Financial terms of the deal were not disclosed. Full text of the press release is enclosed at the end of this article.
The merger had been long rumored, and chatter about the possible tie-up had ramped up even more in recent weeks.
A press release from the companies was scant on details about the logistics of the merger. But what DraftKings and FanDuel did confirm was that:
The merger brings to an end several years of competition between the two sites to be the top player in the DFS industry.
FanDuel was an early mover in the space, launching in 2009 and becoming the dominant force in DFS. The latter was founded in 2012, bought up some smaller competitors and quickly rose to equal footing or even surpassing its competitor.
In 2015, DraftKings and FanDuel completed major funding rounds and a marketing blitz totaling hundreds of millions of dollars.
But what was once poised to be a “winner-take-all” battle for market supremacy has turned into a joint battle for survival.
In the wake of a DraftKings data leak during NFL season last year, the media and government officials start taking a closer look at the DFS industry. That resulted in new problems and expenses for the two major players:
That’s not entirely clear. If the sites wanted to merge, they needed to get the ball rolling (more on that in a bit).
For some time, however, industry analysts had believed that the sites’ best chance was to pool resources and their users.
Last year saw the two sites spend excessively on commercials and marketing, although both cut back substantially this year. Instead of deploying resources to outmaneuver the other, the logic is that a combined company can grow the DFS market more effectively as a single unit.
FanDuel and DraftKings feature a significant overlap of active users across their platforms. So the merger will certainly not result in being 100 percent additive in terms of revenue.
(A sampling of NFL contests last weekend showed the two sites brought in nearly $5 million in revenue between them. However, that is just a part of the picture for both sites, who also offer contests on other sports, like the NBA.)
Despite the merger, the two sites have continued down their own paths. Both also worked on and rolled out their own separate products leading up to NFL — Leagues and DK Live at DraftKings and Friends Mode at FanDuel.
Even though the companies have announced the planned merge, don’t expect to see them acting as one any time soon.
The merger is not expected to be complete until the second half of 2017, according to a release from DraftKings and FanDuel.
Why? The reasons are numerous:
The last point is the one that will likely hold things up in the most meaningful way.
DraftKings and FanDuel are the only two companies with truly meaningful marketshare in the DFS space. They are Nos. 1 and 2 (or perhaps 1a and 1b). They own somewhere around 90 to 95 percent of the DFS market. On its face, the merger would seem to create a monopoly.
Legal Sports Report understands the companies anticipate a review of the merger under US anti-trust laws. Such a review would come from the Federal Trade Commission or the Department of Justice.
The sites, obviously, believe they will prevail and be allowed to merger under such a review. Some legal experts, including Marc Edelman — an attorney familiar with both fantasy sports and anti-trust law — believes the road to approval is fraught with peril.
However, if the merger is looked at through the lens of the sites being a part of a larger industry, the possibility of it being allowed improves considerably.
If the “industry” to be considered in terms of the merger is the overall fantasy sports industry (not just DFS) or the gaming industry, then the merger is a much smaller piece of the pie. (The number of “fantasy sports players” in North American is often pegged at 57 million by industry estimates. A relatively small percentage of that fantasy sports audience regularly plays DFS.)
A passage from the merger release could point to this strategy:
Emerging fantasy sports categories like daily fantasy sports are just one component of a broader industry that has significant potential for sustained growth.
FanDuel and DraftKings also like to position themselves as “technology companies” — a term also used in the release.
It’s doubtful the companies would have gone through the rigmarole if merging this if they, their investors and legal teams believed it would inevitably be shot down by regulators. Clearly, they believe and expect to operate as one company eventually.
This list is certainly long. It’s a question examined when the latest round of merger chatter emerged in late October.
The biggest question is how the company will function moving forward, and if it will remain two DFS platforms or become one, eventually.
Some possible scenarios:
Since the goal will be eventually to leverage the user bases to generate more liquidity and offer bigger contests, No. 1 is not terribly likely.
Clearly, though, the sites will be looking for cost savings. That will likely come at least partially in the form of downsizing of staff, and finding efficiencies that can’t be realized in separate platforms.
From the companies via their release:
The operational efficiencies and cost savings that are expected to result from the merger will drive a greater focus on developing new products and features, including more variety in contest formats, loyalty programs, enhanced social functionality and ancillary sports-oriented content and experiences, all aimed at creating a more diverse, exciting and appealing experience for fantasy sports players and all sports fans.
How exactly things will shake out might not be known until the merger formally happens in 2017.
During this interim period between the announcement of the merger and its completion, the two sites will find themselves in a weird limbo.
FanDuel and DraftKings will still be competing against one another for much of the next year, with at least a chance that the merger is shot down by regulators. They aren’t technically a single company until all the “t’s” are crossed.
