DraftKings and FanDuel Abandon Merger After FTC Challenge

The DraftKings-FanDuel merger is dead.

The two online fantasy sports companies said Thursday they have terminated their agreement to join forces. The decision comes a few weeks after the Federal Trade Commission filed a complaint in federal district court attempting to block the deal over concerns that it would create a near-monopoly in the U.S. market for paid daily fantasy sports contests.

When Boston-based DraftKings and New York-based FanDuel announced their planned tie-up in November, they said it would allow them to save costs, pool resources for working with government officials, operate more efficiently, invest more in new products and features, and reach profitability faster. (The companies have spent heavily on ads to win customers, and the resulting scrutiny of daily fantasy sports from regulators nationwide has led to mounting legal and lobbying costs.)

The FTC argued that any potential efficiencies gained through the merger wouldn’t offset the “likely competitive harm.” The two companies would together control more than 90 percent of the U.S. paid daily fantasy sports market, the FTC said.

As the Boston Globe and other media outlets reported, DraftKings and FanDuel filed court documents Wednesday defending the deal—but apparently decided it wasn’t worth pouring time and money into fighting regulators in a trial that was scheduled to begin later this year. (Alas, now we may never know what the combined entity would’ve been called.)

“We believed that this deal would have increased investment in growth and product development, thereby benefiting consumers and the greater sports entertainment industry,” according to an e-mailed statement attributed to FanDuel CEO Nigel Eccles. “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.”

In a prepared statement, DraftKings CEO Jason Robins (pictured above) also argued that his company has plenty of opportunity to expand.

“We have a growing customer base of nearly 8 million, our revenue is growing over 30 percent 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,” Robins said in the prepared statement.

Now, things get interesting. Will one of these two companies emerge as the clear winner in this sector, and put the other out of business? Will one or both get acquired at some point? Or will they spend so much capital trying to compete that they both bleed out? (Please, please, please don’t repeat the barrage of ads during NFL season that we suffered through two years ago.)

Both companies were losing money as of last year, according to figures from an internal merger document published last month by Axios. Eccles told Recode he thinks FanDuel can break even next year.

DraftKings and FanDuel have each raised hundreds of millions of dollars from investors, according to SEC documents and media reports. If it comes down to it, how much more are investors willing to pony up?

Trending on Xconomy