the stock it owns. As the company noted in its SEC filing, DraftKings has committed to spend $250 million on advertising with Fox through the end of 2017.
On Tuesday, Yahoo Finance cited unnamed sources in reporting that ESPN and DraftKings had ended an exclusive marketing deal that made DraftKings the official daily fantasy sports brand on the Disney Co.-owned sports network.
Fantasy sports contestants compile mythical rosters of actual athletes, amassing points based on those players’ actual statistics. In daily fantasy sports, the variety popularized by DraftKings and FanDuel, those contests can span just one day or one week’s worth of real-life games.
That short turnaround dramatically increases the number of games that can be played.
DraftKings recently said it has paid more than $1 billion in cash and prizes since its launch in 2012. Fantasy sports companies typically keep about 10 percent of player fees to help cover their costs, recycling most of the revenue into player prizes.
But DraftKings and FanDuel are not yet profitable, and have raised large rounds of private financing to fuel their rapid growth. The two companies, which account for nearly all of the domestic daily fantasy market, have raised nearly $1 billion combined.