That admission shouldn’t come as a surprise to any observers of the industry. DraftKings clearly has more users and entry fees in recent years.
Of course, we also know that DraftKings had operating losses of half a billion dollars two years ago in reaching that position. A report in the Boston Globe also intimated that DraftKings would have taken the lead, had the tie-up gotten a green light.
Still, the admission in a legal document for two companies that were supposed to merge as equals is interesting. A planned merger between the companies is being held up by the FTC.
Documents in the case:
What FanDuel said on the DFS industry
Both companies submitted often similar but slightly different responses to the FTC complaint. In responding to the FTC’s characterization of the DFS market, here is what FanDuel wrote:
FanDuel lacks information to respond to allegations in Paragraph 6 of the Complaint concerning the corporate structure and financial performance of DraftKings. On information and belief, FanDuel believes DraftKings is the country’s largest DFS provider in terms of entry fees and revenues.
DraftKings concurred in its own filing.
What else is in the FTC filings?
The two companies make their cases that they should be allowed to merge. Here’s the thesis that appears in some form in both responses:
At the outset, DraftKings strongly contends that the underlying premises of the Complaint … reflect an unnecessarily rigid and uninformed application of the antitrust laws to an underdeveloped, nascent industry, and largely ignore rigorous economic analysis that has revealed consistently, no matter which way it is analyzed, that prices are not likely to increase as a result of the transaction.
The basic argument: DFS isn’t its own market, and that the merger wouldn’t hurt consumers.
Much of the responses goes onto agree with or dispute the facts as presented by the FTC complaint.
FanDuel said it “denies that the provision of ‘paid DFS’ constitutes a relevant market”. At issue in the case is whether FanDuel and DraftKings are part of a larger fantasy sports or gaming market. Or would their merger would create a monopoly of the smaller, DFS market? For the latter, whether that market should be protected under anti-trust laws is at question.
FanDuel and DraftKings also disputed some redacted parts of the FTC complaint. (Some parts were hidden so as not to reveal proprietary or sensitive information.) From the FanDuel response:
FanDuel denies the allegations contained in Paragraph 59 of the Complaint, and further avers that the Commission’s selective quotation of unidentified written materials or communications, offered without context, is misleading as framed and FanDuel respectfully refers the Court to the quoted documents.
What’s next for the merger?
The proposed schedule for the case includes hearings in September to consider the FTC’s motion for a preliminary injunction to stop the merger from moving forward.
That means nothing appears to be happening of a material nature until daily fantasy football begins. The two companies had initially hoped to merge by this summer, and certainly before the NFL season.
For now, however, things are mostly on hold, even as the possibility that the companies won’t continue to fight for the merger looms.