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  • yousif

    • Blogger of the Month

    https://www.thetimes.co.uk/edition/scotland/fanduel-to-make-cash-call-in-wake-of-blocked-merger-gw6hb8n8f?utm_content=buffer2d77c&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer

    Thoughts?

  • celtics2448

    I’m not economist so i’m not sure i understand all of this completely. What benefit does “raising cash” have for either side of the equation? Sure, FanDuel could have $100m more cash on hand (fake news, not gonna happen) but they surely have to “pay back” their investors right? Those investors have to be smart enough to see they aren’t profitable, and one of the most annoying and expensive marketing campaigns of all time didn’t help either so i guess i just don’t understand why investors keep pouring money into DK and FD? I’m probably missing something here and would love to understand this a little more.

  • sochoice

    • 2017 DraftKings FBWC Finalist

    • 2017 FanDuel WFFC Champion

    @celtics2448 said...

    I’m not economist so i’m not sure i understand all of this completely. What benefit does “raising cash” have for either side of the equation? Sure, FanDuel could have $100m more cash on hand (fake news, not gonna happen) but they surely have to “pay back” their investors right? Those investors have to be smart enough to see they aren’t profitable, and one of the most annoying and expensive marketing campaigns of all time didn’t help either so i guess i just don’t understand why investors keep pouring money into DK and FD? I’m probably missing something here and would love to understand this a little more.

    You are missing quite a bit. By raising more money, FD has the ability to put more capital to work and offer more contests. Assuming they make money on most every contest, they then make more money and investors will be pleased. Early stage investors don’t care about growth companies like FD not making money early on in their existence. Otherwise, companies like Facebook, Amazon, etc would never have raised any money themselves since it took many years from them to be profitable.

  • celtics2448

    Right, i do understand that aspect of it, but we’ve been down this road a half a dozen times before and we keep going back to square one. Raise money, do absolutely nothing of substance differently then before, raise money, raise rake, do absolutely nothing of substance differently than before, raise rake, raise money etc. etc. I guess that point i’m getting at is from the investors perspective, what is there to gain in investing in FanDuel if i’m aware of these trends that i just mentioned. The userbase is generally displeased (read these forums, talk to users not on the forums) and FanDuel’s leadership does nothing at all about it. Unless an activist investor can see the potential for growth that i see with different leadership, we’re just going to go back to square one with raising more cash, yet again, with little to no result.

  • bucherpsu08

    The goal is an IPO I’m assuming. This is probably their only avenue of achieving that.

  • wolfjb1

    @celtics2448 said...

    what is there to gain in investing in FanDuel if i’m aware of these trends that i just mentioned.

    The gain is that this is still a very early stage company and you, the investor, believe that in the long-term, it will be profitable.

    It’s that simple.

    That’s how companies get built, as sochoice said.

    Maybe they’re wrong and you’re right that this is just Groundhog Day and there’s no profit in the future, but that’s not how the investors see it. And they know that it’ll take a while, including taking a beating for a few years.

  • thedude404

    • 2015 FanDuel NBA Playboy Mansion Finalist

    I’d be interested to see Fanduels numbers regarding player retention, ability to acquire players, and cost to acquire players compared to the peak of DFS a couple of years ago. I’d also like to see Fanduel’s plan of how they expect to grow their player pool and what they expect the atmosphere they expect in the short term ie 5 years when trying to acquire new players.

    With all the things that have happened in the industry and what is currently happening, I just don’t see how they expect to gain new users at a meaningful pace and become profitable over the next few years, especially with the FTC rejecting the merger between Fanduel and DK. My guess is within 5 years, either DK or Fanduel will no longer exist, which is the only driver for new users and/or additonal revenue I see.

  • walkoff9

    I feel like they should be able to continue to get new players over the long haul, the problems they ran into were trying to do it too quickly. Honestly i think their main focus should just be player retention, and the new players will come along simply as every year more people would be old enough to play.

  • kb32dawgs

    @thedude404 said...

