DraftKings and FanDuel Merger Under Attack By FTC

DraftKings and FanDuel Merger Under Attack By FTC

UPDATED: July 18,2017

Not even two weeks after issuing their formal responses, DraftKings and FanDuel have decided to terminate their impending merger.

On Thursday, the two companies issued a formal statement announcing that dissolving the potential union would be to the benefit of customers, investors, and employees. This comes shortly after the DFS leaders filed their responses asking for the antitrust complaint by the FTC be dismissed.

Though DraftKings CEO Jason Robins and FanDuel CEO Nigel Ecceles remain consistent in their belief that the merger would have been advantageous and lawful, going up against the federal government would have been detrimental to both businesses. Instead, the companies will continue to operate as independent sites and competitors.

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“There is still enormous, untapped market opportunity for FanDuel, and we will continue to execute our strategy to grow our business and further expand the fantasy sports industry,” stated Eccles.

With the FTC litigation behind them, both FanDuel and DraftKings can look forward to the 2017 NFL season. FanDuel already has its eyes set on a new multi-million dollar funding round, while DraftKings already raised more than $100 million earlier this year. Being that daily fantasy football generates the greatest share of revenue for both DFS leaders, investing in marketing and promotions will be a main priority heading into August.

POSTED: June 25,2017

The proposed merger of DraftKings and FanDuel has hit an unexpected roadblock.

Though the two daily fantasy sports giants announced their intended union last November, they are now facing legal opposition. On Monday, the Federal Trade Commission released a statement announcing that it would attempt to block the merger based on anti-trust concerns.

The FTC Action

The FTC has reason to believe that if the two companies were to combine, they would control a 90% share of the daily fantasy sports industry in the U.S. The Commission also issued a complaint stating that the merger would violate both the Clayton Act and the FTC Act. The FTC has filed jointly with the Offices of the Attorneys General in the District of Columbia and the state of California to seek an injunction.

“This merger would deprive customers of the substantial benefits of direct competition between DraftKings and FanDuel,” said Tad Lipsky, Acting Director of the FTC’s Bureau of Competition, in a press release. “The FTC is committed to the preservation of competitive markets, which offer consumers the best opportunity to obtain innovative products and services at the most favorable prices and terms consistent with the provision of competitive returns to efficient producers.”

How DraftKings and FanDuel Responded

Shortly after the FTC issued their press release, FanDuel CEO Nigel Eccles and DraftKings CEO Jason Robins responded in a joint statement.

"We are disappointed by this decision and continue to believe that a merger is in the best interests of our players, our companies, our employees and the fantasy sports industry. We are considering all our options at this time."

The daily fantasy sports operators argue that they should be considered as part of the broader fantasy sports category. DraftKings and FanDuel believe that the industry also includes operators like ESPN and Yahoo, which are better known for their season-long fantasy contests. If included in this larger market, the two DFS giants would not take up as much of the market share and would not constitute a monopoly.

The FTC and AG’s disagree, and said the following according to a press release:

…consumers of paid daily fantasy sports are unlikely to view season-long fantasy sports contests as a meaningful substitute for paid daily fantasy sports, due to the length of season-long contests, the limitations on number of entrants and several other issues."

"The complaint also alleges that entry or expansion by other providers is not likely to provide timely or sufficient competition to offset the anticompetitive effects of the merger. The complaint also asserts that purported efficiencies would not offset the likely competitive harm.

The Reason For The Merger

When the two daily fantasy sports operators decided to merge, they stated that it would be primarily for financial reasons. Joining forces would reduce costs and improve profits, which has recently been proven to be a valid justification at these legal betting sites.

A report from Axios revealed that at the time of the initial talks of a merger, DraftKings had reported an operating loss of $509 million in 2015. It is worth noting that 2015 was also the year that DraftKings featured a flood of ads during the NFL season. Here is a snapshot of the reported losses in 2016 for both DFS operators:

DraftKings audited GAAP financials:

  • 2016 (Jan-Sept) revenue: $92 million
  • 2016 (Jan-Sept) operating loss: $103 million

FanDuel audited GAAP financials:

  • 2016 revenue (Jan-Oct): $91 million
  • 2016 EBITDA loss (Jan-Oct): $59 million

What Happens Next For DraftKings/ FanDuel?

The FTC is seeking a temporary restraining order and preliminary injunction to halt the merger until an administrative trial is held on November 21st, 2017. DraftKings and FanDuel had hoped to complete the merger by the start of the upcoming NFL season, but at this point, that does not seem plausible.

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