Joint rulers of the daily fantasy sports (DFS) market DraftKings and FanDuel have walked away from a proposed merger of equals, less than a month after the Federal Trade Commission (FTC) moved to block the deal on grounds of antitrust “fair competition” issues.
The two companies announced the termination of the tie-up on Thursday, just days after they had each filed legal briefs to a federal district court, vigorously defending the merger.
But with both companies already fighting lawsuits on several fronts, it looked like another expensive and possibly doomed legal battle lay ahead. A source told ESPN that taking on the FTC would likely cost some $12 to $15 million.
Ironically, consolidation would have dramatically cut the amount of legal and lobbying costs the two companies spend fighting for legal DFS in states across the US. It would also remove the costs associated with trying to out-market one another.
The failure of the deal leaves both in precarious financial positions, as neither has ever been profitable. Documents related to the merger leaked last month revealed that DraftKings has lost a staggering $688 million over the course of its four-year existence. Last November, shortly before the deal was announced, the New York Post reported that both firms were behind in payments to suppliers, lawyers, and lobbyists.
Both companies were putting a brave face on it in their official statements on Thursday afternoon.
“We believe it is in the best interests of our customers, employees, and investors to terminate our agreement to merge with FanDuel and move forward as a separate company,”said DraftKings CEO Jason Robins.
Enormous Untapped Market
FanDuel CEO Nigel Eccles said his company had decided to merge with DraftKings because he believed the deal would have “increased investment in growth and product development thereby benefiting consumers and the greater sports entertainment industry.
“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,” he added.
Eccles was apparently the least enthusiastic of the two about the merger. In an interview with Bloomberg in 2015, he said it could never happen, claiming that DraftKings made bad business decisions. He cited, as an example, its deal with Fox Sports, in which Fox agreed to invest $150 million in the company in return for DraftKing’s commitment to spending $250 million advertising on its network.
“If we merge, we take on those deals that we turned down,” he said. “That doesn’t improve our economics, it makes it worse. I can see why it would be attractive to them. I don’t know why they think it would be attractive to us.”