    I’d be interested to see Fanduels numbers regarding player retention, ability to acquire players, and cost to acquire players compared to the peak of DFS a couple of years ago. I’d also like to see Fanduel’s plan of how they expect to grow their player pool and what they expect the atmosphere they expect in the short term ie 5 years when trying to acquire new players.

    With all the things that have happened in the industry and what is currently happening, I just don’t see how they expect to gain new users at a meaningful pace and become profitable over the next few years, especially with the FTC rejecting the merger between Fanduel and DK. My guess is within 5 years, either DK or Fanduel will no longer exist, which is the only driver for new users and/or additonal revenue I see.

    I 100% agree with this. FanDuel, IMO will never be profitable as they could be until they stop catering to the high volume sharks. Doing this pushes new and casual players away faster than they can acquire new ones. The rake and player pool sizes that have decreased vastly over the last couple of years has by far proved this.

  • KindGuy

    DK still tha GOAT

  • WidumBoise

    @elementasrat said...

    DK still tha GOAT

    WOATduel won’t even be able to come close to competing with GOATkings if they don’t end up merging.

  • wolfjb1

    @kb32dawgs said...

    The rake and player pool sizes that have decreased vastly over the last couple of years has by far proved this.

    I see this argument all the time on RG and scratch my head. This past NBA season, nearly every day, FD had massive GPPs even for the two- and three-game late slates on random weeknights in the dog days of the season. They never had that before. Seems to me that their ecosystem is healthier than ever. I have no idea if those were filled with sharks, so maybe you’re right that these GPPs are not helping to grow the company, but the player pool size seems to be increasing considerably.

  • sochoice

    • 2017 DraftKings FBWC Finalist

    • 2017 FanDuel WFFC Champion

    @wolfjb1 said...

    I see this argument all the time on RG and scratch my head. This past NBA season, nearly every day, FD had massive GPPs even for the two- and three-game late slates on random weeknights in the dog days of the season. They never had that before. Seems to me that their ecosystem is healthier than ever. I have no idea if those were filled with sharks, so maybe you’re right that these GPPs are not helping to grow the company, but the player pool size seems to be increasing considerably.

    I completely agree with these comments. I don’t know if people are bitter about losing or just don’t pay attention to overall tourney sizes at FD and DK every week. The industry is doing reasonably well and once lobbying/legal costs stabilize and start coming down (very soon I think), both FD and DK will start minting money again. Especially since they won’t go on an advertising blitz like a couple years ago. Also, the idea that FD and DK must merge to survive is fundamentally flawed. Best thing for players is for these entities to stay independent as competition between the two of them will make the product better for players generally.

  • phillydilly

    Look. FD is raising money because they need cash to operate so they will not go bankrupt.

    FanDuel also was in talks to raise new capital at the time, but a source says that those talks were later shut down as the company felt it had enough cash on hand to close the merger without accepting extra dilution. Now, however, those discussions may need to be reopened.

    I’ll paste this again in this thread:
    https://www.axios.com/the-draftkings-fanduel-financials-2444723508.html

    highlights:
    2016 EBITDA loss January thru October: 59 Million
    Cash on hand end of 2016: 30 Million

    math is hard.

    and the chaser:
    2013 DK operating loss 12 million
    2014 DK operating loss 75 million
    2015 DK operating loss 509 million (not a typo)
    2016 DK operating loss 92 million

  • thedude404

    • 2015 FanDuel NBA Playboy Mansion Finalist

    @sochoice said...

    I completely agree with these comments. I don’t know if people are bitter about losing or just don’t pay attention to overall tourney sizes at FD and DK every week. The industry is doing reasonably well and once lobbying/legal costs stabilize and start coming down (very soon I think), both FD and DK will start minting money again. Especially since they won’t go on an advertising blitz like a couple years ago. Also, the idea that FD and DK must merge to survive is fundamentally flawed. Best thing for players is for these entities to stay independent as competition between the two of them will make the product better for players generally.

