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Fantasy Sports' DraftKings Takes Out Rival StarStreet

NEW YORK ( The Deal) -- DraftKings announced Monday that it acquired fantasy sports startup StarStreet, just six weeks after scooping up DraftStreet from IAC/Interactive Corp.

Founded in 2012, DraftKings is a Boston-based fantasy sports company. Fantasy sports, which allows participants to draft their own teams and compete against each other, is a market with approximately 41 million players in the U.S. and Canada, according to the Fantasy Sports Trade Association.

DraftKings and StarStreet started speaking about six weeks ago, said DraftKings spokeswoman Femi Wasserman. Though she declined to provide financial details of the transaction, she said the StarStreet deal was a "smaller transaction" than the July DraftStreet acquisition.

The two acquisitions are similar in some ways and different in others, she added. The DraftStreet deal was about bringing the two companies together, while the latest deal was about acquiring products. In fact, the StarStreet team is not joining DraftKings, Wasserman said.

StarStreet could not be reached Monday for comment.

While Wasserman did not rule out the possibility of future acquisitions or initial public offering, she said the company is primarily focused on pursuing "organic growth" and that discussions of more acquisitions or a potential initial public offering rarely come up in board meetings.

Still, the company will look toward expanding its mobile efforts, which Wasserman explained was "a very important channel" for DraftKings.

DraftKings also announced Monday that it secured $41 million in Series C round of funding led by Raine Group LLC, joined by existing investors Redpoint Ventures, GGV Capital and Atlas Venture. To date, DraftKings has received $74.7 million in total venture capital funding, according to Wasserman.

DraftKings is a "pretty large" player in the fantasy sports industry that's been receiving buzz, an industry source who asked to remain anonymous said. For one thing, it's capital raising has been on the high side for a digital media company this person said. While most of the fantasy sports market M&A has been small private companies buying other private companies, either for development teams and/or products and startup costs are low, it costs money to find and retain customers, the industry source said.

As a result, many of these companies will need to pursue some level of consolidation: "I don't think this is a space that can afford to be fragmented," the source said.

Fantasy sports is a big market consisting of players with compelling products, added Sandy Kory, managing director at M&A advisory firm Horizon Partners. At the same time, it's an industry with some old-school players who are looking to grab startups with newer technologies.

Kory explained that DraftKings is a company with a scale big enough to eventually attract interest from big media giants with presence in fantasy platform, citing Yahoo Inc. and Walt Disney Co.'s ESPN as such examples. In fact, Yahoo bought mobile fantasy sports startup Bignoggins last year.

Any time a company can buy out its biggest competitor, it is a positive sign, said Frank Hawkins, a partner at Scalar Media Partners LLC, referring to DraftKings' acquisition of DraftStreet.

DraftKings is emerging as a dominant player in the fantasy sports industry, Hawkins said, adding that it could also be a good fit for Vista Equity Partners, which picked up Stats LLC in May.

-- Jaewon Kang

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