Would FanDuel And DraftKings Truly Contemplate A Day by day Fantasy Sports activities Merger?

The concept that DraftKings and FanDuel may presumably merge sooner or later isn’t a brand new thought. Most lately, a narrative at Newsweek floated the concept that this can be a attainable path ahead — for the 2 daily fantasy sportsbook websites to change into one.

Whereas a merger could make sense on the floor from a sensible standpoint — there are additionally a number of the explanation why it could not.

Enterprise capital would possibly not have an interest

Enterprise capital drives the trains which might be DraftKings and FanDuel. And proper now these two trains nonetheless appear to be on completely different tracks.

Based on the newest subject of eGR North America, DraftKings accomplished a USD75 million Seres G spherical in January of this 12 months. FanDuel, whereas it hasn’t raised a publicly recognized spherical of funding since final summer time, could possibly be contemplating one other spherical as nicely.

If a merger have been to occur — sure, now can be a superb time to take action. However placing extra funding cash in separate firms would seem to imply that the buyers are nonetheless backing the horse that they initially picked.

All of that doesn’t imply that VC couldn’t approve of a merger down the highway, if it’s deemed obligatory for survival.

However if one aspect sees itself as being the eventual winner within the DFS business endgame, would it not conform to a merger? A merger would take each firms, and the cash behind them, to suppose they’d be higher off collectively than separate — one thing that is not a given for each FanDuel or DraftKings. It additionally leads to the logistical questions of a merger.

The logistics are difficult and should not make sense

If DraftKings and FanDuel have been to merge, what would that seem like? Would the 2 websites merge right into a single DFS platform, or would they proceed to function as considerably separate entities?

Each potentialities include potential issues. First off, a merger wouldn’t imply an enormous variety of new customers for the ensuing firm. A participant survey carried out final 12 months indicated that greater than 60% of DFS gamers are lively, paying prospects at each DraftKings and FanDuel already.

It’s additionally not a certainty — and even doubtless — that they’d merge right into a single web site.

DraftDuel or FanKings?

A single DFS platform would nearly actually not equate a one-to-one ratio of income being generated by DraftKings and FanDuel within the present atmosphere vis a vis a hypothetical post-merge atmosphere.

There would doubtless be some contraction of the market, as a part of what attracts customers is the variations between the 2 websites. Customers would doubtless not proceed spending like they’re now on the planet the place the new, hypothetical web site exists.

Each websites have an amazing quantity of brand name worth and consciousness at this level, so a single web site, underneath both the FanDuel or DraftKings banner, won’t make a lot sense.

A two-site DFS ‘community’?

Pooling liquidity underneath two completely different manufacturers may make sense, however there are points there, as nicely. Whereas the FanDuel and DraftKings platforms appear very related, visually, the know-how behind the 2 websites doubtless doesn’t essentially lend itself to a simple merge right into a single web site.

And, identical to the “single DFS web site” state of affairs, pooling liquidity would imply eliminating a few of the variations and nuances between the websites.

That leaves the potential of persevering with to run two standalone websites, however the fee related to that doubtless wouldn’t be justifiable.

Why the logistics make sense

Sure, there are logistical advantages to a merger, comparable to:

  • No duplicative efforts/spending on authorized or lobbying efforts.
  • Much less value for employees.
  • No combating over buyer acquisition by way of advertising and promoting.

Would all of that outweigh the issues above?

On the ultimate level, there has already been a “stop hearth” in attempting to outspend one another, after each websites spent enormous quantities of cash on TV and different promoting within the fall of final 12 months. Whether or not that continues when the 2016 NFL season begins stays to be seen.

Antitrust issues

Whereas one would possibly have the ability to make an argument {that a} merger would possibly work fiscally, it may probably deliver up authorized issues.

FanDuel and DraftKings, collectively, maintain in extra of 90% of the DFS market. A merger would create a close to monopoly of the business — Yahoo is a distant No. 3 by way of marketshare — and one that might be exceedingly tough for any firm to dislodge.

DFS authorized knowledgeable Marc Edelman — who additionally works on antitrust issues — stated he believes the Federal Commerce Fee or the Division of Justice can be extraordinarily more likely to problem a DraftKings-FanDuel merger underneath antitrust legislation.

“It is rather uncommon that the FTC or DOJ would enable the No. 1 and No. 2 gamers in a extremely concentrated business to merge with out additional investigation,” Edelman stated.

Edelman went onto say that the 2 firms — within the state of affairs of a hypothetical merger — must show {that a} merger wouldn’t considerably lower competitors within the DFS business.

Edelman stated that might be a excessive hurdle to clear, given the relationships FanDuel and DraftKings have already got in place with skilled sportsbook leagues and the barrier to entry being created for brand new operators in states like Indiana and Virginia.

Lastly, a merger would additionally open up a brand new authorized entrance — when sources are already being devoted to authorized and lobbying efforts throughout the nation. Edelman additionally puzzled if DraftKings and FanDuel would need the kind of paperwork that have to be submitted for an antitrust case to change into public data.

It’s not the primary time there was consolidation within the DFS business; DraftKings acquired DraftStreet in 2014. In fact, the variety of folks in authorities involved about DFS in 2014 was nearly nil in comparison with 2016, when much more cash is flowing by the highest two firms.

Might we see a DraftKings-FanDuel merger down the highway? It might be foolish to say “by no means.” However turning a DFS duopoly right into a single, large firm doesn’t seem like the most probably final result within the close to future.