Industry sources indicate that FanDuel Inc. and DraftKings Inc., two of the biggest Daily Fantasy Sports (DFS) providers in the United States are in the initial stages of a discussion which could result in a possible merger.
This development comes in wake of the growing crackdown by U.S authorities on the DFS industry who have termed DFS games to be similar to gambling.
A merger could go a long way in reducing legal costs incurred by the companies in fighting legal battles and also help towards joining forces in an effort to lobby for legislation to legalize the DFS games.
Additionally, it would reduce advertising costs as both companies have spent extensively in the last two years in a bid to gain market share. Bernstein research has revealed that the growth in ad revenue during the third quarter of last year was primarily driven by ad spends for daily fantasy football.
The news of a possible merger has not been confirmed by either company as both have preferred not to release any statement on the possible merger. The discussion about a possible merger deal is said to have taken place at the urging of investors from both companies. Their recent legal troubles have severely impacted revenues of both companies and the growth of the overall industry. The auditors of FanDuel were very transparent in their annual note stating that the survival of the company was under threat if similar market trends continued.
DFS companies lost a major market when they entered into an agreement with New York Attorney General Eric Schneiderman to withdraw from the state of New York. DraftKings CEO Jason Robins has said multiple times that a merger between the two companies would make sense but Nigel Eccles FanDuel’s CEO has previously refused to consider the idea. He was quoted in November last year as saying that he didn’t think DrafKings was an attractive buy for Fan Duel.
Andre Barlow, an antitrust expert with the law firm Doyle, Barlow and Mazard PLLC has said that such a merger between two market leaders might attract antitrust provisions but also added the regulators would need to factor in the industry’s entry barrier levels in their decision.
The industry’s growth has been severely constricted as a result of legal challenges. As of now twelve states across the United States have ruled DFS games as illegal, while three approved DFS games. Many states, including New York are considering legislative bills aimed at regulating the DFS industry.
