FTC, Two Attorneys General Seek to Block DraftKings, FanDuel Merger

When daily fantasy sports (DFS) leaders DraftKings and FanDuel announced in November that they had agreed to merge into one super-DFS site, eyebrows were raised around the industry. While a merger makes sense, did we really want to have one site to rule them all? Apparently, the United States Federal Trade Commission (FTC) and the Attorneys General of California and Washington, D.C. don’t think it’s a good idea, as they are seeking a preliminary injunction to prevent the merger.

In a press release issued on Monday, the FTC explained, in part:

According to the FTC’s complaint, DraftKings and FanDuel are each other’s most significant competitor. At present, the two companies battle head-to-head to offer the best prices and product quality, including the largest prize pools and greatest variety of contests. The proposed merger would create a single provider with by far the largest share of the market for paid daily fantasy sports contests in the United States.

“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 the same press release. “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.”

The Washington, D.C. Attorney General’s Office also issued a statement.

“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,” said Attorney General Karl A. Racine. “Because we believe that this proposed merger would harm consumers in the District, we have joined the FTC and California in opposing it.”

When DraftKings and FanDuel announced their planned combination late last year, they said that DraftKings CEO Jason Robbins will become the CEO of the new company and FanDuel CEO Nigel Eccles will be the Chairman of the Board. The rest of the Board seats will be filled from the two companies equally, with three members coming from each plus an independent director.

The companies hit on a few reasons for merger at the time:

The operational efficiencies and cost savings that are expected to result from the merger will drive a greater focus on developing new products and features, including more variety in contest formats, loyalty programs, enhanced social functionality and ancillary sports-oriented content and experiences, all aimed at creating a more diverse, exciting and appealing experience for fantasy sports players and all sports fans. The merger will also help the combined company accelerate its path to profitability.

ESPN’s David Purdum said that the “variety in contest formats” would include season-long fantasy sports, which both sites have gotten into in a sense with the additions of leagues that players can create with their friends in order to compete in DFS against each other on a weekly basis. It’s not “season-long” fantasy per se, but a sort of “daily” version thereof.

The FTC mentions season-long fantasy in its complaint, saying that the argument that season-long fantasy sites provide ample competition doesn’t fly:

According to the FTC’s complaint, consumers of paid daily fantasy sports are unlikely to view season-long fantasy sports contests as a meaningful substitute for paid daily fantasy sports, due to the length of season-long contests, the limitations on number of entrants and several other issues. The complaint also alleges that entry or expansion by other providers is not likely to provide timely or sufficient competition to offset the anticompetitive effects of the merger. The complaint also asserts that purported efficiencies would not offset the likely competitive harm.

Purdum’s source close to last year’s merger negotiations believes that a single DraftKings/FanDuel company could help create more competition in the DFS industry, as odd as that sounds. The idea here is that the two companies have been fighting legal battles in multiple states. If they can combine forces and funds, cut overall costs in terms of time and money (by going from separate legal skirmishes to one), and eventually prevail, the market could open up to smaller companies and entrepreneurs who might not otherwise be able to do anything with the legal barriers in place.

For their part, the two DFS companies issued a brief, joint statement on Monday’s FTC announcement”

Today, the Federal Trade Commission (FTC) announced it will attempt to block the proposed merger between DraftKings and FanDuel.

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. We are considering all our options at this time.

As we work together to determine our next steps, we would like to thank DraftKings and FanDuel players, partners and employees for their patience, support and continued loyalty.

According to the FTC’s press release, the administrative trial for the complaint is slated to begin on November 21st, 2017.

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