DraftKings Business Model: A $24 Billion Sports Betting Company that Went Public Amid Lockdown

What is DraftKings Business Model? This is a million-dollar question nowadays.

Just after a year of going public amid a pandemic, sports betting company Draftkings is experiencing fast-paced growth as more U.S states legalize sports betting and gambling. Its valuation was around $6.5 Billion at the time of IPO and today, a year later, it increased to more than $24 Billion. What could be the secret behind it? 

While we are yet to find out the same, this “never-seen” kind of growth is already driving entrepreneurs as well as investors crazy, leaving them in the turmoil of what’s happening with the sports betting industry. But, the minds behind this amazing app idea are giving credit to the increased momentum in the industry. 

With a growing number of users and more states legalizing sports gambling in the USA, the global sports betting market is heated up and all set to see tremendous growth. The market size of the sports betting industry is expected to grow up to $106.25 Billion during 2021-2015 with a CAGR of 9.70%.

If you also find sports fantasy or sports betting apps interesting or you are interested in knowing what is driving the crazy success of apps like Draftsking, you are at the right place. In this blog, we are going to explain everything about the Draftkings business model, how does DraftKings work, how does Draftkings make money, and much more. So, let’s get started. 

Draftkings Facts and Stats: Funding and Major Milestones

• Launched in: 2012
• Founders: Jason Robins (CEO), Matt Kalish, and Paul Liberman.
• Headquartered in: Boston, Massachusetts
• Valuation: More than $24 Billion
• Revenue (Q2 2021): $298 Million
• Available in: 8 countries including the USA and Canada

DraftKings’ Inspiring Success Story: The Journey to Billionaire Club

The journey of becoming a top DFS site from a garage-based company was not at all easy for DraftKings. Today, they serve the flourishing legal sports betting market in the USA, but things weren’t easy when they just started. However, the minds behind this amazing app idea paved the way and DraftKings is a sensation in not just America but the whole world today.

The Back Story

The DraftKings’ success is a story of three colleagues who shared a passion for sports and fantasy leagues. They conceived the idea behind DraftKings together and started working on building their dream project with full zeal and enthusiasm. But, just like other startups, they faced two common problems in initial days:

• They lacked funding and were unable to hire developers and build a great platform
• Investors were doubtful because founders were still indulged in full-time jobs.

To beat the odds, the founders planned to validate the concept of structuring an entire fantasy league into smaller time frames. They organized some small League Baseball Competition and also offered a prize of around $100 for winners. 

A few dozen users participated in these contests but that was enough for the founders’ team to continue working on the idea. Later, this small experiment also served as validation proof to convince investors and as a result, the Draftkings’ team got their first funding of $1.4 Million. 

DraftKings’ Road to Glory

When launched in 2012, they just provided a one-on-one baseball game. A year later, the MLB funded Draftking with an undisclosed amount. It was big news since MLB was the very first sports league to invest in a DFS company. As a result, DraftKings got a lot of traction and broke all the records afterward. 

DraftKings continued to secure more sponsorships and fundings over the coming years. The company raised a total of $300 Million from Fox Sports, Boston’s Wellington, and Robert Kraft. These high-profile investments made DraftKings one of the most popular brands in the sports betting and daily fantasy industry in the USA. 

But, What Drove the Success?

The question that now arises is obvious, what DraftKings did differently to get so much traction and funding from big investors like Fox Sports? 

The only principle of innovation is to do something no one else is doing and driving the market crazy with your offering. At the core of DraftKings was a “business idea” that was unique and engaging for users.

Before the arrival of DraftKings, most people just played season-long fantasy leagues, similar to those found on Yahoo or CBS. They were typically played for low stakes (or even for free sometimes) and only saw participants draft once. DraftKings changed this trend and introduced new contests every day or week, resulting in increased interest of users and tremendous growth of the platform.

And then legalization happened. Up until 2018, sports betting was an illegal affair in the United States. But in May 2018, the Supreme Court ruled that PASA (Professional and Amateur Sports Protection Act) was unconstitutional and the states gained the right to legalize sports betting. It allowed DraftKings to further expand its business.

They Acted Fast and Never Missed an Opportunity

After legalization, they fastly capitalized on the legal sports betting industry of the USA by launching operations in New Jersey. In the business sense, we can call it being fast like an eagle and grabbing the opportunity that the market itself is providing. Their first-mover advantage helped them earn the most revenue for the initial months of regulation. With this move, they became the first legal sportsbook in the state. 

Presently, DraftKings sportsbook operates in the following states of the USA:

The History Created —  4X Valuation Amid the Pandemic

Things were going really well with DraftKings’ business up until April 2020, but then the pandemic happened. Now, can you imagine a sports betting company staying competitive in a world without sports? Well, that actually happened.

