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FanDuel Merger Blocked By US Government

Brian Baglow

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DraftKings FanDuel merger blocked

Edinburgh tech unicorn FanDuel has had its proposed merger with fellow daily fantasy sports (DFS) company DraftKings temporarily halted by a federal judge, despite warnings that it could lead to the eventual closure of one or both companies.

The proposed DraftKings and FanDuel merger was announced in November 2016. The merger aimed to end several years of competition between the two companies for leadership of the lucrative daily fantasy sports market.

However, what began as a battle for market supremacy has instead turned into a fight for survival.

A data leak from Draft Kings in 2015 in which employees from both firms were accused of using ‘insider data’ to win money from the other company, caused greater scrutiny from both the media and legislators.

The Attorneys general in several US states have since announced that daily fantasy sports games breach their gambling regulations, with a number of states considering legislating and regulating daily fantasy sports. Other states have introduced new taxes and licensing fees for DFS operators.

In addition, recent market research into the DFS market has revised earlier projections of market growth downwards, with more conservative income over the next several years, due to the legal and regulatory challenges facing the industry.

The report goes on to state that a DraftKings & FanDuel merger between the two market leaders, would be a ‘clear net positive’ for the industry, with a warning that blocking such a deal “will likely result in one (if not both) companies failing, an outcome that realizes the worst of both worlds.”

The FTC statement declared that the merger between the two companies ‘would control more than 90 percent of the U.S. market for paid daily fantasy sports.’

Tad Lipsky, Acting Director of the FTC’s Bureau of Competition, said, “This merger would deprive customers of the substantial benefits of direct competition between DraftKings and FanDuel. “The FTC is committed to the preservation of competitive markets, which offer consumers the best opportunity to obtain innovative products and services at the most favorable prices and terms consistent with the provision of competitive returns to efficient producers.”

FanDuel CEO Nigel Eccles and DraftKings CEO Jason Robins issued a joint statement after the FTC announcement: “Today, the Federal Trade Commission (FTC) announced it will attempt to block the proposed merger between DraftKings and FanDuel.

“We are disappointed by this decision and continue to believe that a merger is in the best interests of our players, our companies, our employees and the fantasy sports industry. We are considering all our options at this time.

“As we work together to determine our next steps, we would like to thank DraftKings and FanDuel players, partners and employees for their patience, support, and continued loyalty.”

An administrative trial is now due to begin in November 2017 to determine whether the DraftKings & FanDuel merger would indeed break anti-trust laws. Much will depend on the definition of the definition of the Daily Fantasy Sports market. If the FTC considers DFS alone, then the anti-trust case may well consider the merger a near monopoly. If however DFS is looked at as simply one aspect of the larger fantasy sports, sports betting or indeed the overall casino and gambling sector, it may be seen as a very small component of a huge global industry.

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Brian Baglow

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