FanDuel And DraftKings Cancel Merger Plans

Top two daily fantasy sports companies FanDuel and DraftKings called off their proposal for a merger on Thursday.

Fan Duel DraftKings merger news

The development comes after the Federal Trade Commission announced in June that — in conjunction with the attorneys general of California and the District of Columbia — it would file suit to block the deal. The FTC justified its decision by saying the potential merger would create a company that controlled more than 90 percent of the U.S. market for paid daily fantasy sports.

In late June, a federal judge suspended the merger, which would be reviewed at an administrative trial on Nov. 21.

“The parties’ decision to abandon this transaction is a clear win for American consumers,” Markus H. Meier, Acting Director of the Bureau of Competition, said in a statement. “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.”

FanDuel CEO Nigel Eccles explained in a statement Tuesday afternoon that his company and DraftKings initially merged in November 2016 because FanDuel believed that the deal would have spurred investment and product development, and that both consumers and the sports entertainment industry as a whole would also benefit.

“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,” Eccles also said in the statement.

DraftKings CEO Jason Robbins noted his company’s fast growth, but added that his firm believes “it is in the best interests of our customers, employees, and investors” to end the agreement to merge with FanDuel and remain their own organization.

Robbins stated that DraftKings boasts an expanding customer base of nearly eight million, a revenue that is growing 30 percent year-over-year and that the company has begun exporting some of its products. The Boston-based firm was founded in 2012 and is the largest daily fantasy sports company in terms of fees and revenues.

FanDuel was founded in Scotland in 2009 and is the second–largest company.

DraftKings and FanDuel are two of several daily fantasy sports websites that allow consumers to create rosters of real athletes in order to compete for cash and other prizes that are determined by how those athletes perform in games. This type of activity became particularly popular following the passing of a 2006 federal law that prohibited online gambling but allowed an exception for fantasy sports.

One source with knowledge of the legal fees associated with disputing the FTC estimated costs for the two firms could have reached as high as $15 million.

The timing of the cancellation of the merger has also prompted questions among legal experts about whether both companies also withdrew from their fight against the FTC in part because they feared damaging information about their operations would be revealed at the preliminary hearings.

“The timing of the withdrawal from the merger appears to indicate that there is more behind the decision than cost savings,” Rachel Hirsch, an attorney for Washington, D.C.-based firm Ifrah Law who specializes in FTC investigations, told ESPN.

“Perhaps these companies were worried about the information that would be revealed at the [preliminary injunction] hearing and how that would tarnish their brands. Win or lose, at the end of the day, image is everything to these companies, and they couldn’t afford adverse witnesses or data that could permanently impair their chances of recovering from a failed merger. One thing is for certain — after a failed merger, it will no longer be business as usual for one or both of these companies.”

Twelve states have in recent years passed legislation that permits participation in online daily fantasy sports sites. New Jersey Gov. Chris Christie is reviewing a bill that would regulate fantasy sports in his state, while laws have also been passed in Maine, New Hampshire and Delaware.

FanDuel and DraftKings are also currently mired in a class-action lawsuit that is being carried out in federal court in Boston.

Author Daniel Barbarisi — who wrote a book called “Dueling With Kings” that detailed the industry’s rise and fall — explained that he believed DraftKings will likely fare better than FanDuel now that the merger is off, because they continued to expand their brand and products much more rapidly.

“If the two companies have to go back to war, I’d put my money on DraftKings,” Barbarisi said. “Through the merger process, DraftKings operated as if the merger was no guarantee. It raised money and continued to push the envelope and grow the brand.

“FanDuel didn’t raise money, and its new initiatives weren’t as aggressive. That has left DraftKings in the stronger position now that the time to play nice is over, and they have to compete for market share again.”

 Cleveland Browns v Baltimore Ravens – BALTIMORE, MD – OCTOBER 11: An ad for Fan Duel is shown during the second half of the Baltimore Ravens and Cleveland Browns game at M&T Bank Stadium on October 11, 2015 in Baltimore, Maryland. (Photo by Rob Carr/Getty Images) Full view
BALTIMORE, MD – OCTOBER 11: An ad for Fan Duel is shown during the second half of the Baltimore Ravens and Cleveland Browns game at M&T Bank Stadium on October 11, 2015 in Baltimore, Maryland. (Photo by Rob Carr/Getty Images)