FanDuel and DraftKings, intense competitors that control some 95% of the North American daily-fantasy-sports market, have made a splash in recent months with lavish spending on advertisements and cash awards for the winners of their contests.
But with the U.S. Justice Department and the Federal Bureau of Investigation opening probes this week into the business model of these companies, and after gaming regulators in Nevada ordered the sites to cease operations in their state, the question is this: Where did these troubled companies come from, and how did they get so big so fast?
FanDuel says it will dole out $2 billion in prizes this year. DraftKings has pledged to give away at least $1 billion. The companies are valued at $1.3 billion and $1.2 billion, respectively.
New-York based Fanduel, which was early to the market in 2009 and long the dominant player, started with a relatively muted approach. It gave fantasy-sports players a chance to compete for prizes by building virtual teams of athletes. In 2013, it raised $11 million in financing from venture-capital companies. The following year it raised another $70 million.
But what pushed the business to its current frenzied level was the fast rise of Boston-based DraftKings, founded in 2012, which adopted a more aggressive fundraising and marketing posture and quickly came to rival FanDuel in size and profile.