The two largest companies in daily fantasy sports finally got together last week after months of rumors. DraftKings and FanDuel, who together control over 90 percent of the DFS market, didn’t release much information on the deal or valuations, but the final results seem to be balanced.
The companies had been working on the deal for months but the exact numbers had been a sticking point. The final agreement was reportedly a 50-50 split. Another bone of contention was who would be the CEO of the combined company, DraftKings’ Jason Robins or FanDuel’s Nigel Eccles.
Robins won that showdown by remaining CEO but Eccles was named chairman. Each company would have three board seats and there would be one independent board member.
Robins said the deal was good for the customers of each company.
“We have always been passionate about providing the best possible experience for our customers and this merger will help advance our goal of building a transformational global sports entertainment platform,” he said in a statement. “Joining forces will allow us to truly realize the potential of our vision, and as a combined company we will be able to accelerate the pace of innovation and bring a richer experience to our customers than we ever could have done separately.”
For Eccles, he believes it will expand an already huge market.
“Being able to combine DraftKings and FanDuel presents a tremendous opportunity for us to further innovate and disrupt the sports industry,” he said. “While both companies have accomplished much already, this transaction will create a business that can offer a greater variety of offerings, appealing to new users, including the tens of millions of season-long fantasy players that haven’t yet tried our products.”
It’s unclear what the valuation of the newly formed company will be. At one point, each company was worth more than $1 billion, but the two companies have been hampered in recent years by states that barred DFS activity, calling it gambling.
The two companies have spent millions on attorneys and lobbyists to get the right to operate in the larger states. In October, they reached a deal with New York Attorney General Eric T. Schneiderman who alleged false advertising and “misleading” their customers. Each company kicked in $6 million each. DFS is now legal in New York after the state legislature passed a bill permitting the activity.
The merger will dramatically reduce the companies’ legal costs, and will streamline operations since both offer almost identical games. The largest remaining competitors to the two giants include ESPN DFS games and Yahoo! DraftKings has raised more than $650 million on the open market, and FanDuel has purchased ancillary businesses like analytics provider numberFire Inc. and Kotikan, an app developer based in Scotland. Investors in the company include Fox Sports, Major League Baseball, the National Hockey League, Google, Comcast, Time Warner and others.
The deal is subject to regulatory approval, which could be substantial because the two companies control so much of the market. But some have compared it to the merger of Sirius and XM Radio, the two satellite radio giants that merged in 2008 with little regulatory objection.
Also unclear is if the two brands will survive. The companies have not commented on this, but they will be a period of uncertainty as the merger becomes complete, and the liquidity of the two companies becomes more clear.
One thing is clear, according to the joint press release from the companies. Innovation will remain a crucial part of the future.
“The operational efficiencies and cost savings that are expected to result from the merger will drive a greater focus on developing new products and features, including more variety in contest formats, loyalty programs, enhanced social functionality and ancillary sports-oriented content and experiences, all aimed at creating a more diverse, exciting and appealing experience for fantasy sports players and all sports fans,” said the press release.
The American Gaming Association, which uses the term “DFS gambling,” cited the merger of the two companies as a reason to advance the legalization of sports betting.
“DraftKings and FanDuel have sped up the debate on legalizing sports betting by demonstrating its popularity and mainstream nature. Fans have a desire to be invested in games,” said AGA Senior Vice President Sara Rayme. “We’re building on the momentum created by DFS to remove the federal ban on sports betting.”
