Daily Fantasy Sports Giants DraftKings and FanDuel Are Discussing a Merger
DraftKings and FanDuel are in merger talks, according to Bloomberg News. The two largest daily fantasy sports companies have been in merger negotiations for some time, though both sides say the deal might fall apart.
At this point a year ago, both companies were valued at over $1 billion. Scottish-owned FanDuel and Boston-based DraftKings were locked in a competition for supremacy in the emerging daily fantasy sports industry. Each company was attracting investment dollars from significant companies like Comcast and NBC Sports, while the Disney Company was considering a $1 billion investment. Sports leagues and franchise were making sponsorship deals with the DFS companies.
Top Investors Calling for a Merger
At the moment, the list of FanDuel investors includes Time Warner Inc and KKR & Co. DraftKings includes Madison Square Garden Co. and the Kraft Group, owned by Robert Kraft of the New England Patriots. These financial entities appear to be backing the merger plans.
Sources close to the talks have told multiple media sources (Bloomberg, ESPN) that major investors have advised the two companies to merge in recent months. The reasons a merger makes sense are easy to understand: so many resources could be diverted to more necessary (legal) efforts.
Advertising Budgets Out of Control
Both companies offer nearly identical products and spend tremendous resources to advertise, hoping to claim the number one spot in the market. If a merger happened, the two companies could end the escalating war of commercials which has drained funds and has alienated some sports fans, due to their ever-present nature in televised sports broadcasts.
From January to August 2015, the two companies spent a combined $205 million in TV advertising. The companies also spent millions on on-location advertisements in sports arenas around the United States. The companies’ advertising budgets were so large that, over one 3-week period, they spent more than the combined beer industry spent on ads.
Pervasive Ads Alienated Viewers
What’s more, those advertisements were, in a larger sense, counterproductive. While they drove customers to the companies’ websites, they also drove non-customers wild with indignation. At the start of the 2015 NFL regular season, the ad campaigns were so out-of-control that late night comedians began including jibes at FanDuel and DraftKings in their opening monologues. Dislike of the DFS commercials had gone mainstream.
Not only would a merger allow the companies to cut the advertising budget in half, the lack of competition would allow the merged company to limit its advertising budget even more. Without the need to beat a major competitor, the companies could step out of the public spotlight somewhat, consolidate their gains, and focus on retrenchment.
Less Money for Legal and Political Efforts
Both companies also face similar legal troubles. After the Ethan Haskell Scandal broke in October 2015, long pent-up public disdain for DFS gaming erupted. Public officials in Nevada, New York, Florida, Illinois, Texas, and elsewhere pushed for official action.
Some proposed a ban on DFS gaming, like Eric Schneiderman in New York. Others proposed regulation as a form of gambling, while others proposed regulations without mentioning gambling at all. One US attorney in Tampa suggested opening a grand jury, while Preet Bharara in New York City suggested a probe.
If the companies merged, they could present a united front in the legal arena. A merged DFS entity also presumably would cut down on the legal bills, because the merged FanDuel-DraftKings company would only need one legal team.
Merger Might Not Happen
Those with sources behind the scenes emphasize that the merger might not happen. One person placed the odds at 50% to 60%, so a merger is still close to a 50/50 proposition, in some minds. Both sides have engaged in a multi-year rivalry, so it would be natural for egos to clash in this instance.
Also, both sides are thought to have roughly the same resources, so it is uncertain who would emerge as the leading figures in a merger: CEO Jason Robins of DraftKings or CEO Nigel Eccles of FanDuel.
Though they’ve had a public rivalry, both companies have acted in unison since the industry came under fire in the fall of 2015. While both pursue their own legal strategies and release (sometimes very different) public statements, they have coordinated their legal efforts. In a legal and political sense, they have become close allies, despite the struggle for dominance in the DFS industry.
How that might translate to a new, merged corporate structure is another matter entirely. After each man built a startup company into a billion-dollar corporation, it is hard to see either Robins or Eccles taking a secondary role. Thus, obstacles remain and questions must be answered, before the proposed merger happens. But from an outsider’s perspective, a merger makes a lot of sense.
