The proposed merger between leading Daily Fantasy Sports (DFS) operators DraftKings and FanDuel may run into roadblocks after reports surfaced that few members of the U.S. Federal Trade Commission (FTC) have raised concerns regarding its impact on the country’s DFS industry.
FanDuel and DraftKings agreed to a merger of equals in November 2016 after being faced with escalating marketing and legal costs against a backdrop of declining revenue. The two companies had been fighting legal battles in a number of states where DFS was banned after being categorized as gambling. Since then several states have passed legislation legalizing and regulating DFS contests.
The FTC is set to vote on the merger proposal in the coming weeks. If the merger between the two companies is successful, then the combined entity would have over 80 percent of the DFS market in United States, making it a monopoly. U.S Federal anti-trust regulations prohibit merger deals which result in a monopoly in any industry.
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The possibility of this outcome has led the FTC to consider the possibility of blocking the deal. Some legislators of the commission have urged FTC Acting Chair Maureen Ohlhausen and the sole surviving Commissioner Terrell McSweeny to oppose the merger.
Should the FTC decide to block the deal on such grounds, FTC lawyers would file a case against the two companies in a federal court. The DFS operators would then have three options: fight the lawsuit, try to reach a settlement with the FTC, or abandon the merger altogether.
In case the FTC becomes deadlocked due to a tie between the five commissioners, the dealwill proceed without issue. For the two companies, the merger is a major step towards controlling rising costs and a decline in revenue while boosting market expansion efforts.
Daniel Wallach who is a lawyer at Becker & Poliakoff and an expert in gaming law pointed out that the deal might be able to survive if the two companies were able to convince the FTC that the merger would be advantageous for the industry. He noted that the two companies have been focusing on diversification in order to lessen their reliance on the DFS space, a measure that will potentially assure the FTC of its concerns.
DraftKings recently announced that it had obtained a license from the Malta Gaming Authority and was planning to use it to launch operations in Germany and other neighboring European markets.