DraftKings’ team not just stayed in business but almost increased its valuation by multiple folds in the midst of a pandemic. They announced their IPO in December 2019 and went public in April 2020 via a SPAC with Diamond Eagle Acquisition Corporation.

With this move, they crossed all the barriers of creativity and made their mark in the world. 

• The company’s valuation exceeded $24 Billion from $6.5 Billion
• Their revenue rose to $643.5 Million in 2020 from $431.8 Million in 2019
• The company’s annual revenue is expected to rise to $1 billion this year.

They reduced the pandemic effect by allowing betting on events like Belarus soccer, esports events like NASCAR’s iRacing, or even the outcomes of Tiger King episodes. As more US states legalized sports betting and people were looking for engaging apps to pass their leisure time in the lockdown, DraftKings capitalized on this opportunity and rose to zenith once again. 

They acquired an increasing number of users during the lockdown period and their shares skyrocketed right after the IPO. Months later, popular sports leagues like NFL and NBA resumed and once again the app went viral among sports betting lovers. Their stock’s performance was further boosted as a result of several exclusive partnerships with brands like ESPN, UFC, and Turner Sports.

DraftKings Business Model: How Does DraftKings Work?

While the business model of DraftKings is not rocket science, it is based on an amazing app idea that made it a success in the sports betting and gambling industry. DraftKings is a leader in the one-day fantasy sports betting and gambling industry. It lets users play and bet games in several sports and leagues including NFL, NHL, NBA, premier leagues, and others. 

Let’s look at what DraftKings business model canvas looks like:

DraftKings Value Proposition

They changed the long-term commitment trend of fantasy sports by allowing users to play short-term fantasy sports on a huge scale. This option to participate during a single day or any given day changed the lucrative sports betting industry forever by giving users the chance to take fewer risks and earn more. 

The idea behind DraftKings took away the risk of selecting a non-performing team and getting stuck with participants for the entire season. It basically gave participants a chance to play without taking huge risks. At the end of every day, a winner is declared and participants are given a chance to select players the next day again to start afresh.

They also give winners exciting cash prizes that keep users engaged with the app. The amount of these prizes depends on the entry fee paid by participants to enter the tournament. 

DraftKings Diverse Products Range

What makes DraftKings unique is the range of products that the company provides to its target market. It is a one-stop solution for sports fantasy lovers that seamlessly does everything. Apart from the fantasy league, the company also offers DraftKings sportsbooks that let users bet on the outcome of games. 

Another product of the company is iGaming. It is basically an online casino using which users can play games like roulette or blackjack. The company provides modern apps that are easy to navigate and function well. 

DraftKings perhaps provides the broadest range of betting and fantasy sports services in terms of depth and breadth – you can bet on any sport virtually and the wide range of activities they let users do is just amazing. It provides unique styles of play, for example: 

• A super contest style game
• Sportsbook pools
• Live cash-out options
• An online casino

DraftKings Revenue Model: How Does DraftKings Make Money?

Well, DraftKings doesn’t have one but many sources of revenue. To understand DraftKings Business Model, let’s analyze all its revenue streams one by one:

1. Daily Fantasy Sports

The app Draftkings started its operation with daily fantasy and most of its revenue comes from this stream presently as well. It organizes daily fantasy competitions for many sports and participants must pay a predefined amount to enter these competitions. 

It takes 10% of the money which players pay as an entry fee to play the tournament.

2. DraftKings Sportsbook

After legalization in the USA, DraftKings Sportsbook is also generating a hefty amount of money. The app lets users bet on various games via its Sportsbook app which is presently legal in many US states. Its revenue is further divided into two streams:

• Vigorish: The commission they charge for placing the bet.
• Lost Bet Money: They get a cut when someone loses a bet. 

3. iGaming

This is another product by DraftKing that lets users play more than 400 casino games. Just like in Sportsbook, DraftKings makes money whenever a participant bets against DraftKings and loses that bet. This model is profitable for the app because of the statistical advantage it has. It alters the games to make sure it wins more bets than it loses.

4. Advertising

Just like many other popular fantasy sports apps, DraftKings also uses Ads to generate revenue. They are paid to host tournaments and get remuneration according to the number of participants in the game. 

Wrapping Up

If you are an aspiring entrepreneur who wants to establish a venture in the sports betting or fantasy sports industry, you must already be aware of the fact that this industry is highly profitable and competitive. Thus, you need to build a robust, engaging, and easy-to-use platform to secure an edge over your already established competitors. You need professionals who understand the nitty-gritty of this industry and can help build you a solution as per your business demands. 

At Apptunix, we are a team of professional sports betting app developers who can help you make this task easier. Get in touch with us for more information!