There has already been somewhat of a detente in marketing spend this year between them, either by design or necessity. And the two companies have in many ways been working together.
They retain the same lobbying firm to oversee their efforts in state legislatures. And they have often pursued legal strategies in parallel — evidenced by settlements in New York — when confronted with an issue. (The New York example, however, might have been a sign of clearing the deck of a major legal hurdle in advance of the merger.)
From the merger release:
By combining and streamlining resources, DraftKings and FanDuel can accelerate work with government officials to continue to develop a standard regulatory framework. This framework will not only make it easier for the combined entity to thrive in the long-term, but will provide certainty and encourage other companies to make significant investments in the fantasy sports industry.
Robins and Eccles have not been as much in the spotlight in the past year as when their companies were growing media darlings in 2015. But as their two companies grew, there was a well-known tension between them and their companies that was well-known.
Some of that stemmed from differences in how the sites positioned themselves legally and their interactions as part of the Fantasy Sports Trade Association.
So how will they and their companies work together toward a merger while still remaining separate for the time being? It creates an awkward dynamic, to be sure. It will be interesting to see how they coexist until the merger is complete.
In 2014 and 2015, the two sites were gobbling up partnership deals with major professional sports leagues and franchises.
The list of leagues with which they are partnered — most of which have equity in one of the sites:
The list of team partnerships is even longer, as either FanDuel or DraftKings is partnered with a wide array of franchises. The two companies also have “fantasy sports lounges” in stadiums and arenas around the country.
What will the outcome of the merger be for the DFS industry and its players?
FanDuel and DraftKings say they will be able to better serve consumers once they are a single unit. And while that may occur, such an outcome is not usually what occurs when there is a lack of real competition.
FanDuel and DraftKings would basically be the only “big” game in town. There are plenty of other companies in the traditional DFS space — Yahoo, FantasyDraft, Fantasy Aces, DraftDay and iTEAM Network among them.
Apps like Draft and Boom Fantasy offer a different DFS experience as they try to carve out their own niche.
But to date, none of them have been able to extract meaningful marketshare. Yahoo sits as a clear No. 3, but trailing DraftKings and FanDuel by a wide margin.
The merger would seemingly open the possibility of a second company rising to challenge the DraftKings-FanDuel hegemony.
But it won’t come simply by existing — it would likely take a large investment of capital and effort. The rise and fall of Draft Ops illustrated the perils of that strategy.
Regardless, the DFS industry is about to shift in a major way. How it will look a year from now — both for DraftKings and FanDuel and the industry at large — is an open question.
The merger of FanDuel and DraftKings, which both offer daily, weekly and season-long sports fantasy contests, will bring together two fantasy sports innovators to better serve consumers.
The operational efficiencies and cost savings that are expected to result from the merger will drive a greater focus on developing new products and features, including more variety in contest formats, loyalty programs, enhanced social functionality and ancillary sports-oriented content and experiences, all aimed at creating a more diverse, exciting and appealing experience for fantasy sports players and all sports fans. The merger will also help the combined company accelerate its path to profitability.
The combined company will be able to invest in strategic partnerships across the sports ecosystem. Media, advertising and other partners will benefit from access to more products and customers as a result of DraftKings and FanDuel’s diverse user base and league relationships, as well as increased investment in advertising. Together, the combined entity can accelerate
growth of the fantasy sports category, drive broader and deeper fan engagement, and more efficiently reach those players.
“We have always been passionate about providing the best possible experience for our customers and this merger will help advance our goal of building a transformational global sports entertainment platform,” said DraftKings CEO Jason Robins. “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.”
Both FanDuel and DraftKings are still relatively new companies and operate in a rapidly evolving and changing space. By combining and streamlining resources, DraftKings and FanDuel can accelerate work with government officials to continue to develop a standard regulatory framework. This framework will not only make it easier for the combined entity to
thrive in the long-term, but will provide certainty and encourage other companies to make significant investments in the fantasy sports industry. Emerging fantasy sports categories like daily fantasy sports are just one component of a broader industry that has significant potential for sustained growth. Currently, there are 228 million fans of major sports in the U.S. and 57 million fantasy players.
“Being able to combine DraftKings and FanDuel presents a tremendous opportunity for us to further innovate and disrupt the sports industry,” said FanDuel CEO Nigel Eccles. “While both companies have accomplished much already, this transaction will create a business that can offer a greater variety of offerings, appealing to new users, including the tens of millions of season-long fantasy players that haven’t yet tried our products.”
At closing, DraftKings CEO Jason Robins will become CEO of the newly combined company and FanDuel CEO Nigel Eccles will become Chairman of the Board. In addition to the Chairman and CEO, the Board will be composed of three directors from DraftKings, three directors from FanDuel and one independent director.
The company will be co-headquartered in New York and Boston.
The transaction is subject to customary closing conditions and regulatory approvals.