Dream 11 parent Dream Sports raises $840 mn at valuation of $8 bn

Sports technology company Dream Sports, the parent firm of fantasy sports platform Dream11, said on Wednesday that it completed an investment of $840 million at a valuation of $8 billion. This was led by Falcon Edge, DST Global, D1 Capital, Redbird Capital and Tiger Global, even though the larger gaming sector continues to face regulatory uncertainty.

The round also saw participation from existing investors like TPG and Footpath Ventures. This made it among the largest investments globally in the sports technology and gaming sector in India.

“Our vision and mission is to create an entrepreneur-led virtuous cycle of investment, innovation and wealth creation for all stakeholders in the sports ecosystem, from fans to athletes, teams and leagues. Our investors have deep experience in developing sports ecosystems globally. We are fortunate to have their guidance to ‘make sports better’ for 1 billion Indian fans,” said Harsh Jain, chief executive officer (CEO) and co-founder, Dream Sports, in a statement.

The firm had raised $400 million in its previous funding round at a $5 billion valuation in March this year.  

In the gaming sector in India, investments have crossed around $1.6 billion in the first nine months of 2021. They exceeded what was invested in the last five years, a report by boutique investment bank Maple Capital Advisors and All India Gaming Federation said on Wednesday. The adoption of gaming is led by smartphone penetration, the pandemic, growing Internet availability, digital payments and so on, it added.  

Fantasy sports has witnessed a steep growth in the last 24 months, with more than 100 million gamers playing fantasy sports across platforms. It was helped by the Indian Premier League and other sporting events in India and globally, the report added.

Dream Sports, with an existing user base of 140 million Indian fans, is focused on building one of the world’s largest sports ecosystems.

“We’re excited to partner with the Dream Sports family in its vision of building the leading end-to-end sports tech company in India,” said Rahul Mehta, managing partner at DST Global.

He added, “We’re impressed with their customer-centric approach, product strategy and ability to strengthen connections between fans and their favourite sports.” Avendus Capital was the exclusive financial advisor to Dream Sports on the transaction. 

Dream Sports is one of the few Indian consumer-tech unicorns that has turned profitable. It reported a profit of Rs 181 crore in FY20, compared to a loss of Rs 87.8 crore in FY19.

The Mumbai-based company reported its revenues for the financial year 2019-20 at Rs 2,130 crore, a 166 per cent jump since the previous financial year, according to regulatory documents sourced from business intelligence platform Tofler.

There was a 236 per cent increase in the company’s net profit from the last financial year. The company’s total expenses for the financial year were Rs 1,868 crore compared to Rs 934 crore in the previous year.

“The firm augmented its revenues and per-unit price realisation by deploying innovative marketing strategies and offering exciting new products,” it said in the documents.

“The depth of designing capabilities was the core to our success over the years,” it added.

Regulatory hurdles

For several years, the firm, co-founded by Jain and Bhavit Sheth in 2008, failed to attract investors and remained entangled in legal battles as fantasy sports and other games of skill are often confused with games of chance, which are regulated under gambling laws.

Although a favourable court order in 2017 removed legal hurdles, the fact that regulation of games of skill are unclear and often get entangled in legal issues is a continuous struggle for gaming companies.

While investments continue to flow into the gaming sector, 2021 has been a mixed bag in terms of regulatory issues. The role of the central and state governments in regulating the sector is still unclear. Many states have taken steps to regulate or ban online gaming, based on the belief that all online gaming is akin to gambling.

In October, Karnataka passed the Karnataka Police (Amendment) Act, which outlawed all forms of online gaming where transfer of money is involved. Multiple petitions challenging the new law are being heard in the Karnataka High Court.

The Tamil Nadu government had, earlier this year, passed a law to ban online games such as rummy, poker and other skill-based games that involve betting and money prizes, but it was revoked in August. Other states that have clamped down on the industry include Telangana, Andhra Pradesh, Kerala, Assam and Odisha.

The question as to whether an online game is a game of skill or chance also adds to regulatory confusion and uncertainty.

In spite of these issues, investors have been willing to back gaming companies, given the potential for increase in the user base.