ESPN has gotten out early from an exclusive advertising relationship with daily fantasy sports company DraftKings, Yahoo Finance has confirmed from multiple sources close to the situation.
ESPN first announced the deal with DraftKings last June. The Disney-owned (DIS) sports network did not disclose financial details, but said that the partnership "makes DraftKings the official daily fantasy sports offering across ESPN’s platforms" and that it would include, "branding and promotional opportunities across multiple ESPN and DraftKings platforms including integration into digital properties and television programming."
The "exclusive" part did not kick in until January— before the new year, ESPN was welcome to sell ad space to DraftKings' rival FanDuel, as well. And so it did. On many days during the fall, advertisements for both companies appeared on ESPN, often running back-to-back.
You probably know what happened next: in October, a DraftKings employee, Ethan Haskell, won $350,000 in a contest on FanDuel, raising concerns about whether employees of these companies are able to take advantage of users. Both companies quickly barred their employees from playing on any daily fantasy sites.
It is up for debate whether it was that scandal, or the aggressive marketing assault on TV and radio (the two private "unicorn" startups spent more than $200 million on TV ads this fall), that brought unwanted attention from lawmakers. But in a short time, a slew of state attorneys general, as well as the FBI and the U.S. Department of Justice, announced investigations into the industry.
Nevada's Gaming Control Board declared the contests that DraftKings and FanDuel offer to be gambling, and asked them to cease taking paid entries in the state until they applied for a gaming license—something they are unlikely to do. Attorneys general in New York, Illinois, Hawaii and Texas issued opinions that it is illegal gambling. New York Attorney General Eric Schneiderman has pursued the two companies with particular vigor. In contrast, attorneys general in Massachusetts and in Rhode Island have issued opinions that the contests are legal, but ought to be regulated.
Amidst all this, ESPN kept running advertisements and sponsored segments for DraftKings (save for a three-day suspension of ads during the Haskell scandal) and its on-air personalities promoted the site on their social media accounts. Now, the network has broken free from exclusivity and is able to sell advertising spots to other fantasy companies. It is in talks to do so.
As part of the ESPN deal, DraftKings reportedly had to commit upwards of $200 million per year in ad spend on the network. DraftKings is devoting a lot of money to fighting legal battles right now, which makes it likely that DraftKings was the one looking to get out of the commitment, and that ESPN obliged.
DraftKings, FanDuel, and ESPN declined to comment on the record for this story. ESPN experienced layoffs in October due to a drop in subscribers, but on Tuesday night Disney beat expectations on its first-quarter earnings, and CEO Bob Iger said that ESPN, while down in the quarter, has "seen an uptick recently" in subscribers since the quarter ended.
In its original June 24 press release about its new partnership with DraftKings, ESPN included this line of corporate biography at the bottom: "DraftKings, Inc. is a leading skill-based Daily Fantasy Sports (DFS) gaming destination for fans in North America." Half a year later, much has changed. The "skill-based" claim has been called into question and become the central issue in an ongoing legal skirmish over whether daily-fantasy is gambling. And DraftKings is no longer just in North America: This month, it launched in Europe, where sports betting is perfectly legal.
ESPN had never stated exactly how long the exclusive deal would last, but it was widely believed to be a multi-year deal. In the end, since exclusivity did not begin until January, ESPN and DraftKings were married for less than two months.
Disclaimer: Yahoo launched its own daily-fantasy sports platform last year.
Daniel Roberts is a writer at Yahoo Finance, covering sports business and technology.