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Fantasy Sports Are the Real Deal: DraftKings Hits Big in 2014

The company capped a busy year with its strongest quarter ever.

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DraftKings is building a very real business out of a fantasy — and it’s growing very quickly.

The fantasy-sports website focuses on single-day fantasy-sports competitions. It posted its best quarter ever in Q4, bringing in more than $17 million in revenue up from just $2.5 million during the same period last year, CEO Jason Robins told Re/code.

Founded in 2011 and still a private company, DraftKings reported $30 million in revenue on the year after just $4 million in revenue in 2013. (DraftKings is still not profitable, according to Robins.)

The startup is one of two major players battling for business in the daily fantasy-sports market, which had its biggest year by far in 2014. Startups like DraftKings and industry leader FanDuel make money by setting up head-to-head or tournament-style fantasy competitions, taking a cut — roughly 10 percent — of each entry fee while paying the rest out in prizes.

Sports gambling is not legal in most states, but pay-to-play fantasy is. That’s because fantasy sports are deemed to be skill-based, so entering a fantasy football tournament at DraftKings is considered the same as paying to play in a local golf tournament.

Last year, fantasy players paid nearly $1 billion in entry fees between the two companies; that number was just over $200 million in 2013. Plus both startups, DraftKings and FanDuel, raised major funding rounds in 2014, a sign that investors are intrigued with the business behind fantasy sports.

Part of that business model includes partnership deals, in which DraftKings will pay leagues like Major League Baseball and the National Hockey League in order to be that league’s “official” daily fantasy service (although other sites can still offer contests for the sport). DraftKings provides more television viewers with a rooting interest in the games thanks to their fantasy contests, and in return, the leagues will advertise for the website.

These deals are exclusive, which means that once a league partners with DraftKings, for example, it can’t partner with FanDuel. As a result, both companies are in a race to partner with as many individual teams and leagues as possible. These partnerships are one of the ways DraftKings believes it can close the gap between the two services; Robins claims the company has multiple league deals on the immediate horizon.

Fantasy sports in general have changed the ways (and reasons) people watch sports. And daily fantasy sports are giving fans a reason to watch more regularly, helping to boost ratings and league interest (which ultimately means more money).

In some cases DraftKings is even bridging the gap between fantasy and reality for some sports diehards. As part of the company’s partnerships with Major League Baseball, one fantasy competitor threw out the first pitch at a St. Louis Cardinals game; another caught field goals for the NFL’s New England Patriots as part of a partnership with the team.

Who knew that managing your pretend football team could be so real — or so lucrative?

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