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The Failed Merger Between FanDuel and DraftKings

The professional sports industry has proven to be a hotbed of innovation for companies seeking to capitalize on its immense fan base. One of the most rapidly developing platforms in this space has been daily fantasy sports (“DFS”). Unlike traditional fantasy sports, where “leagues” comprised of typically a dozen members compete throughout an entire sports season and often without any financial incentives, DFS platforms pool together a potentially unlimited number of competitors who buy into daily competitions, with cash payouts for a select number of winners each day.

The two largest players in the DFS market, by far, are FanDuel and DraftKings.1 They are both much larger than any other DFS platform in terms of their number of active users, total entry fees, and revenues.2 But rather than continuing to compete with each other, the two companies entered into a proposed merger on November 17, 2016, where each company would become a wholly-owned subsidiary of a holding company.3 The companies stated that a merger would allow them to pool their resources to lobby for favorable legislation in states where the legality of DFS platforms are still being hotly debated.4 Additionally, the companies claimed that the merger would help them better compete for users who currently only play traditional, season-long fantasy sports.5

This proposed merger, however, encountered a significant roadblock from the FTC. In an administrative complaint filed on June 19, 2017, the FTC claimed that the proposed merger would have strong anticompetitive effects on the DFS market, given that each company would be eliminating their biggest competitor.6 According to the FTC, the surviving company would control more than 90% of the DFS market.7 This estimate may actually be low; Eilers and Krejcik Gaming, a boutique research firm focused on the global gaming industry, estimates that the two companies together control roughly 95% of the DFS space.8

 

Regardless of which figure is correct, however, the FTC was convinced that a merger of the two DFS giants would have serious negative consequences on consumers, which were unlikely to be offset by the entry of new companies or the expansion of existing companies.9 The FTC’s complaint ultimately states that the proposed merger would constitute an unfair method of competition in violation of Section 5 of the FTC Act, and that a completed merger would tend to create a monopoly in violation of Section 7 of the Clayton Act.10

Making matters worse for FanDuel and DraftKings, Judge Ketajni Brown Jackson of the US District Court for the District of Columbia issued a temporary restraining order blocking the proposed merger on June 21, 2017, two days after the FTC filed its complaint.11 According to court documents, the merger could have been completed on that day had Judge Jackson not issued the temporary restraining order.12

After this abrupt halt to their plans, DraftKings CEO Jason Robins and FanDuel CEO Nigel Eccles released a joint statement announcing that they were “considering all [their] options at this time.”13 But this presented the unappealing prospect of litigating against the FTC, which some sources estimate could have cost each company between $12-$15 million in legal fees.14 Those figures are even more daunting given that neither company has reached profitability yet, a consequence of their heavy spending on marketing, product innovations, and legal fees in previous years.15 Rather than risk tremendous expenses and an ultimate loss, the companies decided to call off their merger on July 13, 2017.16 The FTC’s complaint was dismissed without prejudice the following day.17

This is surely not the end of either company’s legal battles. They are now free to use the money that they would have spent fighting the FTC to continue to push for the legality of paid daily fantasy sports in states that continue to hold out.18 One way or another, FanDuel and DraftKings will continue to make headlines for months – and years – to come.

 

 


  1. In the Matter of Draftkings, Inc. and FanDuel Limited, Docket No. 9375, Complaint para. 44-45 (July 19, 2017). 

  2. Id. at para. 49. 

  3. Id. at para. 8. 

  4. A.J. Perez and Eli Blumenthal, Daily Fantasy Sites DraftKings, FanDuel Announce Merger, USA Today (Nov. 18, 2016), https://www.usatoday.com/story/sports/fantasy/2016/11/18/draftkings-fanduel-merger/94067032/

  5. Id. 

  6. See supra note 1, at para. 49-50, 60. 

  7. Supra note 1, at para. 47. 

  8. Darren Heitner, To Prevent Fantasy Monopoly, FTC Blocks DraftKings-FanDuel Merger, Forbes (June 19, 2017), https://www.forbes.com/sites/darrenheitner/2017/06/19/ftc-files-complaints-to-block-fanduel-draftkings-merger/#d1566072adc0

  9. Supra note 1, at para. 78. 

  10. Supra note 1, at 85, 87. 

  11. Associated Press, Judge Temporarily Halts Daily Fantasy Sports Merger, Financial Post (June 21, 2017), http://business.financialpost.com/pmn/business-pmn/judge-temporarily-halts-daily-fantasy-sports-merger

  12. Id. 

  13. Supra note 8. 

  14. David Purdum, Planned Merger Between DraftKings, Fanduel is off, ESPN (July 14, 2017), http://www.espn.com/chalk/story/_/id/20002903/in-abrupt-fashion-draftkings-fanduel-merger-off

  15. Supra note 1, at para. 2. 

  16. Id

  17. In the Matter of Draftkings, Inc. and FanDuel Limited, Docket No. 9375, Order Dismissing Complaint (Jul. 19, 2017). 

  18. See supra note 14. 

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Marques Winick

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