DraftKings and FanDuel End Merger Talks Under FTC Pressure

  • Long and costly legal battle was a factor, Draftkings CEO says
  • Filings show DraftKings has grown since initial agreement

Jason Robins, DraftKings chief executive officer, explains why the company is scrapping its merger with FanDuel. He speaks with Bloomberg's Scarlet Fu on 'Bloomberg Markets.' (Source: Bloomberg)

DraftKings and FanDuel are calling it quits.

The two leading daily fantasy sports companies agreed to end their plans to merge in the face of opposition by the Federal Trade Commission, DraftKings chief executive Jason Robins said Thursday.

The threat of a long and expensive legal battle was a factor, he said. He also noted that DraftKings is on firmer financial ground than it was when the merger was announced in November. The company has become the world’s leading daily fantasy sports site in recent months, according to legal filings. Robins also said the company’s revenue is up 40 percent compared with last year, and it is spending less on advertising.

Robins described the decision to end the merger as mutual. FanDuel CEO Nigel Eccles said in a statement, “We have determined that it is in the best interest of our shareholders, customers, employees, and partners to terminate the merger agreement and move forward as an independent company.”

The collapse of the merger talks is the latest twist in a roller-coaster ride for these two companies, which have come to define the daily fantasy sports industry. The online games existed in relative obscurity until 2015, when FanDuel and DraftKings used some of the hundreds of millions of investors’ dollars to wage a television advertising blitz.

The newfound exposure, plus a controversy over the basic integrity of the games, provoked a state-by-state battle over the legality of the games. The companies, which at one point were valued at more than $1 billion, were left in an increasingly tenuous position financially.

DraftKings and FanDuel said they’d merge last November, after months of speculation that such a deal was inevitable. The deal made sense to investors, given that the companies were spending heavily on lobbying and legal battles that could be handled more efficiently as a single entity. They could also reduce the money they spent on advertising in an ongoing competition for customers. But the relationship between the companies was always shaky.

DraftKings is in a stronger position than it was eight months ago, Robins said. “When we started talking to FanDuel it felt life-threatening,” he said of the legal uncertainty. “Now it feels like a cost of doing business.”

As a combined company, the two would have controlled more than 90 percent of the daily fantasy sports industry. It seemed like the key factor in whether the deal could pass regulatory muster was whether regulators believed that the competition included traditional fantasy sports and other forms of sport-related entertainment — including, perhaps, illegal gambling.

The FTC didn’t buy it andmoved to block the merger last month. DraftKings and FanDuel, which had repeatedly sparred over legal strategy, had to decide whether to fight the decision or move on separately. Some employees were relieved that they wouldn’t have to figure out how to combine forces with a bitter rival.

Robins said the two companies will continue to work together on legal and regulatory issues. But he also acknowledged that the prospect of combining two young companies with different cultures had always seemed daunting. “There is some sense of relief in not having to go down that path,” he said.

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