FanDuel and DraftKings, the two leading fantasy sports companies in North America, are both planning their next big financial moves – including whether to raise more money privately or do initial public offerings. DraftKings says it would even consider merging with FanDuel.
Based on a number of rounds of funding they are already both worth about $1 billion each, and are growing revenue at a rapid rate as they sign up millions of Americans willing to draft virtual sports teams online and pay fees to enter competitions that last only a few hours but offer big money prizes.
That growth is likely to pick up this month as the National Football League season gets underway, starting with a matchup between the Pittsburgh Steelers and the New England Patriots on Thursday night.
DraftKings CEO Jason Robins said in an interview this week that his company is having "very active conversations with banks" to figure out its options.
"I ask everyone I meet with, should we go public? Should we raise another private round? Should we buckle down and focus on profitability?" Robins said.
He said that DraftKings is set to grow its NFL customer base by ten times from its level last year, thanks to an aggressive advertising campaign across television, digital platforms and billboards.
FanDuel CEO Nigel Eccles said in a separate interview that the company is waiting until January, when it will review its financial performance at the end of the NFL season and then decide if it wants to raise another private funding round or hire banks for an IPO.
"We would in January go to the bankers and say 'this is how football has gone, this is what we think 2016 looks like, when does it make sense (to go public)?" he said.
Modern fantasy sports started in 1980 when a few avid baseball fans starting drafting teams. It has mushroomed online in recent years, with participants typically creating teams that span an entire season, in major sports including baseball, basketball and hockey.
Daily fantasy sports, where players draft teams in games played in just one evening, developed in the past few years. This has allowed fans to bet with a frequency that some critics argue is akin to sports betting or gambling.
High-profile investors have so far backed both companies. In DraftKings' $300 million investment round announced on July 26, the funding was led by Fox Sports, part of Twenty-First Century Fox Inc (FOXA.O), and also included Major League Baseball, the National Hockey League, the Madison Square Garden Co (MSG.N), the Raine Group and Wellington Management. FanDuel's $275 million funding round, announced July 14, was led by private equity firm KKR & Co LP (KKR.N) and included Google Capital, Google’s (GOOGL.O) growth equity investing arm, and the venture arms of Time Warner Inc (TWX.N) and Comcast Corp (CMCSA.O).
FanDuel may consider doing one more round of private fundraising with strategic investors but that would likely be the final one before it went public, Eccles said.
Neither of the companies are yet profitable and the CEOs said they are in no immediate hurry to change that, instead spending money on attracting more customers and growing revenue. Eccles, at FanDuel, said the company could become profitable "tomorrow" if it decided to cut its advertising budget, which is its biggest expense.
Both CEOs said they have heard from investors and bankers about the logic of combining the two companies. Eccles, who said he is not interested in a tie-up, said he has heard investors compare it to the 2008 merger between Sirius and XM Radio, when two unprofitable upstarts merged to create No. 1 satellite radio provider Sirius XM Radio Inc (SIRI.O).
DraftKings' Robins said he would consider a merger, but that it would take two to tango.
"In the case of a merger with FanDuel, even if we were really in favor of it, they'd need to want to do it too," he said.
(Reporting by Liana B. Baker; Editing by Martin Howell)