DraftKings FanDuel Merger on the Ropes, Insiders Say

Posted on: June 15, 2017, 01:00h. 

Last updated on: June 15, 2017, 12:38h.

A DraftKings FanDuel proposed merger could be in serious jeopardy, according to sources with insider knowledge of the faltering deal. Three sources who spoke to technology business website Recode this week said they believe the Federal Trade Commission (FTC) could be gearing up to block the deal, because of serious concerns about the ramifications of the deal from an antitrust perspective.

DraftKings FanDuel merger on or off
The delay over a possible DraftKings FanDuel merger likely reflects the level of scrutiny focused on the deal by the FTC. (Image: TechCrunch)

Federal laws prevent the creation of monopolies through mergers and acquisitions, or corporations that are likely to be too dominant in one market to the detriment of the consumer. A merged DraftKings and FanDuel would have, by some estimates, a 95 percent share of the DFS market, which would be enough to give the FTC pause before approving such a marriage.

Vote Expected

The two companies announced their intention to merge in November 2016, at which point a deal was said to be “imminent.” Since then, all has gone quiet on the deal, which is likely to reflect the deep level of scrutiny the FTC is devoting to the controversial union.

As Recode notes, if the FTC recommends suing to stop the deal, it would then fall to the sitting panel of commissioners to vote on how to proceed. But the panel, which usually comprises five members (all nominated by the president and confirmed by the senate), currently has three vacancies.

With just two active associates, one Republican and one Democratic, a split vote would allow the merger to proceed unhindered. Recode’s sources believes that such a vote could take place this week.

Reluctant Alliance

DraftKings and FanDuel were initially hesitant to join forces, but their mutual shareholders had been pushing for the move for some time before it was announced. Both companies spent millions throughout 2015 attempting to out-market one another, while offering a broadly similar product.

In 2016, the money was going instead towards lawyers and lobbyists, as the two companies sought separately to defend the same interests during a period of regulatory uncertainty and legal challenges. Those, of course, are costs that could be halved by consolidation going forward, especially as DFS legalization on a state-by-state basis continues its struggle.

Case for Merger Weakened

Recent development in DFS market since the announcement of the merger may not have helped their case, however. The bankruptcy of Fantasy Aces in February, for example, not only narrowed the market, marginally increasing the dominance of the two companies, but also weakened one of DraftKings’ and FanDuel’s key arguments to the FTC.

Writing in Forbes, Marc Edelman, a professor of law at the City University of New York, said recently that the demise of Fantasy Aces “calls into doubt any theory raised by FanDuel and DraftKings lawyers that it would be easy for new companies, with moderate funding, to enter the daily fantasy marketplace and compete with their merged entity.”

Edelman noted further in his Forbes op-ed that in some ways, the Fantasy Aces collapse was the worst thing that could have happened for the potential merger, as it  basically highlighted how hard it would be for any smaller players to compete against such a behemoth, should the coming together of the two companies move forward.