Back in November, DraftKings and FanDuel – the two biggest players in daily fantasy sports – agreed to a merger, saying that their union would better enable them to serve customers. But a recent Recode report shows that the Federal Trade Commission (FTC) isn’t so keen on the deal.
Three sources close to the situation have said that the FTC may block the merger because the resulting entity would control too much of the competitive market. Estimates show that the companies account for around 80% of the daily fantasy sports market, which has generated warning flags during the antitrust review of the agreement.
While some officials have brought up the possibility of suing the companies to stop the deal, the decision will still ultimately fall to a vote by the FTC commissioners, which could happen before the week is through.
This isn't the first time that DraftKings and FanDuel have faced regulatory scrutiny. Last year, the companies both found themselves in a legal battle with New York Attorney General Eric Schneiderman, who stated that the sites violated state gambling laws.
The suit was later overturned after legislation was passed stating that DFS is a legal activity, but further allegations over false and misleading marketing practices came back to bite both companies to the tune of $6 million.
New York wasn’t the only state putting up a fight against the companies, though. Legal battles in Virginia, Texas, Illinois, and Nevada kept both companies on their toes. Experts have said that the merger was one way to control costs and to create a unified effort towards legal defense and lobbying efforts. However, DraftKings CEO Jason Robins said the move was all about advancing forward.
“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,” he said.
Difficult deal to block
Regardless of the motive, the merger may prove to be something that the FTC has trouble stopping. Although regulators could point out that the deal threatens competition in the DFS marketplace, DraftKings and FanDuel have rolled out other products that put them in competition with a broader range of businesses.
Gaming and sports lawyer Daniel Wallach says that fact has helped the companies “buttress the contention that they’re not just simply in the space for daily fantasy sports.”
“From DraftKings and FanDuel’s perspective, the broader the marketplace, the better it [looks] for their proposed combination. The more persuasively they can make that case, the more likely they [are to] survive antitrust scrutiny,” he told Recode.
Another advantage that the companies have involves the current make-up of the FTC panel reviewing the deal. As it stands now, there is only one Republican and one Democrat serving on what is supposed to be a five-person panel. If they choose to split their vote on a decision to block the deal, then the resulting deadlock would allow the merger to proceed anyway.