FanDuel and DraftKings Merger (That Never Happened)

FanDuel and DraftKings nearly merged before sports betting was legalized, the news came straight from the operators via e-mails sent out by both companies.

The e-mail from FanDuel read in part:

“We have some exciting news to share with you. Today, FanDuel and DraftKings announced they entered into a merger agreement. We believe that this deal will allow us to combine the best of both companies to better serve the fantasy sports community and provide you, our customers, an even better user experience.

1) With NFL, NBA, and NHL seasons well underway, both sites will remain operational through the conclusion of the current seasons, and you can continue to play on FanDuel as you have always done. As we look forward to future seasons and beyond, we plan to bring together the best of each platform to better serve you.

2) This deal will not have an impact on our contests, prizes, and offerings. We will continue to provide you with the same quality of contests you’ve become accustomed to.

3) Our live events will go on as planned. Our World Fantasy Football Championship is just around the corner and we will still be hosting our annual Playboy Football Championship. For those that have not yet participated in these events, this is your year. Check them out at www.fanduel.com/wffc or www.fanduel.com/playboy-football.

We will keep you updated with developments as they become available and thank you for your continued support.”

Multiple sources reported that DraftKings CEO Jason Robins would have been the CEO of the new entity while FanDuel CEO Nigel Eccles would take over as board chairman.

The arrangement would have allowed Robins to run the company on a day-to-day basis, leaving Nigel Eccles with plenty of influence as the CEO reports to the board.

There were anti-competitive concerns about the merger, due to the dominant position both operators hold in the daily fantasy sports market.

Sports and gambling attorney Daniel Wallach gave his opinion on the matter. He stated that while he does expect some scrutiny from the Department of Justice and Federal Trade Commission, he ultimately believed the merger will be approved.

There are still “hundreds” of companies involved in daily fantasy sports.

A merger between FanDuel and DraftKings made sense at the time:

First, the two companies offer a near-identical product. Second, a merger would have allowed them to stop committing so much money to compete with one another and instead redirect their resources to fighting regulatory battles in states that still do not permit daily fantasy sports.

DraftKings stated that both companies would continue to operate under their respective brand names “for the foreseeable future” and that little would change immediately from the players’ point of view.

Both DraftKings DFS and FanDuel DFS also pledged not to raise rake as both companies know that players can easily switch to a different platform if the new entity becomes significantly more expensive than the competition.

FanDuel and DraftKings Merger Called Off

The proposed merger between FanDuel and DraftKings was called off, both sites sent notice that they were canceling merger talks and would proceed forward as independent, competing companies.

From the beginning, there were questions as to whether or not the Federal Trade Commission would approve the merger. As the two largest daily fantasy sports sites on the planet, FanDuel and DraftKings accounted for an estimated 90% of the daily fantasy market at the time.

Arguments in favor of the merger pointed to the industry’s low barriers to entry and estimates that the two fantasy sites only account for about 5 million of the 57 million people who participate in fantasy sports of any type (including casual, season-long leagues).

The FTC was unmoved by such arguments and sued to block the FanDuel and DraftKings merger. In a statement, the FTC voiced its concerns that the merger would stifle competition with one site now controlling 90% of the market.

The FTC also noted that FanDuel and DraftKings are each other’s most significant competitor. Allowing the merger to proceed, the FTC argued, would “deprive customers of the substantial benefits of direct competition between DraftKings and FanDuel.”

FanDuel and DraftKings released similar statements on Thursday afternoon. Neither company went into details regarding the reason for the termination, but FanDuel CEO Nigel Eccles said they have terminated the agreement even though their “opinion has not changed.” That seems to indicate the companies are simply backing off due to the FTC’s involvement.

Here’s the FanDuel statement (line breaks added):

“FanDuel decided to merge with DraftKings last November, because we believed that this deal would have increased investment in growth and product development thereby benefiting consumers and the greater sports entertainment industry.

While our opinion has not changed, we have determined that it is in the best interest of our shareholders, customers, employees, and partners to terminate the merger agreement and move forward as an independent company.

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. We’d like to thank our partners and customers for their patience, support and continued loyalty over the past several months.”

And this is from DraftKings:

“Over the past few years, DraftKings has become the world’s leading fantasy sports company. We are recognized as a global sports entertainment brand and the industry leader in utilizing technology to bring our customers the best fantasy contests and products. We have a growing customer base of nearly 8 million, our revenue is growing over 30% year-over-year, and we are only just beginning to take our product overseas to the billions of international sports fans we have yet to even reach.

“Consequently, 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. This will allow us to singularly focus on our mission of providing the most innovative and engaging interactive sports experience imaginable, forever changing the way fans connect with teams and athletes worldwide. We appreciate the continued loyalty of our players – it is you who have made this all possible – and we look forward to kicking off what is going to be our best NFL season yet!”

Both companies assured customers that business would continue as usual, and the rest is history as both brands are now market share leaders in sports betting, daily fantasy sports, and online gambling.