Federal Trade Commission Moves to Block Merger Between DraftKings and FanDuel

Regulators with the Federal Trade Commission (FTC) have joined forces with two state Attorneys General to halt any further progress on a proposed merger between daily fantasy sports (DFS) operators DraftKings and FanDuel.

In a statement issued on June 19, the FTC announced that it will soon be filing a lawsuit in federal district court in hopes of obtaining an injunction to quash the deal. That lawsuit will be joined by the Offices of the Attorneys General for California and the District of Columbia.

Per the complaint filed by FTC commissioner Maureen K. Ohlhausen and acting chairman Terrell McSweeny, a merger between the two largest DFS providers would “become a de facto monopolist, free of the competitive constraints that each firm has imposed on the other.”

Specifically, the complaint alleges that a combined DraftKings / FanDuel entity would violate Section 7 of the Clayton Antitrust Act of 1914, and Section 5 of the FTC Act of 1914. Both laws prohibit the formation of monopolies which remove competitive balance from an industry or marketplace.

Tad Lipsky, acting director for the FTC’s Bureau of Competition, outlined the reasoning behind his agency’s decision:

“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.”

In a jointly issued statement, Jason Robins and Nigel Eccles – chief executive officers of DraftKings and FanDuel, respectively – responded to the FTC’s efforts to keep the companies separated:

“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.”

Eccles founded FanDuel in 2009, with Jason Robbins launching DraftKings in 2012. Since then, the two sites have grown into the DFS industry’s twin titans, gobbling up market share through targeted acquisitions of smaller competitors.

During the height of the DFS boom Eccles and Robbins entered a proverbial “arms race,” as DraftKings and FanDuel flooded the airwaves with advertising, and continually tried to cut their competitor out by offering massive guaranteed prize pools. That activity eventually prompted authorities in several states to assess the legality of DFS contests, which allow players to form one-day fantasy sports teams for the purpose of real money wagering.

Several attorneys general, led by Eric Schneiderman of New York, ruled that DFS constituted illegal gambling and banned both sites. And while Schneiderman’s strategy of prohibition as a path to regulation has been mimicked around the country, DraftKings and FanDuel have suffered financial consequences as a result.

In November of last year the two former rivals announced their intention to merge, a move which the FTC claims would form a combined company that dominates more than 90 percent of the American DFS market.

An administrative trial has been scheduled for November 21 of this year in Washington D.C., where an administrative law judge from the FTC will hear arguments against its antitrust position.