Fan­tasy meets re­al­ity as on­line sports merger gets put on ice

The Washington Times Weekly - - Culture, Etc. - BY ALEX ZIETLOW

It’s one bet that the house may not al­low.

DraftKings and FanDuel Ltd., the two big­gest names in the world of on­line daily fan­tasy sports, are wager­ing that a merger will cre­ate a Golden State War­riors-type su­perteam, but their pro­posed com­bi­na­tion has been put on hold by the Trump ad­min­is­tra­tion.

The Fed­eral Trade Com­mis­sion last month filed a law­suit to block the com­bi­na­tion, cit­ing an­titrust con­cerns that the com­bined com­pany would have nearly 95 per­cent of the mar­ket for on­line fan­tasy play­ers who com­pete for cash by pick­ing the win­ners of base­ball, bas­ket­ball, foot­ball and other sport­ing events.

“The pro­posed 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.

The com­pa­nies in­sist they are not ready to fold, even af­ter a fed­eral judge on June 21 is­sued a tem­po­rary re­strain­ing or­der to block the deal while the an­titrust case pro­ceeds.

The com­pa­nies were “con­sid­er­ing all our op­tions at this time,” FanDuel CEO Nigel Ec­cles and DraftKings CEO Ja­son Robins said in a joint re­lease.

“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.”

The merger was in part a truce be­tween the fiercely com­pet­i­tive fan­tasy sites, which flooded the air­waves with a com­bined $500 mil­lion in ad­ver­tis­ing in 2015 alone in a bid to es­tab­lish dom­i­nance over a mar­ket of an es­ti­mated 4 mil­lion daily fan­tasy sports users.

The two firms com­peted in­tensely even as they waged a state-by-state le­gal war over whether the fan­tasy sites amounted to un­reg­u­lated on­line gam­bling. The two firms ended their war with the merger an­nounced in Novem­ber.

The FTC case, which was joined by the Dis­trict of Columbia and Cal­i­for­nia, is also be­ing closely watched by business an­a­lysts and le­gal schol­ars as one of the first re­al­world tests of an­titrust pol­icy un­der the Trump ad­min­is­tra­tion. Drug­store gi­ant Wal­greens an­nounced that it was sharply scal­ing back its pro­posed $9.4 bil­lion deal to ac­quire RiteAid, say­ing gov­ern­ment reg­u­la­tors were warn­ing that they would not ap­prove the deal.

While rev­enue for FanDuel and DraftKings has jumped from the sin­gle-digit mil­lions to the triple-digit mil­lions in a mat­ter of three years, the le­gal and lob­by­ing head­winds that faced the in­dus­try forced them to con­sider a com­bi­na­tion. The Fan­tasy Sports Trade As­so­ci­a­tion, the in­dus­try’s lob­by­ing arm, said that nearly two-thirds of the com­pa­nies that jumped into the mar­ket closed in the year be­fore the Novem­ber merger.

“Ev­ery­one thought [daily fan­tasy sports] was the next gold rush,” Daniel Bar­barisi, au­thor of a book on the rise of the in­dus­try, told The As­so­ci­ated Press in April. “It couldn’t sus­tain that level of spec­u­la­tive growth, es­pe­cially from small op­er­a­tors. Now that the bar­rier to en­try is higher, I’m not sur­prised at all to see many of them fall­ing by the way­side.”

FanDuel and DraftKings ar­gue that they al­ready face com­pe­ti­tion from ESPN and other ma­jor play­ers that run leagues for fan­tasy play­ers to se­lect teams and com­pete in leagues on their sites. Cal­i­for­ni­abased gam­bling re­search firm Eil­ers & Kre­j­cik Gam­ing said in a re­cent an­a­lysts’ note that the com­pa­nies have a point.

“Reg­u­la­tors will come to rec­og­nize that block­ing the merger will likely re­sult in one [if not both] com­pa­nies fail­ing — an out­come that re­al­izes the worst of both worlds,” the note said.

AS­SO­CI­ATED PRESS

On­line fan­tasy sports bro­kers FanDuel and DraftKings pro­posed to merge, but the union has been blocked over an­titrust con­cerns.

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