Fantasy meets reality as online sports merger gets put on ice
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.
Online fantasy sports brokers FanDuel and DraftKings proposed to merge, but the union has been blocked over antitrust concerns.