Skip to main content
SearchLoginLogin or Signup

DraftKings, FanDuel Bet Big With Merger

Published onNov 30, 2016
DraftKings, FanDuel Bet Big With Merger

The two dominant U.S.-based daily fantasy sports websites, DraftKings and FanDuel, agreed to a merger on Friday, November 18, 2016, amid a firestorm of questions regarding each company’s legality and future value. The merger caps off nearly two years of on-again, off-again discussions about the two joining forces, and is expected by both to be the best move going forward to continue their daily fantasy sports business. DraftKings co-founder Jason Robins will become CEO of the new company and FanDuel CEO Nigel Eccles will serve as chairman of the board. The name of the new company has not yet been revealed, but we do know it will have headquarters in New York and Boston.

Daily fantasy sports like the services and competitions provided by DraftKings and FanDuel are legal in all or part of a majority of states. The states that prohibit outright, or allow but with significant restrictions, daily fantasy sports are Alabama, Arizona, Delaware, Idaho, Iowa, Louisiana, Montana, Nevada, and Washington. Each company was valued above $1 billion in the fall of 2015, but have seen a significant drop in their value following increased regulation and suspicions of insider trading. With value plummeting and resources running dry, the fantasy giants needed to change course in order to keep themselves viable for the foreseeable future.

 “For the last year or so we’ve been working really, really closely on all the policy work,” Robbins explained in an interview Friday afternoon. “We’ve had a very busy 2016 on the legislative front.” While there were on and off discussions, as well as significant investor pressures, relating to a merger for nearly two years, DraftKings and FanDuel began to further entertain the idea of teaming up following a settlement with the State of New York for $6 million each. “Through that process, we realized that we share an identical vision and we’re really trying to accomplish the same goals,” said Robbins.

“Being able to combine DraftKings and FanDuel,” added Eccles, “presents a tremendous opportunity for us to further innovate and disrupt the sports industry. While both companies have accomplished much already, this transaction will create a business that can offer a greater variety of offerings, appealing to new users, including the tens of millions of season-long fantasy players that haven’t yet tried our products.” Evaluators of this merger have called it a logical merger of necessity, as both sides were paying exorbitant legal fees and fines to regulators and each stood to benefit by pooling resources with the other to continue their businesses. Further speculation suggests DraftKings and FanDuel are hoping to pool their resources to help them gain sustainable access to season-long fantasy competitions rather than only daily fantasy sports.

Though each company has agreed to the merger, the merger itself will need to get regulatory approval, a process that could take a significant amount of time. The Federal Trade Commission (FTC) and the Department of Justice (DOJ) will be especially interested in scrutinizing the deal, as the merger brings together two entities making up nearly 80% of the daily fantasy sports marketplace. One of the major factors the FTC will consider when deciding whether or not the merger may go through is the ultimate benefit it will bring to the consumer.

There will be considerable regulatory concerns as to whether this merger has a negative impact on competition in the fantasy sports industry, though. Historically, a merger between the top two players in any industry faces significant regulatory hurdles under the Hart Scott Rodino Antitrust Act of 1976; however, the entire proposed merger may not face full FTC and DOJ scrutiny until the new Trump Administration takes office, which could have a serious impact on whether or not it gets approved. DraftKings and FanDuel have expressed a willingness to take all necessary steps to comply with regulators like the FTC and gain approval of this merger in part by focusing on offering consumers the best fantasy experience their pooled resources will allow; further, independent daily fantasy sports companies see the merger as an opportunity for themselves to stand out against one major player instead of two. Interested parties argue the merger is believed to be an opportunity to innovate and improve the fantasy sports industry, but realize it will still take time to gain regulatory approval. Both companies are also on contract with the National Football League until 2017 to provide daily fantasy services, so the merger is expected to be finalized no sooner than the second half of 2017.

DraftKings and FanDuel look at this merger as an opportunity to consolidate their significant interests and outstanding liabilities as a chance to offer a net benefit to both the fantasy sports industry and their respective businesses. While each has propelled the other in terms of development to try and become the preeminent daily fantasy sports service provider, they now face a crossroads. Increased regulatory action against both and heightened competition from Yahoo in the daily fantasy sports space has left DraftKings and FanDuel facing possible extinction unless they evolve; to them, evolution takes the form of this proposed merger, which they believe will open the door to reduce their collective regulatory liabilities and explore new business opportunities like season-long fantasy sports competitions. Such a venture could vault the new DraftKings/FanDuel conglomerate into competition with season-long fantasy powerhouses like ESPN, Yahoo, and CBS.

While the fate of this merger will take a while to be determined, keeping a close eye on it is important for anyone interested in or potentially impacted by antitrust policy. This proposed merger will likely be the first antitrust matter contemplated under President-elect Trump’s Administration, and its approval or disapproval will offer great insight into antitrust policy going forward under the new regime. Whatever the outcome, the DraftKings/FanDuel merger has a lot of educational value and is well worth out attention as it moves forward.

Zack Young is a third year JD/MBA candidate at Wake Forest University. He has undergraduate degrees in Political Science and Philosophy from Marquette University. Zack’s goal is to practice as an investment management attorney upon graduation.

No comments here
Why not start the discussion?