A proposed merger between the two largest daily fantasy sports sites has been called off after pressure from the Federal Trade Commission.
It’s not happening. The long awaited DraftKings and FanDuel merger has been axed, both daily fantasy sports sites announced on Thursday. Both DFS sites will continue operating as independent providers of daily fantasy sports and players will notice no immediate changes.
The move was first signaled a couple days upon a report from Recode that FanDuel was weighing whether to drop the merger.
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DraftKings and FanDuel Merger Background
DraftKings and FanDuel originally announced their intentions to merge in November 2016. The appeal of combining resources seemed an appealing one given that the market has underdone significant pressure since its 2015 peak. Regulation costs and a slower growth over the last couple years were among the catalysts for the merger.
After months of speculation, in June the Federal Trade Commission indicated their opposition to the merger citing a lack of competition that would likely be present given that the sites would overwhelming dominate the daily fantasy sports market. By some estimates, it is believed that both sites combined to account for around 90% of the DFS industry.
Given the FTC’s opinion it became increasingly clear that neither DraftKings nor FanDuel wanted to take on the uphill battle of challenging the FTC opinion in the courts. DraftKings and FanDuel had hoped that the FTC would see the DFS sites as competing in a larger world of fantasy sports (that includes the likes of ESPN and Yahoo) rather than their dominate position in daily fantasy sports.
The Impact of the Announcement
Both FanDuel and DraftKings have each indicated that the cancellation of the merger will have no impact to players. Both have already been operating as independent daily fantasy sports sites for some time and nothing had really changed since the merger was first announced in November 2016. In the short term, players will continue to benefit from competition as the DFS sites battle for the loyalty of players.
Longterm, there is concern about the profitability of both sites. The catalyst for merging in the first place has not changed. The market growth has stalled and regulation costs aren’t getting any cheaper. From here, it appears that the further regulation of states must help DFS ease some of the concerns the industry experienced in 2015. Despite these concerns, both brands sounded an optimistic note in the aftermath of the merger cancellation by stating that players will not notice any changes and that they are looking to improve the products in the future.
FanDuel believes that it can be profitable next year without the merger. “We certainly feel that next year will be a break-even year for us,” FanDuel CEO Nigel Eccles said.
Statements from FanDuel and DraftKings
FanDuel released the following statement to players via email on Thursday afternoon after the news was announced.
As you know, we announced last November our intent to merge with DraftKings. We decided to merge 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.
DraftKings’s statement echoed a similar tone:
Today we formally terminated our merger with FanDuel and will withdraw litigation from the Federal Trade Commission (FTC). This means we will move forward as a separate company, which we believe is the best course in the interest of you – our customers and avid sports fans.
We want to reassure you that you will not notice any changes to your account or your experience with us as a result of this decision. We will continue to offer best-in-class contests, prizes, and offerings to our players. We will continue to focus our resources and expertise on enhancing our products and features so we can deliver the exceptional sports entertainment experience you have always had and love with DraftKings.
DraftKings remains the preeminent platform in the daily fantasy sports industry. As a result, we are well-positioned to serve as a global hub linking fans to the sports, teams, players and game content they love.
This is an exciting time to be a sports fan and daily fantasy player. As we gear up for another successful NFL season, we will continue to put you – the sports fan – at the center of everything we do. We are excited to make this football season the best one yet with new products, innovative features, and exciting contests ready to be rolled out soon.
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