Daily Fantasy Sports (DFS) operators FanDuel and DraftKings have announced they have entered into an agreement to merge. A possible merger was doing the rounds for the past few months but both companies preferred to keep the discussions private. The two DFS operators have spent months battling separately for legal approval to operate in a number of U.S. states where DFS has been classified as gambling.
The merger is yet to be approved by regulators and the companies said that the merger will come into effect by late 2017. In a statement Jason Robins, chief executive of DraftKings, said
Joining forces will allow us to truly realize the potential of our vision, and as a combined company, we will be able to accelerate the pace of innovation and bring a richer experience to our customers than we ever could have done separately.
It has been widely speculated for some time that the two companies would merge given the impact of legal and lobbying costs on the firms’ bottom lines. The merged company will have Robins as the CEO while FanDuel’s chief executive, Nigel Eccles will take over as the chairman of the board.
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Curtailed operations and extensive lobbying efforts has hit the valuation of both companies hard. According to sources, New York-based FanDuel has laid off 60 people and both companies are behind vendor payments, primarily lobbying firms and public relations firms who have been employed to present their case to state governments across the country.
Sources have also reported that the two companies have asked to pay a combined fine of $12 million in instalments to the New York government as a settlement for the advertising malpractices case that was filed against them.
Eccles said that the merger will allow for creation of a business that will bring newer offerings and appeal to newer customers.
DFS sites came into the public spotlight last year when the companies launched a multi-million advertising campaign before the N.F.L. season to attract new customers, offering massive prizes. The sites offer players the opportunity to create their own virtual teams and win anywhere between $22 and $2 million based on real-world outcomes in professional games.
A DraftKings employee won a jackpot on FanDuel in October 2015 and drew the attention of New York State attorney general Eric T. Schneiderman as the employee was suspected to have used his position in DraftKings to gain confidential information to give him an advantage while playing at FanDuel. This led to an investigation by Schneiderman which ultimately resulted in a declaration that DFS was gambling.
It might be difficult for the new merger to gain approval, as it will provide the new entity with control of nearly 90 percent of the DFS market in the United States.