    Time will tell about the merger but I have to disagree. Like I said before if the merger doesnt happen, either Fanduel or Draftkings wont exist in 5 years. If things are so rosy and both companies see profits on the horizon, why did they try to merge in the first place?

  • fishcakeking

    FCK

    A cash call is SOOOOOOOOOOOOOOOOOOOOOOOO different from new funding. It basically forces existing investors to put up more cash or lose part of their ownership. Usually done when companies are up against it.

    FCK

  • KindGuy

    @fishcakeking said...

    A cash call is SOOOOOOOOOOOOOOOOOOOOOOOO different from new funding. It basically forces existing investors to put up more cash or lose part of their ownership. Usually done when companies are up against it.

    FCK

    Long time, no see Mr. Hofeld. Taking a break from DFS?

  • Yacht67

    I’d buy shares of FD or DK if they were publicly traded.

  • kb32dawgs

    @sochoice said...

    I completely agree with these comments. I don’t know if people are bitter about losing or just don’t pay attention to overall tourney sizes at FD and DK every week. The industry is doing reasonably well and once lobbying/legal costs stabilize and start coming down (very soon I think), both FD and DK will start minting money again. Especially since they won’t go on an advertising blitz like a couple years ago. Also, the idea that FD and DK must merge to survive is fundamentally flawed. Best thing for players is for these entities to stay independent as competition between the two of them will make the product better for players generally.

    Bitter about losing? Really? So the higher entry fees, higher rake and lower player pool for the higher entry fees are doing reasonably well. Before the Ethan fiasco, NBA, MLB and NFL was way bigger that it is today.

  • anilprao88

    • 19

      RG Overall Ranking

    • Ranked #3

      RG Tiered Ranking

    • 2017 DraftKings FFWC Finalist

    • 2018 DraftKings FBWC Finalist

    @kb32dawgs said...

    Before the Ethan fiasco, NBA, MLB and NFL was way bigger that it is today.

    I always hear this thrown around here, yet I never see any proof of that.

    Anecdotally, I think it’s obviously true for NFL. I really don’t think it is true for NBA GPPs though and I think it’s probably pretty similar for MLB, but I could be wrong.

  • fishcakeking

    FCK

    @elementasrat said...

    Long time, no see Mr. Hofeld. Taking a break from DFS?

    Don’t play much volume anymore. Don’t post much anymore as most everything I used to clamor on about has come to pass unfortunately.

    Best
    FCK

  • tmarohl

    @elementasrat said...

    DK still tha GOAT

    I don’t agree. Each site has things that are better than the others and appeal to different people. I personally don’t like contest formats for NBA, NFL or MLB on DK and prefer FD. I don’t even like the god awful layout and color scheme of DK.

  • tmarohl

    @fishcakeking said...

    A cash call is SOOOOOOOOOOOOOOOOOOOOOOOO different from new funding. It basically forces existing investors to put up more cash or lose part of their ownership. Usually done when companies are up against it.

    FCK

    I’m not sure I understand. Wouldn’t new investors also dillute existing investors value?

  • htxstangs

    2013 DFBBC Finalist

    • 2013 FanDuel WFBBC Finalist

    If FanDuel didn’t pull out of Texas at the first sign of trouble, perhaps they would’ve been fine. Maybe FanDuel should have just countered with a lawsuit of their own, like DraftKings did.. It seemed as if both sites were neck and neck until all the trouble happened, maybe they never were? I don’t see how you abandon the second biggest state in the US with one of the largest sports markets and still maintain. Just a biased point of view..

  • depalma13

    @celtics2448 said...

    I’m not economist so i’m not sure i understand all of this completely. What benefit does “raising cash” have for either side of the equation? Sure, FanDuel could have $100m more cash on hand (fake news, not gonna happen) but they surely have to “pay back” their investors right? Those investors have to be smart enough to see they aren’t profitable, and one of the most annoying and expensive marketing campaigns of all time didn’t help either so i guess i just don’t understand why investors keep pouring money into DK and FD? I’m probably missing something here and would love to understand this a little more.

