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Disney's big bet on fantasy sports

Disney (DIS) is delving into new fantasy worlds.

The company is reportedly investing $250 million into fantasy sports business DraftKings. This deal values the startup site at $900 million dollars, according to Wall Street Journal.

DraftKings and rival site, FanDuel, allow users to play with real money at stake, providing a revenue model different from ad-based fantasy sports sites offered by CBS (CBS), ESPN, and Yahoo (YHOO) [the parent of Yahoo Finance]. Both DraftKings and FanDuel allow users to play per-game, rather than making players commit to managing a team for an entire season.

As part of the deal, DraftKings will spend over $500 million in advertising on ESPN.

Yahoo Finance’s Aaron Task thinks this is a smart move for Disney.

“Fantasy sports has obviously grown incredibly in recent years,” he says. “And one of the fine print of that deal is that this company, DraftKings, is going to have to spend money on commercials on ESPN. So it's a sort of like Disney is using DraftKings as a middleman to give money to ESPN.”

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The deal comes as cable sports rights fees continue to increase, which has hurt ESPN’s profits. In Disney's most recent quarterly report (ending December 27, 2014) , the company said cable-operating income was down 2% because of ESPN’s higher programming and production costs.

Task notes that Disney's investment in DraftKings could be good for diversification.

“It's good to find alternative sources of revenue for ESPN," he says. "Look at all the over the top services that are happening... maybe we've seen the peak prices that ESPN can charge the cable operators to carry them. They need to diversify their revenue stream and again this is a growing industry.”

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