Fantasy sports operator DraftKings Inc. said Thursday it has raised $150 million in venture investment, giving the company a fresh infusion of cash as it recovers from taxing legal battles and prepares for another critical NFL season.
DraftKings said several new investors participated in the round, including Revolution Growth, a venture firm cofounded by former AOL chief executive Steve Case. In a statement, DraftKings chief executive Jason Robins said the new cash would help DraftKings "realize our vision of building a transformational global sports entertainment and technology platform."
The new funding is a potential high note for DraftKings, signaling renewed investor optimism after months of heated and costly debates about the legality of cash-prize daily fantasy sports, in which players compete to amass the best-performing fictional roster of real-life athletes.
The company did not disclose the valuation the investment placed on DraftKings, but a person with knowledge of the financing said DraftKings was valued at around $1 billion. That's down considerably from a year ago, when a previous investment round gave DraftKings a valuation of $2 billion.
Other investors had already reduced the value of their stakes in DraftKings following months of legal troubles for the Boston-based company and its chief competitor, New York's FanDuel Inc. The most prominent was 21st Century Fox Inc., which said earlier this year that its $160 million investment in DraftKings had fallen by about 60 percent.
While the new money is a sign of the daily fantasy industry's health, it doesn't mean all of the questions about the its long-term viability have been answered, said Adam Krejcik, an analyst at Eilers & Krejcik Gaming.
"Both DraftKings and FanDuel will at some point need to formulate a viable exit plan," Krejcik said. "When and how that plan is executed remains a mystery to us."
DraftKings and FanDuel spent heavily on lawyers and lobbyists to fight lawsuits and win legislative approval in several states since last fall, when a controversy over consumer protection measures roiled the nascent industry.
The most critical challenge was in New York, one of the country's top fantasy sports markets. State Attorney General Eric Schneiderman sued to shut both companies down for violating gambling laws, but settled that claim after state legislators agreed to regulate the games. Schneiderman is still pursuing deceptive-advertising claims against the companies.
Several other states have passed similar laws, including Massachusetts, which agreed to explicitly legalize daily fantasy games provided they follow a long list of consumer protection regulations created by Attorney General Maura Healey. State officials said previous Massachusetts law did not clearly ban fantasy sports played for cash prizes.
The surge of new state regulations likely convinced investors that daily fantasy sports would be able to continue growing, said Linda A. Goldstein, a gambling law expert at Manatt, Phelps & Phillips.
"There is now a framework for what the industry is likely to look like," Goldstein said. "If you looked at the landscape a year ago, I don't think anybody could have predicted whether the industry would have survived."
DraftKings collected about $500 million in a pair of investment rounds completed within weeks of each other in mid-2015. The second of those investment rounds, in early August, was worth about $200 million and valued the company at about $2 billion.
Krejcik said the new cash should help DraftKings bankroll its marketing budget targeting football fans, along with paying for additional lobbying, legal, and consulting costs that reflect the industry's shifting regulatory landscape.
DraftKings has said it plans to advertise during the NFL season, which is typically the most lucrative for daily fantasy companies. But the company also has shed the get-rich messaging of its previous TV ads and plans to advertise far less than a year ago, when it was one of the nation's most active commercial buyers.
Revolution Growth hinted at the daily fantasy industry's tumultuous history in a statement about the deal. "Building a business is never easy, especially one that is leading the creation of a new marketplace," Revolution investor Steve Murray said.