If Merger Of FanDuel And DraftKings Will get Held Up, It May Be Good Information For One Of Them

The proposed merger between daily fantasy sportsbook websites DraftKings and FanDuel has reportedly hit some uneven water.

Recode reported on Wednesday evening that the Federal Commerce Fee would possibly transfer to dam the tie-up introduced final yr on anti-trust grounds.

And whereas that might not be welcome information for some, it does arrange the potential for a winner-take-all state of affairs between the large two of the DFS world.

What we all know concerning the FTC, DraftKings and FanDuel

The Recode report was the primary tangible proof that the FTC may need an issue with the merger. The transaction would mix the 2 entities that management nearly all the DFS market:

Workers on the U.S. Federal Commerce Fee have raised critical competitors issues with the proposed merger of FanDuel and DraftKings, in response to three sources accustomed to the matter, elevating the specter that the federal government company might quickly block the deal.

Earlier than that report, issues had been largely quiet.

In Might, DraftKings CEO Jason Robins stated that the FTC evaluate was “going nicely.” Earlier, we discovered a few of what the FTC was asking in relation to the investigation.

What’s the anti-trust challenge?

The issue from an anti-trust standpoint is how one defines the market. If the FTC thinks it’s simply the slim world of DFS, DraftKings and FanDuel have an issue.

The 2 firms take up an estimated 90 to 95 p.c of all deal with and income within the trade. Whereas there are rivals within the area — like FantasyDraft, Yahoo DFS, Draft and Growth Fantasy — their marketshare pales compared to FanDuel and DraftKings.

As an apart, there’s additionally the argument that the merger may very well be good for the remainder of the trade, making a dynamic the place one of many aforementioned platforms might rise to a significant No. 2 within the area.

If not DFS, then what?

DraftKings and FanDuel are arguing that regulators ought to contemplate them part of the bigger fantasy sportsbook trade, by way of the FTC evaluate. That trade entails way more customers, and places them in a class with ESPN and Yahoo’s rather more broadly used season-long product, amongst others.

(The distinction is that these fantasy platforms don’t cost entry charges, and don’t rake the contests for his or her income. There are a number of comparatively area of interest season-long operators that work beneath principally the identical mannequin as DFS, processing entry charges and taking a minimize from every entry.)

Sports activities betting or gaming?

One might go even go a step additional and say DraftKings and FanDuel are a part of two different industries:

  • The bigger online casino/gaming trade, of which they might be a really small half.
  • The bigger sportsbook betting trade. Once more it could be a extra minor a part of that trade. The Nevada sportsbook betting trade alone handles extra money than the DFS trade as an entire.

It’s tougher to place the businesses in both of these baskets, nonetheless. They each insist that they don’t seem to be akin to playing and are video games of ability. They usually have lobbied — efficiently in lots of cases — to be labeled as such in states across the nation.

Each firms (and Yahoo) have obtained gaming licenses to function DFS contests within the UK.

The merger isn’t a magic bullet

Even earlier than the FTC issues popped up, we knew the merger wasn’t an on the spot cure-all for the 2 websites, neither of which is believed to worthwhile on their very own, but.

A narrative at Sports activities Enterprise Journal (paywall) illustrated that time:

In keeping with a merger doc despatched this yr to FanDuel buyers and obtained by SportsBusiness Journal, the corporate cited “quite a few challenges” related to the merger and integration of the 2 firms, and that “there will be no assure the mixed group will change into worthwhile sooner or later.”

Whereas this will likely come as a shock to some, it relays the fact of DFS proper now. (In fact, neither firm is valued due to present or near-term revenue.)

“The straightforward reality is that each firms have very burdensome commitments on the sponsorship facet, this mixed with the elevated prices of working in a regulated surroundings leaves no room for profitability given the present variety of gamers who play DFS,” Marc Brody, a gaming trade analyst and veteran who as soon as labored for DraftKings, advised Authorized Sports activities Report.

“If you happen to have a look at the NBA’s choice to accomplice with PlayON within the EU, and you may clearly see that even an fairness accomplice has misplaced religion within the duopoly’s capability to provide outcomes,” Brody continued.

So, if the merger doesn’t undergo…

It’s removed from a certainty that the merger received’t undergo. The Recode story outlines what must occur to ensure that the FTC to cease the merger; it’s not clear all these steps — and even the primary one — will occur.

However we all know this: DraftKings and FanDuel merged within the hopes that it could profit each firms — or a minimum of assist them survive in what has change into a tougher authorized and regulatory local weather up to now two years.

However a blocked merger raises the potential for what might have been the endgame, previous to the merger announcement: One of many two firms failing and the opposite firm happening to dominate the DFS market by itself.

Who’s higher (or worse) off?

Which firm would profit extra from — or be harm much less by — the merger not going by means of is unclear:

  • FanDuel, for a lot of DraftKings’ rise, was not reportedly not eager on a possible tie-up.
  • From what LSR can glean from customers, deal with and income on the two websites, DraftKings is clearly the chief of the 2 at this cut-off date.
  • The excellent liabilities and money positions of each websites are a variable we don’t have perception into, and would play a job through which web site would possibly survive over an extended horizon.
  • Fundraising would possible be tougher for both whereas each firms live on.

There’s vital overlap between the 2 websites, however in addition they every have a big base of customers which are distinctive to their platform. The potential disappearance of 1 web site could be a boon to the opposite.

That is all hypothesis, clearly. The merger would possibly undergo as deliberate, and we’ll see what a mixed DraftKings and FanDuel can do to aim to develop the trade as a mixed entity.

But when the merger doesn’t occur, all bets are off, and will probably be fascinating to see what occurs subsequent for DFS.