DraftKings, FanDuel Cancel Proposed Merger

Daily fantasy sports (DFS) leaders DraftKings and FanDuel announced Thursday that they have cancelled their planned merger and will remain competitors. The two companies originally made it known to the public that they would become one, controlling more than 90 percent of the DFS market, in November 2016.

It appears that the decision to end their engagement stems from the intense legal battle DraftKings and FanDuel were facing against the Federal Trade Commission (FTC) and the Attorneys General of California and Washington, D.C. In June, those parties filed suit, seeking a preliminary injunction to stop the merger.

“This merger would deprive customers of the substantial benefits of direct competition between DraftKings and FanDuel,” said Acting Director of the FTC’s Bureau of Competition Tad Lipsky in a press release at the time. “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.”

“Daily fantasy sports contests are a pastime that many District residents enjoy — but it’s no fun for consumers when near-monopolies limit competition and innovation,” added D.C. Attorney General Karl A. Racine in his own statement. “Because we believe that this proposed merger would harm consumers in the District, we have joined the FTC and California in opposing it.”

One would think that DraftKings and FanDuel want to end the legal tussle to save money, but Rachel Hirsch, an attorney for Ifrah Law, told ESPN that there might have been more to it, as most of the costs of the lawsuit had likely already been spent.

“The timing of the withdrawal from the merger appears to indicate that there is more behind the decision than cost savings,” Hirsch said.

“Perhaps these companies were worried about the information that would be revealed at the [preliminary injunction] hearing and how that would tarnish their brands.”

In the meantime, DFS itself has been gaining more and more legal acceptance across the United States. A dozen states have officially legalized DFS and several others are working on legislation. The two companies have teamed up to lobby for regulation in various state legal battles.

A source with “close ties” to both companies told ESPN that the merger was probably informally done as soon as the FTC stepped in.

“Both companies can use the money that would have been spent on litigation on government affairs. … I think it is a sign of their maturation. Rather than burn a pile of cash with little to show for it, use the money to continue to shore up any remaining concerns about legality in key states,” the source said.

In an e-mail to customers (of which I am one), DraftKings said, in part:

Today we formally terminated our merger with FanDuel and will withdraw litigation from the Federal Trade Commission (FTC). This means we will move forward as a separate company, which we believe is the best course in the interest of you – our customers and avid sports fans.

We want to reassure you that you will not notice any changes to your account or your experience with us as a result of this decision. We will continue to offer best-in-class contests, prizes, and offerings to our players. We will continue to focus our resources and expertise on enhancing our products and features so we can deliver the exceptional sports entertainment experience you have always had and love with DraftKings.

The e-mail continues for a few more paragraphs, but that is the jist. DraftKings CEO Jason Robins issued a similar statement on the company’s website.

FanDuel CEO Nigel Eccles also issued a statement on his website:

FanDuel decided to merge with DraftKings last November, because we believed that this deal would have increased investment in growth and product development thereby benefiting consumers and the greater sports entertainment industry. While our opinion has not changed, we have determined that it is in the best interest of our shareholders, customers, employees, and partners to terminate the merger agreement and move forward as an independent company. 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. We’d like to thank our partners and customers for their patience, support and continued loyalty over the past several months.

The FTC’s current Acting Bureau of Competition Director Markus H. Meier celebrated the death of the merger with a short statement:

The parties’ decision to abandon this transaction is a clear win for American consumers. For years, the vigorous competition between DraftKings and FanDuel has spurred innovation and favorable pricing. In brief, consumers benefitted from the intense rivalry between the two leading players in this space. If this merger had been allowed to go through, those benefits would likely have been lost.

While DraftKings and FanDuel always have DFS contests going on, they are likely involved in intense preparations for the NFL season, which begins in less than two months (preseason games are only about three weeks away). The American football season is far and away the most lucrative time of the year for fantasy sports sites.

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