    Investors looking for that Buyout Payday after all of the legalities are taken care of.

  • emac

    @tmarohl said...

    I’m not sure I understand. Wouldn’t new investors also dillute existing investors value?

    It depends how things are structured, but generally a “cash call” means existing investors are required to add funding based on their proportional ownership and if they can’t/won’t their ownership % will decreased based on the amount raised from the other investors.

    For example if we have three investors with Investor A having 70% of the company, Investor B having 20% of the company and Investor C having 10% of the company, to fulfill a cash call of $500k they would need to contribute $350k/$100k/$50k respectively in order for their proportional ownership %s to remain the same.

    If there was a cash call scenario where only Investor A participated, then the ownership proportions would be redistributed based on overall capital contributions/withdrawals to that point. Basically Investor A’s 70% stake in the venture would increase while Investor B & C would see a proportional reduction in their ownership %s.

    For funding with new rounds of investors it is a quite a bit more complicated because there are many permutations that are quite common, however, they are difficult to describe in just a sentence or two.

    While I am not an investment banker nor an active CPA, some basic examples of secondary rounds of funding would be:

    Scenario 1: Our three investors each put in their 70%/20%/10% for the initial capital round of funding (usually referred to as Series A) and they set aside a specific pool of ownership % that will be used to bring in new investors for later rounds of funding, generally at a higher “share price” than their contributions and while this will typically “dilute” their ownership %s, often times the new rounds of investors will come in a 3x, 10x or even 100x of the original pricing during Series B, C and even further down the alphabet.

    Scenario 2: We again have our three investors each put in their 70%/20%/10% for the initial capital round of funding, only this time we have a caveat that Investors B & C can only sell their shares if a specific milestone or set of events is achieved. This leaves Investor A as being able to sell a portion of their ownership % at an exclusively set price point that is agreed to by the new round of investors.

    For instance, maybe Investor A sells 10% of the company for $350k (i.e. the amount of his initial contribution) and based on various agreed upon rules set during the initial round of investing, he may be able to keep half of the proceeds, while the other half go into the investment’s general fund. This would then leave Investor B and C still at 20% and 10% of their funding, with Investor A now at 60% and new Investor D now at 10% (though he paid a lot more for his stake than the other investors).

    Even though Investor A gave up some of his ownership, he also was able to monetize and now has 60% of the company having only invested $175k (his initial $350k less 50% of the sale of 10% of the company that was given to him as part of the introduction of Investor D).

    Scenario 3: Perhaps there is a need for capital for a shorter time horizon (say 18-24 months to get the company through a growth period to a future point where they are generating an increased and stabilized cash flow). Often times one or two of the larger investors may “loan” money to the company at rates favorable to both themselves and the company. This would keep everyone’s ownership %s the same, but provide a new investment vehicle/opportunity for a couple of the current investors.

    The difference between another round of investing and a cash call is usually timing. Finding new investors usually means a road show (aka going around to various banks, investing groups, “angel” investors, etc.) and selling ownership into the company (generally though not always at a higher price than what the prior rounds of investing have brought in for “share prices”). This can take several months or even up to a year depending on what type of demand/interest there is in the investment opportunity.

    A cash call generally means “we need funding now” but that does not necessarily mean it is a dire thing. Yes, it could be because the company is struggling to meet their day-to-day obligations, but it could also be for a big upcoming capital expenditure or expansion that will take the company to the next level.

    Let’s say the investment is a chain of stores and they want to build out a dozen locations as part of an expansion into the Southwest. They may do a “cash call” because they know several of their owners have the funds available to put back into the company and this is a quick way to get it done. Some of the owners may not want to or may not be able to afford to add more to their current investment, so they would likely see their ownership % decrease, while those participating in the “cash call” will see their ownership % increase.

    Hopefully these examples help provide a better understanding for the various terms that are being bandied about right now in the DFS world.

    EMac

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