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DraftKings and FanDuel Abruptly Cancel Merger After FTC Raises Antitrust Objections

Less than a month after the Federal Trade Commission (FTC) announced its objections to their proposed merger, daily fantasy sports (DFS) operators DraftKings and FanDuel suddenly squashed the plan.

DraftKings’ chief executive officer Jason Robins issued a statement on July 13 to inform the public that FanDuel would no longer be brought into the fold:

“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.”

Nigel Eccles, his counterpart at FanDuel, also released a statement which provided additional context to the companies’ decision:

“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.”

In November of last year, the world’s two largest DFS operators – whose rivalry spurred an infamous advertising “arms race” in recent years – announced the signing of a merger agreement. Under the terms of that deal, Robins was slated to become chief executive of the newly formed entity, while Eccles would assume a new role as chairman of the board.

Those plans continued unimpeded until June 19, when the FTC joined forces with the Attorneys General of California and Washington D.C. in “alleging that the combined firm would control more than 90 percent of the U.S. market for paid daily fantasy sports contests.”

The FTC complaint pointed to Section 7 of the Clayton Antitrust Act of 1914, along with Section 5 of the FTC Act of 1914, laws designed to prevent monopolies from assuming competition-free control over an entire industry.

The FTC and AGs announced their intention to file a complaint in federal district court, in hopes of obtaining a temporary injunction to pause the merger on antitrust grounds. This complaint resulted in a judge issuing a restraining order, which brought the merger to an immediate halt pending an FTC investigation.

This pressure play promised to entangle DraftKings and FanDuel in a lengthy litigation battle, one which both companies balked at in short order.

Markus H. Meier, who serves as acting director of the FTC’s Bureau of Competition, issued his own statement celebrating the merger’s demise:

“The parties’ decision to abandon this transaction is a clear win for American consumers.

For years, the vigorous competition between DraftKings and FanDuel has spurred innovation and favorable pricing.

In brief, consumers benefited 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.”

As is typically the case when former competitors decide to merge, DraftKings and FanDuel have had their financial foundations scrutinized over the last eight months. Indeed, financial disclosures released in 2015 document an operating loss of $509 million for DraftKings that year – incurred largely due to the aforementioned advertising blitz.

In his statement, Robins provided several figures designed to allay fears over DraftKings’ solvency, including the following optimistic appraisal of the company’s current state of affairs:

“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.”

FanDuel filed a response to the FTC’s original complaint in July which stated unequivocally that DraftKings was the largest DFS operator in the U.S. based on both entry fees and total revenue.

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