Sports rivals DraftKings and FanDuel to merge
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.