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FILE - In this Sept. 9, 2015 file photo, an employee in the software development department of DraftKings, a daily fantasy sports company, walks past screens displaying the company's online system stats in Boston. Top daily fantasy sports companies are fiercely rejecting the idea that their rapidly-growing industry should be considered gambling in the United States. But FanDuel and DraftKings are OK with that label in the United Kingdom. They’re embracing it as a step toward global expansion. U.K. gambling regulators granted a gambling license to DraftKings in August, while FanDuel applied earlier this month for a license as a “gambling software” company. (AP Photo/Stephan Savoia, File)Stephan Savoia/Associated Press

DraftKings Reportedly Spent Millions of Dollars to Pay Out Guaranteed Prize Pool

Alec NathanSep 16, 2016

DraftKings—a daily fantasy sports platform—was forced to pay millions of dollars in prize money out of pocket following Week 1 of the NFL season after it failed to generate enough entries to cover winners' guaranteed earnings.

Citing industry sources and high-volume players, ESPN.com's David Purdum and Don Van Natta Jr. reported DraftKings had to pay somewhere between $2 million and $4 million to compensate for the smaller sum generated by entry fees.

A DraftKings spokesperson told Purdum and Van Natta the $4 million figure was "grossly exaggerated" and that the expenditures paid out of pocket were considered a "marketing expense."

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"It was a tough weekend, a very soft weekend, and it ended up being a costly one," a longtime industry insider close to DraftKings told ESPN.com. "The timing couldn't have been worse."

All told, Purdum and Van Natta reported at least 16 of DraftKings' biggest prize pools were not fully compensated by entry fees shortly before the 1 p.m. kickoffs last Sunday.

However, DraftKings took an optimistic approach despite the shortfalls that reportedly plagued several of their biggest contests.

"We wanted to have really attractive, high-value guaranteed contests with low entry fees," DraftKings senior vice president of corporate communications Jason Alderman said, per Purdum and Van Natta. "That was incredibly successful. That's how we looked at Week 1. We accomplished what we set out to do. Week 2 and subsequent weeks will look differently."

News of DraftKings' financial struggles at the start of the 2016 NFL season come on the heels of an Outside the Lines report from Van Natta that indicated the daily fantasy industry had encountered monetary strife following a boom in 2015.

Van Natta disclosed that both DraftKings and fellow daily fantasy sports operator FanDuel are not profitable enterprises, while their estimated worths were reportedly slashed "by more than half, according to some estimates."

Purdum and Van Natta also reported FanDuel and Yahoo Sports had similar shortfalls they had to cover following Week 1 but noted their out-of-pocket costs weren't as high as DraftKings'.