The proposed merger between daily fantasy sports operators DraftKings and FanDuel may be in serious danger as the US Federal Trade Commission (FTC) has reportedly expressed concerns over the effects the deal would have on competition in the field.
DraftKings and FanDuel combined dominate the US DFS contests market. It has been estimated that their merged entity will claim an 80% share of that particular market, which the FTC has found a reason enough to consider blocking the deal. Under US federal antitrust laws, a single company is prohibited from harming competition in a given field by creating monopoly power.
News about the two DFS operators, which had previously been long-standing nemeses, potentially merging their businesses first spread last November. Both DraftKings and FanDuel had avoided their consolidation for several years, but shareholders urged the deal as the best possible outcome.
The legalization of daily fantasy sports contests is a matter left to separate states to decide on. The provision of services of this type has been legalized in several states over the past few years and has been declared illegal in several other.
Determining whether DFS contests are a form of gambling or a skill-based activity has proved to be the biggest issue in the regulation of the industry. In states, where DFS activities are allowed, these are generally considered ones whose outcome is based on skill and not on pure chance.
Both DraftKings and FanDuel have spent millions of dollars on lobbying efforts and on advertising their products via different channels, including television. It has been estimated that the two companies combined spent $200 million on promoting their offering via TV commercials back in 2015. A merger of these two is expected to reduce marketing costs and other related expenditure significantly.
According to people with knowledge of the matter, FTC members are considering the possibility to recommend measures that would stop the deal. However, despite these recommendations, it will still be up to FTC sitting commissioners to determine whether the proposed merger will be given the nod.
Commissioners will have to vote on the proposal, but if its five members present split opinions, this would make it possible for DraftKings and FanDuel to proceed with their consolidation.
Reports about the potential failure of the merger deal come at a time when DraftKings is looking to expand its operation beyond the United States. Earlier this year, the company announced that it had obtained a license from the Malta Gaming Authority and would use it to launch its operations in Germany and later on in other European jurisdictions. The MGA created a special Skill Games licensing category last year for fantasy sports and related activities and DraftKings was among the first operators to opt for it.
