In August 2014, Boston-based daily fantasy sports startup DraftKings acquired Boston-based daily fantasy sports startup StarStreet for an undisclosed amount. StarStreet’s founder, Jeremy Levine, immediately created a new daily fantasy company, Draft. And now Draft is making changes in order to compete with the big players in the market.
In the past 16 months, DraftKings and its closest competitor, FanDuel, went boom, exploding in brand awareness and user base, and then nearly bust, spending millions on legal fees to fight the attorney general of New York. Last month, DraftKings and FanDuel announced they intend to merge in 2017 into one company.
That merger, if it goes through, along with some negative perceptions around the games that those two companies offer, opens up a breach that Draft hopes to fill. (Some industry skeptics doubt that DraftKings and FanDuel will even survive the merge.) To do so, Draft has brought on new management, Yahoo Finance has learned. It has also closed a new funding round, in the single-digit millions.
Jordan Fliegel, founder of the private coaching startup CoachUp, has joined Draft as co-CEO, effective immediately. Levine and Fliegel have been friends since childhood in Cambridge, Ma., and together have a small venture capital firm, Bridge Boys.
Fliegel, who played pro basketball in Israel before becoming a serial entrepreneur, brings to the table a strong track record of raising capital. His company CoachUp, which helps set up private coaches with their own listing page (think of it like a Yelp for coaches), has raised nearly $15 million and signed on NBA superstar Steph Curry as an equity investor and ambassador. Next, Fliegel invested in Athletes of Valor, founded by former Under Armour product manager Alex Stone, which aims to land young military veterans onto college sports teams. Fliegel has also made small investments in more than 40 startups, including eShares, Mattermark, and Rekindle, which sold to HubSpot.
Fliegel remains chairman of both CoachUp and Athletes of Valor. He says he’s turned his attention to Draft full-time because DraftKings and FanDuel, with their emphasis on winning money, attracted seasoned players and got away from the sheer fun of fantasy sports. “I saw an opportunity to build a massive company around being the best place to play,” he says. “If we were going to reinvent the space and build a product that is what daily fantasy sports should be, could we do that? When you ask people, ‘What do you enjoy most about your season long league?’ People say, ‘The draft, of course.’ The rest of the season—waiver wire and managing your lineups—is kind of annoying. The draft is what’s fun.”
Draft, thus, focuses on the moment of the draft. Whereas DraftKings, FanDuel, Yahoo Daily Fantasy and others function using an imaginary salary cap (every real-life player has a price tag set by the app, and users draft a roster that stays under a certain budget), Draft puts users in a snake draft, with no salary cap. Users can pick any player they want for each position (unless your opponent takes a player first).
When Draft first launched, it only allowed two-player drafts, but it recently added public drafts that users can do with friends or strangers, and with more modest prize pools. Its most common public contest now is a six-person, $10 entry fee draft that pays out $36 to first place and $18 to second. (Draft takes $1 per user.)
Draft says it has amassed close to half a million users. It offers contests in NFL, MLB, NBA and NHL. For comparison: DraftKings offers those sports as well as golf, soccer, mixed martial arts, NASCAR, CFL and League of Legends (e-sports). FanDuel offers the same four sports as Draft, plus English Premier League soccer. After DraftKings and FanDuel merge, it’s expected that the combined company will offer all the sports DraftKings currently offers.
Draft boasts that players are nearly three times more likely to win money on Draft than on DraftKings or FanDuel, which are havens for “sharks,” industry parlance for full-time players who make spreadsheets and algorithms to engineer their rosters and repeatedly win. The top 1% of players on DraftKings won 47% of the price money in the last six months, the Wall Street Journal reported. Draft says the top 1% of players on its app won just 19% of the money during last NFL season.
The idea that it’s difficult for the average person to win money on DraftKings and FanDuel has become more widespread, and Draft aims to capitalize on it by courting beginners—and then keeping them. An estimated 57 million people in the US play traditional “season-long” fantasy football, but only a fraction of them have tried the “daily” variety.
The regulatory heat on daily fantasy sports has created “challenging times,” Draft founder Jeremy Levine says, “but not everyone’s dead. We’ve been growing quite a lot this season. I think there’s a huge future for daily fantasy, just maybe not in the same exact incarnation it was before.”
Levine credits DraftKings and FanDuel for bringing attention and excitement to the space, even if the attention was negative for nearly a year. “They’ve educated the market… everyone now knows what daily fantasy is.” But he adds that if you asked season-long fantasy sports players one year ago whether they believe they could win money playing daily fantasy, “I think 80% of them would have said yes. But if you ask them now, I think only 10% would say yes. I think everyone has learned how hard it is to win on DraftKings and FanDuel. And that has opened the door for us.”
To be sure, DraftKings and FanDuel are much larger than their closest competitor, Yahoo Daily Fantasy, and all three are much larger than Draft. In a typical week during this NFL season, according to the Legal Sports Report, DraftKings and FanDuel took in between $10 million and $15 million each in entry fees (that is not the same as revenue, which is much smaller after they pay out prizes each week) and Yahoo reportedly took in about $350,000. Draft’s numbers are a fraction of those. And make no mistake: the broad awareness of daily fantasy companies, among sports fans, drops off steeply after DraftKings and FanDuel. The average fan likely still hasn’t heard of Draft, Draftpot, FantasyDraft, or other small challengers.
But Draft thinks it can be the last man standing in daily fantasy by emphasizing fun, and emphasizing parity. “People enjoy fantasy sports and they enjoy maybe putting a little bit of money on it,” Fliegel says, “and that’s really the point of daily fantasy sports… I think in recent years maybe we got a little bit away, as an industry, from what the intent was, because of dollar signs. We’re trying to bring it back to what the intent is, and we think we can build a massive business. We are the best-positioned company to capitalize on the space that now exists.”
Disclaimer: Yahoo offers its own daily fantasy sports product.