How DraftKings Used Creative Cash Management to Fuel Its Growth

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How DraftKings Used Creative Cash Management to Fuel Its Growth

Few people know that DraftKings reached that size and scale without relying on massive VC funding from day one.

Instead, the company used these four tactics to manage its cash flow and propel its growth phase:

1. Build Strategic Media Partnerships That Allowed Them to Get Advanced Payments

In 2015, DraftKings managed to get a 3-year deal with ESPN valued at $250 million.

Now, deals between media companies and sports betting companies aren’t anything new.

But this one deserves our attention because it was structured brilliantly.

There are two key aspects to the deal:

1. The media exposure

DraftKings integrated with ESPN’s television and digital content. As a result, the media company exclusively advertised DraftKings on its platform, which gave the betting company a ton of exposure and visibility in the sports media world.

1. Fresh cash flow

ESPN gave DraftKings advance payments as part of the deal, which didn’t dilute the company’s equity. Instead, DraftKings used this cash flow as operating capital to grow even more..

2. Get Positive Cash Flow From Its Tournament Fees

DraftKings has a genius business model.

It takes around a 10% cut from entry fees that users pay to enter its tournaments.

As an example, for every $1 million in tournament entries, they keep $100,000.

The model is genius because:

• DraftKings gets cash flow immediately.

• They take their cut before distributing their winnings.

• The tournaments can scale with no additional costs.

As a result, DraftKings generated $30 million in annual fees two years after its launch.

3. Create Subscription-Based Products to Get Predictable Cash Flow

DraftKings doesn’t only rely on tournament fees for its revenue.

Instead, the company has a menu of different offerings (some subscription-based, others not), which has helped create predictable revenue.

Their subscription offerings include:

• Season-long premium analytics packages

• Monthly recurring contest entry packages

• Loyalty programs that encouraged ongoing participation

• Tiered membership levels with varying payment cycles

As a result, DraftKings doesn’t have to rely on major sporting events and one-time tournament fees for its cash flow.

4. Strategically Expand By Prioritizing States With The Highest ROI

Launching in all of the US simultaneously would have required many resources, which DraftKings didn’t have.

So they didn’t do that.

The company had a sequential approach to its expansion.

Once a state legalized sports betting, DraftKings followed this process:

1. Launch in states that have the highest potential ROI

2. Use a successful state launch to fund the next launch

3. Leverage their existing fantasy sports user base to convert them to sports betting

4. Time the market, so they don’t have to compete with other companies in those states

Once sports betting was legalized in the US in 2018, DraftKings launched in New Jersey, becoming the first legal sportsbook in the state.

The company was able to have this first-mover advantage in many states in the US, which helped them increase their revenue and capture market share.

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