Sports ri­vals DraftKings and FanDuel to merge

Daily Local News (West Chester, PA) - - BUSINESS - By Philip Marcelo

BOS­TON>> Daily fan­tasy sports ri­vals DraftKings and FanDuel have agreed to merge af­ter months of spec­u­la­tion and in­creas­ing reg­u­la­tory scru­tiny.

The two com­pa­nies made the an­nounce­ment Fri­day, say­ing the com­bined or­ga­ni­za­tion would be able to re­duce costs as they work to be­come prof­itable and bat­tle with reg­u­la­tors across the coun­try to re­main le­gal.

In a mat­ter of a few short years, the two have raised mil­lions of dol­lars through in­vestors and spon­sor­ship deals, draw­ing the at­ten­tion of pol­i­cy­mak­ers across the coun­try.

Some view the on­line games — in which play­ers pick teams of real life ath­letes and vie for cash and other prizes based on how those ath­letes do in ac­tual games —as amount­ing to il­le­gal sports bet­ting.

Fi­nan­cial terms were not dis­closed Fri­day and the com­pa­nies have re­mained vague about their long-term plans while the deal is be­ing fi­nal­ized.

But in the short term, the merger ap­pears to change lit­tle about how daily fan­tasy sports play­ers use the sites and play the game. The com­pa­nies have as­sured play­ers they won’t be mak­ing ma­jor changes in their oper-

ations at least through the next NFL sea­son.

For now, they’ll re­tain their re­spec­tive head­quar­ters — DraftKings in Bos­ton and FanDuel in New York -and keep sep­a­rate brand names, op­er­a­tions and game plat­forms.

Whether the deal can clear reg­u­la­tory ap­proval, though, re­mains an open ques­tion. The merger, which has been ru­mored for months, pairs two com­pa­nies that rep­re­sent about 90 per­cent of the daily fan­tasy sports mar­ket.

Com­pany ex­ec­u­tives Fri­day played down con­cerns about whether the merger might run afoul of fed­eral an­titrust laws.

They ar­gued that their com­pa­nies re­main rel­a­tively small play­ers in the broader fan­tasy sports in­dus­try, where the likes of ESPN, Ya­hoo and other larger com­pa­nies dom­i­nate.

“We’re a com­pany that col­lec­tively has a lit­tle over 5 mil­lion cus­tomers in a fan­tasy sports base with al­most 60 mil­lion to­tal,” said DraftKings CEO Ja­son Robins, who will take over as chief ex­ec­u­tive of the com­bined com­pany. “For us to ever hope to com­pete for those cus­tomers, we re­ally felt this was some­thing that was nec­es­sary.”

FanDuel CEO Nigel Ec­cles, who will serve as board chair­man, also sug­gested the merger could ac­tu­ally foster com­pe­ti­tion by fighting more ef­fec­tively for reg­u­la­tory clar­ity, ef­forts that could help bring back in­vestor con­fi­dence in the in­dus­try.

“This is ac­tu­ally very good for all op­er­a­tors,” he said.

Spokesper­sons for the Fed­eral Trade Com­mis­sion, which would over­see the deal, didn’t com­ment Fri­day.

Brian Quinn, a Bos­ton Col­lege law pro­fes­sor with ex­per­tise in merg­ers and ac­qui­si­tions, ex­pects the deal likely won’t go for­ward with­out some con­di­tions or changes im­posed by reg­u­la­tors.

“If and when it does get ap­proved, it won’t look any­thing like the trans­ac­tion they’ve agreed to do on this day,” he said.

But Daniel Etna, a New York at­tor­ney who has rep­re­sented smaller daily fan­tasy sports op­er­a­tors, sug­gests the merger might not face as a tough road as some might sug­gest.

“We’re not talk­ing about in­sur­ance com­pa­nies, healthcare providers or drug mak­ers here,” he said. “It’s a leisure ac­tiv­ity. At end of day, this is some­thing you do or you don’t do. So it will be viewed from a dif­fer­ent prism.”

Dustin Hecker, a Bos­ton lawyer, says a more press­ing ques­tion is whether the com­pa­nies, even when merged, re­main vi­able. Both com­pa­nies, he noted, re­main un­prof­itable, still face costly le­gal bat­tles and don’t ap­pear to be achiev­ing any cost sav­ings in the short term from the merge.

“The ques­tion is whether the com­bined en­tity will run out of cash be­fore they can fig­ure out a way to op­er­ate prof­itably,” he said.

Robins and Ec­cles said the merger would al­low the com­pa­nies to free up re­sources to de­velop bet­ter prod­ucts — like of­fer­ing more var­ied con­tests, de­vel­op­ing loy­alty pro­grams and im­prov­ing their web­site fea­tures — though they de­clined to elab­o­rate on those plans.

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